The Impact of an Increased Perception of Malpractice Liability on the Practice of Defensive Medicine
The extent and existence of defensive medicine in the face of malpractice pressure are subjects of perennial policy and academic debate. In this paper, we investigate the impact of a series of arguably exogenous court rulings in Taiwan that increased physicians’ perceived liability risks, and a subsequent amendment to the law that reversed the courts’ rulings, on physicians’ test-ordering behavior and choice of delivery method. Using nationally representative encounter-level data, we find that obstetricians perceived to be most at risk for malpractice liability increased laboratory tests when malpractice fears were raised, both in outpatient and inpatient settings. On the other hand, they did not increase other types of medical services such as prescription drugs. Moreover, obstetricians practicing in large hospitals with implicit self-insurance showed either no or a muted response, and physicians treating lower-risk medical conditions (upper respiratory infections) also demonstrated muted changes in test-ordering behavior. We also find that while the increased perception of legal risk was sufficient to encourage more laboratory tests, it was insufficient to reduce higher-risk, but higher-profit Cesarean sections. This was likely the result of the opposing forces of legal risks and financial incentives. Finally, throughout the study period, we show no consistent patterns of preventable complications, post-delivery ED 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.