Tort Reform and the Demand for Medical Care: Evidence from State-by-State Variation in Non-Economic Damages Caps

Previous literature indicates that non-economic damages caps increase the number of physicians but finds no significant effect on health. A potential explanation is that, by reducing the cost of malpractice, caps affect physicians’ incentives to provide high quality care, an important determinant of the demand of medical care. Using county level panel data this paper finds that caps adoption leads to a 4 percents decrease in surgeries, a 2 percent decrease in hospital admissions but has no significant effect on emergency care, outpatient visits, birth rates, or prenatal care conditional on births. However, there is evidence of significant heterogeneity in the magnitude of the response. First time births decrease as a proportion of total births, and I find indications of significant variation by type of surgery. There is also evidence of increase use of physicians located across the border. Taken together these results provide suggestive evidence of a decrease in demand leading to a net negative effect on utilization rates.