Economics - General Public Policy Supply of Medical Services

Tort Reform and Birth Outcomes

Jason Shafrin

Many doctors claim that the medical malpractice system is broken and needs to be fixed. Doctors have high malpractice insurance premiums and often practice defensive medicine to protect themselves against lawsuits. To help alleviate this problem, many politicians have asked for some sort of tort reform. Tort reform can be generally categorized into 4 types of legal changes:

  1. Caps on noneconomic damages. Noneconomic damages cover items other than monetary losses, such as pain and suffering.
  2. Caps on punitive damages. Punitive damages are awarded in addition to compensatory (economic and noneconomic) damages in order to punish defendants for willful and wanton conduct.
  3. Modifications of collateral-source rule. Under the common-law collateral source rule (CSR), amounts that a plaintiff receives from sources other than the defendant (e.g., from his or her own insurance) may not be admitted as evidence in a trial.
  4. Modifications of the joint-and-several liability (JSL) rule. In a trial with more than one defendant, the first step is to apportion blame for the harm. Under JSL, the plaintiff can then ask the “deep pockets” defendant to pay all of the damages, even if that defendant was responsible for only a small fraction of the harm. Modifications to the JSL rule often hold that the “Deep pockets” defendant must be at least 50% liable for the harm in order to be held 100% responsible for the damages.

Which of these reforms are helpful? A paper by Currie and MacLeod (QJE 2008) aims to answer this question. The authors look at variation in tort laws across states between 1989 and 2001. They claim that malpractice laws put doctors more at risk for a lawsuit is a good thing because it will cause them to behave more carefully. When doctors fear expensive lawsuits or a blow to their reputation, they may behave with more caution. Thus, capping punitive and non-economic damages should decrease caution. On the other hand the JSL rule puts doctors more at risk. They will not be protected from a suit simply be associating with a deep pockets hospital.

Empirical Results

To test this, the authors look at the number of Caesarean sections performed and the rate of induction or stimulation of labor. C-sections are popular with doctors because they receive additional compensation compared to a “regular” birth. However, performing a C-section on a mother who does not need it exposes them to additional risks. The authors find that “JSL reform reduces C-sections and complications of labor and delivery…In contrast, caps on damages are found to increase procedure use, and hence costs. They also increase complications of labor and delivery in some specifications.”

For a robustness check, the authors look at C-section rates for high- and low-risk babies separately. The authors assume that doctors have less treatment discretion for high risk cases, and the results demonstrate that tort reform had less of an effect on procedure rates or outcomes for high risk cases.