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Health Care Costs and Financing

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Medical malpractice laws capping damage payments appear to lower State health care expenditures by 3 to 4 percent

Twenty-eight States have enacted laws that limit the payment for damages to patients in medical malpractice cases. These laws appear to reduce State health care expenditures by 3 to 4 percent, concludes a study by researchers Fred J. Hellinger, Ph.D., and William E. Encinosa, Ph.D., of the Agency for Healthcare Research and Quality (AHRQ). Payment limits may reduce expenses by curtailing the practice of defensive medicine (physicians ordering tests, procedures, and visits because of their concern about malpractice liability risk).

Drs. Hellinger and Encinosa used a multivariate model and 1984, 1988, 1994, and 1998 data on State health care expenditures and a variety of other State characteristics to estimate the impact of State tort reform laws that directly limit malpractice damage payments of State health care expenditures. The model included data from before and after the enactment of cap laws in 15 States, factors that adjusted for other types of malpractice liability reforms, and other factors affecting a State's health care expenditures (for example, income and proportion of uninsured).

Based on the model, the mean reduction in State health care expenditures due to caps was equal to $92 per capita. The robustness of findings across a variety of specifications provides reasonably strong support for the argument that laws capping non-economic damage payments reduce health care costs, note the authors. However, they caution that other types of State laws may have affected health care expenditures and that their findings relied on State data only. They recommend that future studies include more variables and use data from other sources and different time periods. They also call for studies that examine whether or not the level at which damages are capped is related to health care expenditures, and whether or not reductions in health care spending attributable to these laws are related to poorer health outcomes.

See "The impact of state laws limiting malpractice damage awards on health care expenditures," by Drs. Hellinger and Encinosa, in the August 2006 American Journal of Public Health 96(8), pp. 1375-1381. Reprints (AHRQ Publication No. 06-R073) are available from the AHRQ Publications Clearinghouse.

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