EFFECT OF MEDICAL MALPRACTICE ON COSTS & TECH ADOPTION

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DESCRIPTION (provided by applicant): Many observers have argued that the growth of malpractice costs has unnecessarily inflated the cost of medical care, or stunted the adoption of new technology. Evaluating this statement is difficult, because the causality is complex. Malpractice risk can increase the cost of practicing medicine, but higher medical costs can raise the cost of settling malpractice claims, which involve a substantial medical expenditure component. The technology-adoption question is equally complex, since the adoption of new technologies can increase medical errors and malpractice risk. The effect on technology might also differ with the age of the technology: malpractice might encourage the adoption of proven technologies, while discouraging the adoption of unproven ones. To help clarify these issues, we propose to investigate the causal links among malpractice, medical costs, and medical technology. To identify the malpractice-medical cost relationship empirically, we identify a factor that affects medical costs but not malpractice costs (at least not directly), and one that affects malpractice costs but not medical costs (directly). First, we will use a county-level measure of non-malpractice medical costs as an instrument that affects medical costs alone; our measure, based on Medicare's non-malpractice medical costs index, includes such factors as the relative pay of skilled workers like physicians, the relative pay of nurses, office space, supplies, etc. Second, we will use county-level variation in jury generosity as a factor influencing malpractice settlements, but not medical costs; this is measured using county-level data from the RAND Jury Verdicts Database on "pain and suffering" awards. We propose a similar approach to malpractice and medical technology. We will use variation in jury generosity as a factor influencing malpractice settlements alone. Finally, we will rely on malpractice costs in obstetrics as a factor correlated with malpractice risk faced by surgeons, but not with the technologies they choose to use to treat heart patients.