The deterrent effect of tort law: Evidence from medical malpractice reform

We examine whether caps on noneconomic damages in medical malpractice cases affect in-hospital patient safety. We use Patient Safety Indicators – measures of adverse events – as proxies for safety. In difference-in-differences (“DiD”) analyses of five states that adopt caps during 2003–2005, we find that multiple measures of non-fatal patient safety events worsen after cap adoption relative to control states. DiD inference can be unreliable with a small number of treated units. We therefore develop a randomization inference-based test for inference with few treated units but multiple correlated outcomes and confirm the robustness of our results with this nonparametric approach. We also provide evidence that the decline in patient safety is unlikely to be driven by patient selection.