Damage Caps and Defensive Medicine: Reexamination with Patient Level Data

Abstract

Appendix is available at: https://ssrn.com/abstract=2845391

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 damages (“damage caps”), during the “second” reform wave of the mid-1980s. One recent paper finds higher Part B Medicare spending following “third wave” caps adopted in the 2000s, but has only aggregate county-level spending data. We re-examine this issue using patient-level data. We find, with patient and zip code fixed effects and extensive patient level covariates that cardiac testing rates and cardiac interventions (catheterization, stenting, and bypass surgery). don’t change after damage cap adoptions; not much happens to Medicare part A and part B spending, and if anything, total Medicare spending rises.

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

JEL Classification: I11, I18, K23, K32