Impact of Malpractice Reforms on the Supply of Physician Services

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Context Proponents of restrictions on malpractice lawsuits claim that tort reform will improve access to medical care.

Objective To estimate the effects of changes in state malpractice law on the supply of physicians.

Design Differences-in-differences regression analysis that matched data on the number of physicians in each state between 1985 and 2001 from the American Medical Association’s Physician Masterfile with data on state tort laws and state demographic, political, population, and health care market characteristics.

Main Outcome Measure Effect on physician supply of “direct” malpractice reforms that reduce the size of awards (eg, caps on damages).

Results The adoption of “direct” malpractice reforms led to greater growth in the overall supply of physicians. Three years after adoption, direct reforms increased physician supply by 3.3%, controlling for fixed differences across states, population, states’ health care market and political characteristics, and other differences in malpractice law. Direct reforms had a larger effect on the supply of nongroup vs group physicians, on the supply of most (but not all) specialties with high malpractice insurance premiums, on states with high levels of managed care, and on supply through retirements and entries than through the propensity of physicians to move between states. Direct reforms had similar effects on less experienced and more experienced physicians.

Conclusion Tort reform increased physician supply. Further research is needed to determine whether reform-induced increases in physician supply benefited patients.

Debates about medical malpractice have recurring themes, with tort reformers emphasizing the threat that liability crises pose to the cost and availability of medical services and tort defenders emphasizing the importance of liability to medical quality.1,2 Effects on access to health care are of particular concern during “malpractice crises,” when rising liability insurance premiums and uncertain coverage are said to induce physicians to avoid high-risk patients or procedures, relocate to other communities, or leave practice altogether. Even between such crises, however, malpractice climate remains one of many factors determining how many physicians enter the medical profession, what specialties they choose, and where they practice.3

We investigated whether and how liability pressure affects long-term trends in physician supply from state to state. We used data from the American Medical Association’s Physician MasterFile on the number of physicians in active practice in each state for each year from 1985 through 2001. We modeled the number of physicians in a state at a point in time as a function of state fixed effects, time fixed effects, time-varying state characteristics, and the presence or absence of certain malpractice reforms. We divided liability-reducing malpractice reforms into 2 types: reforms that directly reduce expected malpractice awards and reforms that reduce awards only indirectly. We estimated the simple average effect of liability-reducing reforms on physician supply. We also estimated how the effect of reforms varies over time, across different health care markets, and for different types of physicians.

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American Medical Association