Will Tort Reform Bend the Cost Curve? Evidence from Texas

Authors

Errata

This article is corrected by:

  1. Errata: Erratum Volume 10, Issue 4, 866–867, Article first published online: 23 October 2013

  • [Corrections added on 13 September 2013 after initial online publication on 7 May 2012 in Journal of Empirical Legal Studies, 9:2. In Table 7, the values in columns 1 to 5 in the row called “95% confidence interval” are erroneous. The values have been corrected and are indicated by the symbol .]

  • We thank David Dranove, Craig Garthwaite, Kate Litvak, Anup Malani, Y. Tony Yang, an anonymous referee, and participants in the 2010 ASLME Health Law Professors conference, 2010 Midwest Law and Economics Association, 2010 Canadian Law and Economics Association, 2011 Midwest Health Economics, and 2011 American Law and Economics Association annual meetings, and 2011 Conference on Empirical Legal Studies for helpful comments. We also thank Elliot Fisher for providing the Dartmouth Atlas data on Medicare spending at the HSA level and the Searle Center on Law, Regulation and Economic Growth at Northwestern Law School for financial support.

Paik is Research Associate, Northwestern University Law School; email: m-paik@law.northwestern.edu. Black is Chabraja Professor at Northwestern University, Law School and Kellogg School of Management; email: bblack@northwestern.edu. Hyman is Richard and Marie Corman Professor of Law and Professor of Medicine, University of Illinois, College of Law, 504 E. Pennsylvania Ave., Champaign, IL 61820; email: dhyman@law.uiuc.edu. Silver is McDonald Endowed Chair in Civil Procedure, University of Texas Law School; email: csilver@law.utexas.edu.

Abstract

Will tort reform “bend the cost curve?” Health-care providers and tort reform advocates insist the answer is “yes.” They claim that defensive medicine is responsible for hundreds of billions of dollars in health-care spending every year. If providers and reform advocates are right, once damages are capped and lawsuits are otherwise restricted, defensive medicine, and thus overall health-care spending, will fall substantially. We study how Medicare spending changed after Texas adopted comprehensive tort reform in 2003, including a strict damages cap. We compare Medicare spending in Texas counties with high claim rates (high risk) to spending in Texas counties with low claim rates (low risk), since tort reform should have a greater impact on physician incentives in high-risk counties. Pre-reform, Medicare spending levels and trends were similar in high- and low-risk counties. Post-reform, we find no evidence that spending levels or trends in high-risk counties declined relative to low-risk counties and some evidence of increased physician spending in high-risk counties. We also compare spending trends in Texas to national trends, and find no evidence of reduced spending in Texas post-reform, and some evidence that physician spending rose in Texas relative to control states. In sum, we find no evidence that Texas's tort reforms bent the cost curve downward.

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