Malpractice law and health care reform: Optimal liability policy in an era of managed care

Because fee-for-service health insurance insulates providers from the costs of treatment decisions, it may lead to "defensive medicine" - precautionary treatment with minimal expected medical benefit administered out of fear of legal liability. By giving providers higher-powered incentives, managed care may affect optimal liability policy. Among elderly Medicare beneficiaries with heart disease in 1984-1994, we find that liability- reducing "tort reforms" reduce defensive practices in areas with high and low managed care enrollment, but that managed care and liability reform are substitutes. We consider some implications of these results for the current debate over the appropriateness of extending malpractice liability to managed care organizations. © 2002 Elsevier Science B.V. All rights reserved.

Duke Scholars

Author Mark B McClellan Fuqua School of Business