Medical Liability, Managed Care, and Defensive Medicine

35 Pages Posted: 22 Aug 2000

See all articles by Daniel P. Kessler

Daniel P. Kessler

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Mark B. McClellan

Brookings Institution; Council of Economic Advisors; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2000

Abstract

Because the optimal level of medical malpractice liability depends on the incentives provided by the health insurance system, the rise of managed care in the 1990s may affect the relationship between liability reform and defensive medicine. In this paper, we assess empirically the extent to which managed care and liability reform interact to affect the cost of care and health outcomes of elderly Medicare beneficiaries with cardiac illness. Malpractice reforms that directly reduce liability pressure - such as caps on damages - reduce defensive practices both in areas with low and with high levels of managed care enrollment. In addition, managed care and direct reforms do not have long-run interaction effects that are harmful to patient health. However, at least for patients with less severe cardiac illness, managed care and direct reforms are substitutes, so the reduction in defensive practices that can be achieved with direct reforms is smaller in areas with high managed care enrollment. We consider some implications of these results for the current debate over the appropriateness of extending malpractice liability to managed care organizations.

JEL Classification: K32

Suggested Citation

Kessler, Daniel Philip and McClellan, Mark B., Medical Liability, Managed Care, and Defensive Medicine (February 2000). Stanford Law and Economics Olin Working Paper No. 191. Available at SSRN: https://ssrn.com/abstract=234853 or http://dx.doi.org/10.2139/ssrn.234853

Daniel Philip Kessler (Contact Author)

Stanford Graduate School of Business ( email )

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Mark B. McClellan

Brookings Institution ( email )

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Council of Economic Advisors ( email )

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