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Post-tort-reform Texas doctor supply

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Black/Hyman/Silver have a new draft paper, "Does Tort Reform Affect Physician Supply? Evidence from Texas," (via Robinette) that substantially undermines the empirical case for the conventional wisdom that Texas's 2003 reforms against medical malpractice lawsuits attracted more doctors to Texas. The result is highly counterintuitive: after all, even the authors acknowledge that the reforms dramatically decreased malpractice expenses for doctors. Are we to conclude that doctors do not respond to economic incentives?

Alas, the authors do not suggest any explanation for the phenomenon they describe. Possibilities:

  • The supply of doctors is inelastic relative to after-expense income. This is a testable hypothesis, and would have dramatic implications for "bending the cost curve" of health-care expenditures if true.
  • Employers of doctors offset the decrease in medical-malpractice expenditures by decreasing wages paid to doctors. This seems somewhat implausible, as many doctors are independent, and the ones that aren't probably aren't paying for their own malpractice insurance. But it is also a testable hypothesis. Too, if the health-care market in Texas responded to such a wage decrease by reducing costs to patients (or, at least, reducing costs to patients relative to the nationwide trend of rising costs to patients), that is also worth studying, and would be a benefit that may refute the overstated conclusion of the authors that "tort reform is a small idea, when it comes to the larger and linked questions of health care access and affordability."
  • The quantity of doctors did not increase, but the doctors responded to the incentives by changing the mix and quality of services provided in any given year: more OB/GYNs willing to deliver babies rather than restricting themselves to less risky work; more doctors willing to work in emergency rooms; doctors spending more time seeing patients and less time in medical-malpractice-related activities like defending themselves in lawsuits, cover-your-ass documentation, and (for better or worse) defensive medicine. If the average practicing doctor is spending more hours with patients post-tort-reform than pre-tort-reform, doctor supply is increasing, even if the raw numbers aren't. I am not aware of any evidence for this, but economic theory would predict this result. It's not clear whether the data exists to test this hypothesis, but as in the parable of the drunk looking for his lost keys under the streetlamp, one should avoid drawing conclusions that contradict economic theory just because it is too difficult to test an alternative hypothesis consistent with economic theory. Too, if defensive medicine practices changed, as one predicts they would, have health outcomes changed for better or worse? (Professor Silver has argued elsewhere his concern that Texas doctors would take less care post-reform.) Again, this is difficult to test, especially since the adverse consequences of many defensive-medicine decisions, such as excessive CAT scans, won't be known until the additional cancers show up decades later. But it is both a potential benefit and a potential cost of tort reform, as we don't know to what extent doctors are properly weighing benefits and costs (including opportunity costs of more intensive treatment of a particular patient) at the margin. Kessler's study, backed to a lesser extent by the CBO, certainly suggests defensive medicine is wasted money at the margin in the state of the world without damages caps, but defensive medicine is surely different today than in the 1980s.
  • For many doctors with low-risk practices, malpractice liability is not a large factor in their practice decision. But the malpractice liability crisis most heavily hit high-risk practices, like neurosurgery or OB/GYN or emergency-room care. Did Texas tort reform materially affect the supply of doctors in high-risk specialties, while the effect on low-risk specialties was overwhelmed by noise? This should be a testable hypothesis, but the data is poor because of a change in the way statistics were collected. The authors try to get around this by comparing 1997-2000 growth to 2008-2010 growth, but there's not necessarily a reason that one would predict a post-tort reform world to have a different post-equilibrium effect than a pre-tort reform world. One cannot rule out the hypothesis that doctors overreacted to the new incentive when tort reform was first imposed and that depressed new demand in later years. Of course, one cannot rule out the null hypothesis that a dramatic decrease in malpractice-insurance rates caused by tort reform did not increase the supply of high-risk doctors, though, again, one wishes for an alternative explanation for why doctors are not responding to economic incentives. (Note, too, that the authors' decision of excluding 2001-07 from the data has dramatic effects on the data. It's unclear to me why a reporting change in 2001 that would artificially increase the 2001-02 numbers relative to the 1999-2000 numbers should have an effect on the 2003-07 numbers, especially given the 2000-2003 declines that are being excluded.)

Can anyone think of other alternative hypotheses in the comments?

I remain skeptical that a wealth transfer from lawyers to doctors and patients didn't have positive externalities, but I, for one, am going to stop claiming that Texas tort reform increased doctor supply without better data demonstrating that. More study is needed to explain Black/Hyman/Silver's counterintuitive result, and partisans on both sides need to be more conservative with their policy claims. Earlier.

6 Comments

In 2004, Texas experienced the greatest single year decline in direct patient care physicians per capita in twenty years. The Texas Department of State Health Services collects direct patient care data once a year. The 2004 number is essentially a snap shot of what was taking place in 2003, the year medical lawsuit reforms were passed in Texas. In the summer of 2002 some 6,500 Texas physicians were non-renewed by their liability carrier. By 2004, a year after reform, that number had climbed to 9,100 non-renewed. The notion that DPC physicians grew unabated both before and after reform is not true.

This is a well thought out post.

You have left out two important parties in the wealth transfer. It is not just doctors and lawyers. It is doctor/insurance companies and innocent victims of malpractice/lawyers.

Speaking of positive externalities, the fact that some of the worst doctors can no longer practice medicine has to be included in the calculus.

Proud to say I got an early jump on Silver/Hyman/Black in the piece I did for The Economist here:

http://www.economist.com/node/21541423

Lawsuit filings and awards are indeed down. Perhaps there will just be a longish time-delay in any elasticity of supply.

The economics of medicine are controlled by large hospitals and clinics as well as insurance companies. There probably isn't much opportunity to establish a solo practice in Texas, or any other state. This would be the result of aggressive peer review which eliminates solo and small group practitioners.

So far as I can tell, medical costs in Texas remain among the highest in the nation. Probably the most important factor in the decrease in Texas medical malpractice lawsuit filings has been a severe restriction of who can testify as an expert in deposition and trial. This is probably more effective in limiting lawsuits than damage caps.

Salaries for doctors comprise about 10% of total heath care expenditures. Since the employment market is controlled by large hospital chains which are in complex contractual relations with large insurance companies and the federal and state government, we are not dealing with a free market economic system. Once again, this is the consequence of peer review which gives free reign to the large entities to eliminate competition.

This post is featured and linked in a discussion concerning Texas Tort Reform on the Medscape/WebMD blog "The Verdict Is In" posted on 9/11/12.

http://boards.medscape.com/forums?128@@.2a34ce3c!comment=1

Believing that doctors will move to a state because of liability issues seems like wishful thinking. It might be a small factor, but people move to take jobs and in states for a myriad of reasons -- salary and benefits, family, access to good schools, community activities and other entertainment and environmental benefits. How does Texas rank in those arenas? In addition, Texas has one of the highest rates of residents without health insurance, which would be a big impediment to getting paid.

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Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

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