Does Malpractice Liability Keep the Doctor Away? Evidence from Tort Reform Damage Caps

Abstract

Many U.S. states limit awards for non-economic damages in malpractice cases. Proponents often argue that such tort reform increases physician supply and access to care. However, the degree to which marginal changes in malpractice liability affect physician supply is theoretically ambiguous. If patients bear the full incidence of cost changes and market demand is inelastic, then tort reform will not affect physicians' net income or location decisions. I use county-level, specialty-specific annual counts of physicians from 1970 to 2000 to estimate the effect of damage caps on physician supply. The results suggest that caps do not affect physician supply for the average resident of states adopting reforms. On the other hand, caps appear to increase the supply of frontier rural, specialist physicians by 10-12 percent. This is likely because rural doctors face greater uninsured litigation costs and a more elastic demand for medical services.

Keywords: malpractice, tort reform, damage caps, physician supply, rural medicine

JEL Classification: I11, I18, J44, K13, L84, R38