Damage Caps and Defensive Medicine, Revisited
33 Pages Posted: 18 Jul 2012 Last revised: 20 Jan 2017
Date Written: November 8, 2016
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