The Impact of Tort Reform on Intensity of Treatment: Evidence from the Heart Patients

Abstract

This paper employs a unique data set comprised of a large sample of hospital inpatients to analyze the effect of non-economic damage caps on treatment intensity. We consider whether damage caps affect several measures of treatment intensity, including the cost of treatment and whether a patient receives a major intervention in the form of a coronary artery by-pass or angioplasty. We find strong evidence treatment intensity declines after a cap on non-economic damages. The probability of receiving a major intervention declines by 1.5 to 2 percentage points after non-economic damage caps are enacted. The effect on costs is not always statistically significant, but in models with state-specific trends, costs decline by as much as four percent. Using the Center for Disease Control’s Vital Statistics data, we find that tort reform is not associated with an increase in mortality from coronary heart disease; if anything, mortality declines. These results provide evidence that damage limitations can reduce defensive medicine without detriment to patient care. However, we also find evidence that when doctors have discretion to perform a by-pass, caps on non-economic damages increase the probability that a by-pass is performed. Because by-pass is more profitable than angioplasty, this result is consistent with increased induced-demand (so-called offensive medicine) after damage caps even if on net costs decreased.

Keywords: defensive medicine, induced demand, offensive medicine, tort reform