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This paper evaluates the impact of malpractice reforms on average malpractice payment
awards, frequency of malpractice claims, and malpractice premiums for internists,
surgeons, and OB/GYNs. We also empirically test the physician-induced demand (PID)
hypothesis in the context of the medical malpractice environment. Our results suggest
that caps on noneconomic damages and total damages as well as patient compensation
funds are successful in reducing average payments, while damage caps and collateral
source rule reform were found to lower malpractice claim incidence. When grouping
claims by severity level, we find that noneconomic damage caps and patient compensation
funds are more effective at reducing average payment with increasing severity level,
while total damage caps induce the greatest reductions in payments for cases of medium
severity. Also, noneconomic damage caps were found to only significantly decrease
the incidence of medium severity claims. Implementation of total damage caps as well
as modification of joint-and-several liability were associated with lower malpractice
premiums for all specialists. Finally, we evaluate the notion of ‘defensive medicine’
by studying whether higher malpractice premiums result in greater Medicare payments.
Increases of $10,000 in OB/GYN premiums are estimated to result in a 0.82% rise in
total spending. Of the reforms studied, modification of joint-and-several liability
had the most significant and consistent effects in reducing Medicare reimbursements
for all categories of spending analyzed, and total damage caps was also estimated
to effectively slowing the growth of spending in specifications without premiums.
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