Do Doctors Practice Defensive Medicine, Revisited

Does tort reform reduce defensive medicine and thus healthcare spending? Several (though not all) prior studies find a drop in spending following the adoption of caps on non-economic or total damages (“damage caps”), principally during the 1980s. We re-examine this issue in several ways. First, we study health care spending trends in the nine states that adopted caps during the “third reform wave,” from 2002-2005. Across a variety of difference-in-difference (DiD) methods, damage caps have no significant impact on Medicare Part A (hospital) spending, but lead to 4-5% higher Medicare Part B (physician) spending. Consistent with the DiD analysis, in county fixed effects regressions over 1998-2010, Part B spending is higher in states with lower med mal claim rates. We then revisit the 1980s caps, using stronger covariates. We find no evidence of a post-adoption drop (or rise) in spending for these caps. We conclude that (i) there is no evidence that damage caps reduce overall Medicare spending, and (ii) third-wave caps induce a gradual increase in Part B spending.