Increased Perception of Malpractice Liability and the Practice of Defensive Medicine

• Author: Chun‐Yuh Yang,Brian K. Chen
• Published date: 01 September 2014
• Date: 01 September 2014
• DOI: http://doi.org/10.1111/jels.12046

Increased Perception of Malpractice

Liability and the Practice of

Defensive Medicine

Brian K. Chen and Chun-Yuh Yang*

The extent and existence of defensive medicine in the face of malpractice pressure are

subjects of perennial policy and academic debate. In this article, we investigate the impact of

a series of arguably exogenous court rulings in Taiwan that increased physicians’ perceived

liability exposure, and a subsequent amendment to the law that reversed the courts’ rulings,

on physicians’ test-ordering behavior and choice of delivery method. We find that obstetri-

cians most at risk for liability increased laboratory tests in response to the ruling, but did not

change the likelihood of delivery by Cesarean sections. We further show no consistent

patterns of preventable complications, postdelivery emergency department visits, or hospital

readmissions associated with physician behavioral change. The overall pattern of results is

highly suggestive of the practice of defensive medicine among physicians in Taiwan, and that

payment incentives and provider organizational forms may have mediated the impact of

changing liability risks.

I. Introduction

Can increasing physician liability for patient injuries encourage safer medical practices and

reduce medical errors? Or does doing so merely lead to practices primarily intended to

reduce legal liability exposure, without improving patient health outcomes? Traditional

tort law—of which medical malpractice is a part—has two principal goals: to compensate

victims injured by another’s negligence and to deter future negligent acts (Kessler 2011).

Detractors of the tort system lament its arbitrariness, its inability to provide adequate

*Address correspondence to Brian K. Chen, J.D., Ph.D., Assistant Professor, Department of Health Services Policy and

Management, Arnold School of Public Health, University of South Carolina, 915 Greene St., Ste. 354, Columbia, SC

29208; email: bchen@mailbox.sc.edu. Yang is MPH, Ph.D., Professor, Department of Public Health, College of Health

Sciences, Kaohsiung Medical University, Taiwan.

We are grateful for the many helpful comments and suggestions from Karen Eggleston, Jason Snyder, our

anonymous reviewers at the Journal of Empirical Legal Studies, participants at the Conference on Empirical Legal

Studies, and the fellows and scholars at the Asia Health Policy Program at Stanford University. This study was

supported by the Shorenstein Asia Pacific Research Center at Stanford University, and is based in part on data from

the National Health Insurance Research Database provided by the Bureau of National Health Insurance, Department

of Health and managed by National Health Research Institutes. The interpretation and conclusions contained herein

do not represent those of Bureau of National Health Insurance, Department of Health, or National Health Research

Institutes.

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Journal of Empirical Legal Studies

Volume 11, Issue 3, 446–476, September 2014

446

compensation for victims of medical error, and its potential to raise costs by promoting the

practice of “defensive medicine”—defined as the ordering of tests and procedures intended

primarily to reduce medicolegal liability but that contribute little to patient health (Bishop

et al. 2010). Proponents, on the other hand, are troubled by the prospect of greater

numbers of medical errors and iatrogenic injuries if physicians are not held accountable for

their negligent acts (see, e.g., Baker 2007). Despite considerable empirical research, the

link between malpractice liability and defensive medicine remains controversial. In particu-

lar, no previous research has documented physician behavior when the legal liability

regime moves from one based on negligence to one putatively based on strict liability.

Malpractice liability, along with medical technology and payment system distortions,

figures perennially among the most cited reasons for escalating health-care spending. It has

been estimated that upward of $55.6 billion in 2008 dollars, or 2.4 percent of total health-

care costs, is spent annually in the United States as a result of direct litigation and indirect

defensive medicine costs (Mello et al. 2010; Paik et al. 2012). Tort reform advocates,

however, place the figure closer to $200 billion by extrapolating the results of a study that

shows a 5–9 percent reduction in costs for Medicare heart patients following tort reforms

that lower provider liability (Kessler & McClellan 1996). As medical spending growth

continues to outpace inflation worldwide despite a sluggish economy (Health Care Cost

Institute 2012), a better understanding of the role malpractice plays in increasing utiliza-

tion in the health-care sector appears particularly timely.

Despite an extensive empirical literature, however, controversy remains over the

prevalence, extent, or even the existence of defensive medicine. Survey studies that rely

solely on physician self-reports of defensive medicine (Klingman et al. 1996; Studdert et al.

2005) are prone to self-interested reporting bias. Cross-sectional associations of malpractice

premium levels and measures of treatment intensities (Localio et al. 1992; Baldwin et al.

1995; Sloan et al. 1997; Tussing & Wojtowycz 1997) may be plagued by the problem of

reverse causality. Even well-designed empirical studies based on policy changes, such as

statewide tort reforms (Kessler & McClellan 1996, 2002; Currie & MacLeod 2008; Iizuka

2013) have occasionally been questioned because of concerns for the exogeneity of the

reform decisions. This article contributes to the literature by addressing the reporting and

endogeneity biases of the survey and cross-sectional studies, and extends the conclusions of

the third class of studies by using a plausibly exogenous shock to show that even a hint of

higher malpractice liability may prompt certain physicians to practice defensive medicine

(see, e.g., Carrier et al. 2013).

In this article, we investigate the impact of exogenous changes in the perception of

medical malpractice liability on physicians who provide treatment to pregnant women in

both the outpatient antepartum screening and inpatient care settings in Taiwan from 1997

to 2005. In particular, we exploit a series of court rulings and an amendment to the law to

examine the impact of changing perceptions of liability on physicians’ test-ordering behav-

ior and decision to perform Caesarian sections. These series of rulings and the amendment

provide our empirical identification strategy with two sources of variation in perceived

malpractice liability exposure: (1) a temporal change in perceived liability given the dates

of the legal decisions and law change, and (2) differences in the level of exposure to

malpractice liability due to the size of the physicians’ place of practice. We use these

Malpractice Liability and Defensive Medicine 447