Thursday, September 1, 2005

Malpractice Reforms Increase the Supply of Physicians

STANFORD GRADUATE SCHOOL OF BUSINESS—States that adopted malpractice law reforms such as caps on noneconomic damages experienced an increase in physician supply, according to recent research.

Daniel Kessler, professor of economics, law, and policy at Stanford Business School and senior fellow at the Hoover Institution; William Sage of Columbia Law School; and David Becker of the University of Alabama at Birmingham analyzed data on the number of physicians by state and year, matched with data on health care markets and state tort law reforms.

When states adopted reforms that reduced malpractice liability, the researchers showed that within three years of the change, the overall supply of doctors increased 3.3 percent. This is roughly equivalent to the supply increase that would result from increasing physicians' earnings by 11 percent.

Contrary to popular belief, the difference in supply came mostly from older doctors putting off retirement in reform states and new physicians entering practice there, not from physicians moving between states to reduce their insurance premiums, the study said. According to the researchers, this finding shows that the effects of malpractice reforms will persist, at least to some degree, even if all states adopt them.

The researchers found that malpractice reforms affect markets for physician services beyond simply increasing supply. Reform states experienced greater increases in physicians practicing certain "high-risk" specialties, such as emergency medicine, anesthesiology, and radiology. In addition, malpractice reform slowed the trend toward physicians joining group practices.

The researchers cautioned, however, that their study did not assess the impact of reform-induced supply increases on cost, quality, or access. For example, although reform-induced expansions in supply could lead to lower health care costs by enhancing competition, some health policy experts believe that additional physicians might induce demand for their own services beyond the point at which they are medically necessary.

Related Information

Impact of Malpractice Reforms on the Supply of Physician Services
Daniel P. Kessler, William M. Sage, and David J. Becker
Journal of the American Medical Association, June 1, 2005