Joint Effect of Malpractice Risk and Financial Incentives on Cardiac Testing

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DESCRIPTION (provided by applicant): Cardiac testing is a major contributor to health care costs and cost growth. There is substantial evidence that cardiac testing is overused. Two potential reasons for overuse are test profitability to providers and their fear of medical malpractice liability. A central goal of our study is to examine how liability risk and financial incentives, individually and jointly influence cardiac testing rates and patient outcomes. No prior study examines the impact of either factor on cardiac testing rates; no prior study in any area of medical care studies the interactions between liability risk and financial incentives. These interactions are likely to be important. If testing is profitable, both malpractice risk and profitability could induce test overuse. In contrast, if testing is unprofitable, malpractice risk could provide a "floor" on testing rates, and thus limit underuse. We will study these issues, relying on external shocks to malpractice risk and reimbursements as a basis for credible causal inference. For malpractice, we will rely on state reforms over the last decade, during which nine states adopted new damage caps. For reimbursements, we will rely on large cuts by the Centers for Medicare and Medicaid Services (CMS), beginning in 2010, to reimbursement for outpatient stress testing. The stakes for these cuts are large. If these cuts curb overuse, CMS would achieve billions of dollars of annual savings and might adopt similar cuts elsewhere. However, spending could rise if testing moves from outpatient to inpatient settings, or providers substitute more expensive tests which did not face cuts. Additionally, the cuts could harm patients if testing rates fall below the optimal level. To assess the impact of malpractice risk, w will study states that adopted tort reforms, using other states as a control group. For reimbursement cuts, we will study cardiac testing within Medicare fee-for-service, using Medicare Advantage patients as the control group. The project aims are to: (1) assess the impact of malpractice reforms alone on testing rates; (2) assess the impact of reimbursement cuts alone on testing rates and locations; (3) examine the interaction between malpractice risk and reimbursement cuts; and (4) assess how malpractice risk and reimbursement levels individually and jointly affect patient outcomes. Understanding the combined impact of these reforms is critical to ensure quality care for the nearly 20 million Americans with coronary artery disease (CAD) and the many more who are tested for it each year. Moreover, large scale experiments in both medical malpractice and payment reform are underway, not limited to cardiac care. Our research can inform policy decisions in several areas, including: (i) can malpractice liability limit the risks of undertreatment that previously tainted "managed care" and might undermine the success of "accountable care"?; (ii) can reimbursement cuts, such as those made to outpatient stress testing limit test overuse, or will they have unintended consequences - either raising cost or degrading care quality?; and (iii) how does the optimal level of malpractice risk vary with the nature of provider reimbursement?