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Post-reform doctor supply in Texas

Professor Charles Silver argues, using a single time series, that the successful constitutional referendum for medical malpractice liability reforms in Texas did not increase the supply of doctors, even though license applications are up substantially. I note a non sequitur as well as a misleading conclusion:

Professor Silver: You acknowledge that, under reform, doctors come out ahead. (This is appreciated: there are numerous dishonest/disingenuous opponents of reform, including several who write on this website, who argue nonsensically that malpractice insurance rates are unrelated to the expense of providing malpractice insurance. We are to believe, under these arguments, that the doctors who run nonprofit mutual insurance companies are conspiring to charge themselves too much money.) Under normal laws of supply and demand, ceteris paribus, the increased financial incentives will increase the supply of doctors.

Of course, ceteris isn't paribus: when one goes to measure this, there are confounding variables; one can't simply plot a single variable with fifteen data points, and claim that this demonstrates anything. (It's perhaps too much to expect a lobbyist group's talking points to be this nuanced, but, you and I, as academics, surely aspire to more than simply creating competing talking points.) For example, during the crisis period, as the number of doctors went up in Texas, it went up in the rest of the United States as well. In fact, the number of doctors went up in the rest of the United States faster than it went up in Texas, even as the population of Texas went up faster than it did in the rest of the United States. One thus needs to control for these confounding variables.

Numerous studies have shown, that when other variables are controlled for, noneconomic damages caps do increase the supply of doctors. (Klick and Stratmann (2005); Kessler, Sage, and Becker (2005); Matsa (2005); Dranove and Gron (2005); Dubay, Kaestner, and
Waidmann (2001); Mello et al (2005); Klick and Stratmann (2007 forthcoming)). The effect is especially pronounced when one observes "high risk" professions such as ob-gyn, emergency medicine, and neurology; doctors in low-risk fields such as dermatology are obviously going to care less about the malpractice regime they practice in, and including doctors relatively unaffected by a liability regime in the mix of data only dampens the real effects. And a single time-series for a single state, as you would surely admit, does not show otherwise.

What your additional data shows, however, is not that liability reform did not create additional willingness for doctors to practice in Texas, but that confounding factors, such as excessive regulation, are preventing the market from reaching its equilibrium point as quickly as it would otherwise. That's not an argument against reform, that's an argument for a better regulatory regime irrelevant to the liability process. In other words, the Texas doctors' groups you cite are guilty of a non sequitur and failing to address another problem in the medical regulatory regime, but the thrust of their comments regarding the effects of liability reform are both correct and consistent with your own acknowledgement that doctors' lots are improved by reform.

I didn't note this earlier, but it's rather misleading to claim that the public choice scenario behind malpractice reform is "wealthy and concentrated interest groups use the political process to advantage, at the expense of groups whose members are anonymous and dispersed." You're surely well aware (from, if nothing else, being a personal beneficiary from pronouncing on the ethics of its lead practitioners) that the organized trial bar is about as wealthy and concentrated an interest group as there is, and that interest group has spent millions calling in chips to block reforms that a majority of the U.S. House of Representatives and Senate supported, and had considerable success blocking reforms in Texas through obstruction in one or more of the three branches of government before the referendum process permitted the popular will--the mass of anonymous and dispersed voters--to finally have its way over the powerful wealthy and concentrated interest group.

You ask me to back up my assertion that the median Texan comes out ahead. There are many reasons, but the easy one is that, empirically, when given the choice of paying for services with or without the additional cost of expected noneconomic damages, consumers overwhelmingly prefer (ex ante) not to pay those costs. New Jersey auto insurance is a marvelous example: there, when they buy auto insurance, residents are given the choice of whether they want full access to the liability system, or whether they are willing to waive their rights to noneconomic damages in certain accidents in exchange for a lower insurance rate. Over ninety percent prefer lower costs ex ante to the opportunity for pain and suffering damages ex post. The revealed preferences of the larger group of "anonymous and dispersed" consumers are that they don't think the trial-lawyer-created game of randomly awarded noneconomic damages (where lawyers and administration costs receive the majority of the money spent) is worth the candle. This alone, without more, shows that there has been an increase in consumer surplus because their preferences have been honored.

There is more evidence, of course, but it's haggling over econometric studies over the health benefits of caps, and I've already gone off topic enough.



We previously criticized Silver for an overbroad attack on reform in a New York Times op-ed (Apr. 1, 2005) that turned out to contradict the final version of his academic paper (Aug. 10, 2005).



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.