Our study used fairly recent data to estimate the association between increases in malpractice liability costs and changes in medical spending and practice patterns. We found that a 10 percent increase in average malpractice payments per physician within a state was associated with a 1.0 percent increase in Medicare payment for total physician services and a 2.2 percent increase in the imaging component of these services. We obtained similar results using malpractice premiums as an alternative measure of liability costs.
In addition to the increase in the use of imaging services, we saw a somewhat weaker increase in the use of other discretionary, generally low-risk services such as physician visits and consultations, diagnostic tests, and minor procedures. A recent survey of physicians found that more than 93 percent ordered additional tests and performed additional diagnostic procedures in response to growing malpractice costs.26
This survey also reported a substantial increase in the use of imaging technologies and a reduction in major surgeries among certain patient populations. Our results are consistent with these self-reports.
Our estimates shed some light on the magnitude of the relationship between malpractice liability and the use of medical services. States in the top quartile of malpractice payments per physician have 70 percent more payments per physician than states in the bottom quartile. Our estimates suggest that relative to states in the bottom quartile, all else equal, these states with high malpractice liability will have total Medicare spending that is 4.2 percent higher and spending on physicians that is 7.0 percent higher.
To put these estimates into perspective, consider the 60 percent increase in average malpractice premiums between 2000 and 2003. Our results suggest that this increase was associated with an increase Medicare spending of about $16.5 billion total and $7.1 billion on physician services (since Medicare outlays in 2003 were $275 billion).27
Although our analysis suggests an important association between malpractice costs and the use of imaging services, this link might have been missed in previous studies that focused on an earlier era, when the use of imaging procedures and outpatient services was less prevalent. Our estimates do not imply that any change in spending was necessarily “defensive medicine.” To the extent that additional malpractice costs mean greater precautionary testing with some medical value, any additional procedures might be protective of patient health or valued regardless of their therapeutic properties. We did not find that higher malpractice liability costs were associated with reductions in total or disease-specific mortality. This evidence is clearly not sufficient to rule out a potential benefit from malpractice liability–induced medical spending, but there is also some evidence from other studies that the increases in use associated with malpractice liability costs could actually lead to harm.28
Our study is not without limitations. First, our sample was limited to the Medicare population; although this population accounts for a sizable share of overall health spending, our results might not generalize to other parts of the health care system. Second, although our longitudinal analysis was designed to account for all fixed unobservable confounders that operate at the state level and all national trends, unobserved confounders that vary within states over time might have affected our analysis. The specification tests we reported suggest that this was not the case, ruling out many of the most likely potential sources of bias, but outside of an experimental setting, it is difficult to prove causality conclusively.