Damage Caps and Defensive Medicine, Revisited

Does tort reform reduce defensive medicine and thus healthcare spending? Several (though not all) prior studies, using a difference-in-differences (DiD) approach, find lower Medicare spending for hospital care after states adopt caps on non-economic or total damages (“damage caps”), during the “second” reform wave of the mid-1980s. We re-examine this issue in several ways. We study the nine states that adopted caps during the “third reform wave,” from 2002-2005. We find that damage caps have no significant impact on Medicare Part A spending, but predict roughly 4% higher Medicare Part B spending. We then revisit the 1980s caps, and find no evidence of a post-adoption drop (or rise) in spending for these caps.

The online appendix can be found at http://ssrn.com/abstract=2830255.

Keywords: medical malpractice, tort reform, defensive medicine, Medicare, healthcare spending

JEL Classification: I11, I18, K23, K32

Suggested Citation: Suggested Citation

Paik, Myungho and Black, Bernard S. and Hyman, David A., Damage Caps and Defensive Medicine, Revisited (November 8, 2016). Journal of Health Economics, 2017, vol. 51, pp. 84-97, Northwestern Law & Econ Research Paper No. 13-20, Illinois Program in Law, Behavior and Social Science Paper No. LBSS14-21, Available at SSRN: https://ssrn.com/abstract=2110656 or http://dx.doi.org/10.2139/ssrn.2110656