Defensive Medicine Under Enterprise Insurance: Do Physicians Practice Defensive Medicine, and Can Enterprise Insurance Mitigate its Effect?

Abstract

Current tort reforms cap awards for non-economic damages or make it difficult for plaintiffs to prevail in court. One of the justifications for these reforms is the high cost of positive defensive medicine, defined as physicians ordering more services than a stylized optimal level of care in order to minimize legal risks. However, the extent – and even existence – of defensive medicine is the subject of intense debate. Using comprehensive claims data from Taiwan, this paper contributes to the literature by credibly establishing a causal link between increased malpractice liability and the practice of defensive medicine in obstetrics. Moreover, back-of-the-envelope calculations indicate that the cost of defensive medicine is small, or approximately 0.3% of total health spending in obstetrics. The results of my empirical investigation also suggest that various institutional and legal factors can enhance or mitigate the effect of defensive medicine. In particular, my paper provides empirical support that enterprise insurance, or malpractice insurance "purchased" at the enterprise rather than the individual physician level, can mitigate the practice of defensive medicine.

Keywords: Medical Malpractice, Defensive Medicine, Enterprise Insurance

JEL Classification: K13