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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.

H.R. 5 passes the House on a largely partisan vote. Since the bill will die in the Senate, and would not have survived an inevitable Obama veto, it's hard to imagine why people have been so worked up about it. [Overlawyered; House Rules Committee]

Case in point: Patricia Moore of the Civ Procedure Prof Blog and St. Thomas Law School, not only has to use scare quotes in discussing tort reform, but makes the astonishing claim "And if you keep repeating over and over that damages caps lower malpractice premiums, maybe it will someday be true despite all empirical evidence to the contrary." Moore is entitled to her own opinion, but not to her own facts. It's unquestionable that damages caps reduce malpractice premiums. It's beyond silly to claim otherwise: If caps don't reduce the amount insurers pay out for malpractice, why does the litigation lobby spend so much time and money opposing them?

I've questioned the utility of federalizing medical malpractice: if Republicans want to claim that PPACA is unconstitutional, it makes sense to leave medical malpractice, a local market and a local issue unlike the national problem of product liability, to the states. If Pennsylvania wants to drive all of its doctors to Texas because it would rather make its lawyers rich, that's what competitive federalism is all about. (In contrast, if West Virginia wants to expropriate the gains of interstate commerce through product liability laws that punish out-of-state defendants, Congress and the courts should be stepping in: such state abuse is exactly why we don't have an Articles of Confederation any more.) Rep. Broun proposed an unsuccessful amendment to the bill that would have adopted one of my suggestions: reduce federal expenditures by creating caps on medical procedures reimbursed with federal money, limiting the bill that way.

Reversing the mistake of Wyeth v. Levine would have far more beneficial effects on medical expenses and the economy, and be more consistent with federalism, even correcting a federalism mistake of the Supreme Court. But that probably wouldn't pass the Senate, either.

The trial-lawyer funded "Center for Constitutional Litigation" challenged the power of the Texas legislature to create malpractice limits to prevent runaway juries under the Seventh, Fifth, Fourteenth, and First Amendments. No dice, said a magistrate judge in Marshall, Texas. [Legal Newsline; TLR]

Next week, the Supreme Court will be holding extended oral arguments on the constitutionality of the landmark 2010 health-care reform law, the Patient Protection and Affordable Care Act, known popularly--at least among the law's critics--as Obamacare. Beginning on Tuesday, Point of Law will be hosting an exceptional panel of legal scholars and analysts, across the political spectrum, to discuss the oral arguments and the rationales for and against the law's constitutionality:

• Erwin Chemerinsky, University of California, Irvine School of Law


• Richard Epstein, New York University Law School


• Orin Kerr, George Washington Law School


• Gillian Metzger, Columbia University Law School


• Michael Rosman, General Counsel of the Center for Individual Rights


• Nadine Strossen, New York Law School, formerly president of the American Civil Liberties Union

HR 5, federal regulation of medical malpractice litigation, represents good public policy that would reduce abusive lawsuits and improve health outcomes. But since it would transfer wealth away from lawyers to patients and doctors, the litigation lobby has actively opposed it, and quoted me out of context in that regard. One would certainly prefer that HR 5 be tweaked to unambiguously comply with a vision of the Commerce Clause consistent with, say, the Randy Barnett view. It would be painless to do so. For example, one could structure the legislation to withhold 25% of Medicare funds from states that fail to meet certain medical malpractice litigation standards, rather than federalizing what is (unlike, say, product liability or consumer class actions) largely a local issue: the end result would be even better than this bill. And states that have already implemented reform might be legitimately offended that the benefits of their foresight will be blunted when Congress shunts competing states along; one solution to that might be to limit the reforms to patients who use federally-subsidized medicine, such as Medicare, Medicaid, or PPACA exchanges. But given trial lawyer support for an administration that has propounded PPACA, the trial lawyer opposition to this bill on Commerce Clause grounds is totally disingenuous. Let's see the trial bar lobby for repeal of PPACA, and then they can legitimately complain about HR 5's federalism issues. (Of course, as a political matter, this is largely counting angels on the heads of pins: Harry Reid will never permit this to come to a vote in the Senate, and even if it passed the Senate, Barack Obama would veto this on behalf of his trial-lawyer friends.)

Svorny says "Farber and White's evaluation of the tort system suggests it is well-situated to make judgment calls."

Svorny looks at the Farber-White study and sees a medical malpractice system that's working. I look at that exact same study, and see a world where medical malpractice law are so vague and indeterminate that in over 30% of the cases, internal experts hired by the defendant can't consistently determine whether legally-actionable malpractice has occurred; a regression model with the advantage of hindsight predicts only 40% of variation of settlement amounts even with the artificial kluge of regressing on a logarithm to depress variance; and the majority of malpractice cases brought are not good cases. That's aside from the fact that Farber-White had such a small sample that it didn't even include a single jury verdict for plaintiffs, much less one of the uncapped multi-million-dollar variety that can be so distorting. That level of randomness and indeterminacy demonstrated by Farber-White is not at all inconsistent with anything I've said, since, once again, I'm not claiming that the malpractice system is as random as a coin toss, just that it is sufficiently haphazard that the system does more harm than good at the margin.

I'd encourage everyone who hasn't done so to read in full my exchange with Cato adjunct scholar Shirley Svorny discussing her recent policy analysis, Could Mandatory Caps on Medical Malpractice Damages Harm Consumers?

In her final comment, Svorny says "[w]hether the costs of the [medical-malpractice tort] system are greater than the benefits is not something we have a handle on." But that is the wrong question, since no one is feasibly advocating eliminating medical malpractice liability altogether: the policy question, as any economist should know, is whether the marginal costs of the system exceed the benefits. If so, then reforms at the margin that reduce liability will have benefits exceeding the costs. As I explained in my contributions to the debate, I believe that such marginal cost-benefit improvements do in fact flow from medical malpractice caps for noneconomic damages: such caps reduce inaccuracy of the system, reduce the incentive to bring low-merit cases, and send a better signal to doctors about the relative likelihood of being sued for malpractice versus being sued for malpractice wrongfully. (Thus, Svorny misstates my position when she says "Frank is convinced that the costs of the current system outweigh the benefits"; I am only claiming that this is the case at the margin.)

But Svorny's concession that she doesn't know even as an absolute matter whether the benefits of liability in toto exceed the costs is really extraordinary. In this debate, she says she cannot opine whether we would be better off if we abolished malpractice liability altogether. But abolishing medical malpractice altogether is a cap of zero, a far more radical cap than the one she condemns in her paper and in the Huffington Post, where she made widely-repeated claims that non-economic damage caps for medical malpractice cases were a bad idea. In this exchange, she has effectively acknowledged she has no basis for that unequivocal policy prescription that has headlined the discussion of her paper. I hope Cato prints a retraction, given that without it, that paper's non sequitur conclusion is destined to be misused to distort the debate for years to come.

Last week, PointofLaw launched a featured discussion with MI adjunct fellow and PoL editor, Ted Frank and Shirley Svorny, professor of economics at California State University, Northridge and adjunct scholar with the Cato Institute. Central to this discussion was a study authored by Professor Svorny claiming that existing empirical evidence suggests that "medical malpractice awards do track actual damages" and that noneconomic damage caps and other "policies that reduce liability or shield physicians from oversight by carriers may harm consumers."

Ted Frank articulated his dissent in the first comment of the discussion stating, "Shirley Svorny's paper for Cato arguing that caps on medical malpractice damages hurt consumers got a lot of attention. I found the paper very disappointing, however: it cherry-picked studies and ignored real-world practices by largely assuming away the problem. As such, it was not just contrarian, but counterproductive."

Throughout what manifested itself into a six-day debate, Ted made very compelling arguments to support his opposing viewpoint, for example:

Closer to home, Professor Svorny's students are not allowed to sue her for any alleged educational malpractice, another cap of zero. I trust that Svorny's lack of incentives created by liability do not reduce her efforts in teaching, even though she does not have an educational malpractice insurer charging her a quarter of her salary to work with her to minimize the risk of a student not being taught properly. How much more would Svorny demand in pay to keep teaching if she were exposed to potential liability, even if she believed the system was 100% rational and had no risk of haphazard false positives? (Even if the system never fails, Svorny would face real insurance costs, assuming she's not a perfect teacher. And note that even meritless claims properly dismissed by the courts would be costly to insure, because under the American system the winner of a lawsuit does not recover costs from the loser.) How many fewer students would take Svorny's classes because they couldn't afford to pay that marginal increase in cost? Would that be a social cost militating against liability for educational malpractice or not? Why is it inappropriate to apply the same analysis to doctors?

Professor Svorny then responded:

There are real benefits to liability that cannot be swept under the rug by laws that limit liability. Just because my students cannot sue me for educational malpractice, it does not mean it does not exist and that students are not harmed. If students could sue their professors, the outcome would probably be a lot like that for medical malpractice, but even fewer cases would move forward as educational malpractice would likely be harder to prove than medical malpractice. But, in a liability regime, education would be more expensive, many professors would take greater care in preparing their courses, and the most egregious teachers would be out of a job.

This debate was one of the most lively featured discussions we've hosted on PoL and we are very interested in your feedback.

Who do you think had the better argument and why? Please send your feedback and commentary via Twitter, #PoLdiscussion.

On Wednesday, the U.S. Supreme Court heard arguments in the case Mayo Collaborative Services v. Prometheus Laboratories, Inc. on whether "the correlation between blood test results and patient health is patentable." Prometheus Laboratories argues that it should have been allowed to "patent instructions for observing changes in a patient's body to set drug dosages."

Featured on our sister blog Medical Progress Today, Alex Tabarrok, Bartley J. Madden Chair in Economics at the Mercatus Center at George Mason University and director of research for The Independent Institute, explores the problems posed by medical patents.

Tabarrok writes:

Most importantly, patents can reduce innovation and are especially likely to do so in fields where innovations build on innovations. In fields of cumulative innovation, previous patents owners become veto players who can threaten to holdup the new innovation unless they are granted a share of the proceeds. In theory, bargaining can result in an efficient outcome. In practice, it means lawsuits, delay, waste and reduced innovation.

Since a smartphone may rely on many thousands of previous patents, the smartphone industry has heretofore been considered a classic case of how too many veto players can impede innovation. But now consider human metabolism, one of the most complicated systems known to man (just a tiny fraction of that system is shown at right), and note that if Prometheus is successful in this lawsuit that any correlation in that system can be patented. This is a recipe for disaster.

On October 20, our friends at the Cato Institute published a study by Cato adjunct scholar Shirley Svorny claiming that existing empirical evidence suggests that "medical malpractice awards do track actual damages" and that noneconomic damage caps and other "policies that reduce liability or shield physicians from oversight by carriers may harm consumers." An economics professor at California State University, Northridge, Svorny has since publicized her findings in outlets such as the Huffington Post, in which she not only argued against the medical-malpractice reform provision of the Jobs Through Growth Act but also suggested that "[r]educing liability, as caps do, is rarely a good idea in any situation."

Needless to say, Svorny's position is at odds with that we've generally taken here at Point of Law (see back posts here), including our former editor, Svorny's Cato colleague Walter Olson (see, e.g., here, here, here, here). (See also this seminal contribution by MI visiting scholar Richard Epstein and this Manhattan Institute study by libertarian economist Alex Tabarrok.)

This week, Professor Svorny has graciously agreed to come to Point of Law to discuss her paper with MI adjunct fellow and PoL editor Ted Frank. The featured discussion will be available here; please check back throughout the week as the discussion continues.

Join the debate! Please send your questions and commentary via Twitter, #PoLdiscussion.