How does malpractice reform affect physician migration?

by The Incidental Economist on July 21, 2014 · 1 comment

When tort reform comes up in discussions of health policy, it’s almost always pitched as a way to reduce health care spending in general. I’ve written extensively on how this seems very unlikely, given what we know from data and evidence. Changing physician behavior is hard, and the threat of lawsuits is not the only motivator in how physicians order tests or do procedures.

That said, there are many other questions. Such as how might malpractice reform change the supply of physicians? And would it be more likely to move high or low quality physicians? A recent study published in the Journal of Law and Economics is on point:

Malpractice reforms tend to reduce physicians’ liability for harming patients. Because these reforms are passed at the state level, the costs of harming patients vary widely by geographic location. In this paper, I test whether malpractice reforms affect where physicians choose to practice and whether physicians who relocate in response to reforms are particularly prone to commit malpractice. Because a state’s own reforms cannot separately distinguish moral hazard from adverse selection, and because those reforms are likely to have direct effects on measures of malpractice via the legal market, I focus attention on neighboring states’ reforms.

This study looked at how reforms passed in adjacent states affected physician movement, since it’s much easier to move from one state to another right across a border. The analysis got down to the county level to look at ease of moving when a neighboring state passed a law making malpractice lawsuits harder.

The first analysis looked at whether doctors relocated their practices after a nearby state changed its malpractice laws. The second analysis examined the how changes to nearby states’ malpractice laws changed the local rates for malpractice insurance. The authors felt that this was a decent proxy for detecting whether doctors who remained or moved were more or less likely to have been sued in the future.

The first analysis found that physician migration was related to nearby changes to malpractice laws. The study found that the supply of doctors decreased about 4.4% when a neighboring state passed tort reform with caps on non-economic damages. It appears that physicians are more likely to practice in states with reforms than states without.

The second analysis was also interesting. If a state passing malpractice reform caused the malpractice rates in neighboring areas to go up, that would imply that higher risk doctors remained, and lower risk doctors left the area. If rates went down in neighboring areas, then it would imply that it was the high risk doctors who moved.

The latter was seen. When states passed tort reform with caps on non-economic damages, malpractice rates in neighboring areas dropped 4.5%. Moreover, the sensitivity analyses showed that it’s unlikely that this is the result of certain specialties moving. It seems that physicians who are more likely to commit malpractice are the ones most likely to move.

Now, I admit that it’s hard to know what the actual damages and risks are here. Malpractice is still very uncommon, and these changes aren’t huge. But when policymakers argue that passing tort reform will increase the physician supply, they should know both the magnitude of that difference, and the quality of the physicians they might attract. This study gives us a little more information on both those questions.