May 14, 2008

Economists' Paper Contends that Caps on Punitive Damages Cause Doctors to Behave Less Carefully

Whenever a state contemplates passing a bill to place restrictions on punitive damages, people on both sides line up with predictions about what will happen if the bill does or does not pass. The proponents usually say the reforms will address unfairness and abuses in the current system, draw business to the state, lower insurance premiums, etc. Opponents argue that the reforms will allow corporations and bad actors to run amok in the state without fear of consequences. Rarely does anyone ever attempt to back up their predictions with studies about what has happened in states that have already passed similar reforms.

For this reason, this report from Healthcare Economist about a recent study on the effects of tort reform in the medical malpractice arena is very interesting. The paper, First Do No Harm? Tort Reform and Birth Outcomes, examined the effect of tort reforms (including, but not limited to, caps on punitive damages) on the the number of Caesarean sections performed compared to "regular" births.

The Healthcare Economist report says doctors prefer to use C-sections because they receive additional compensation compared to a “regular” birth. (I suspect that doctors might also prefer C-sections because they can be scheduled, as opposed to the unpredictable alternative.) But performing a C-section exposes the mother to additional risks.

The authors of study found that different types of tort reform had different impacts on the incidence of C-sections. Reforms to the joint and several liability rule, such as requiring allocation of fault to co-defendants based on culpability and preventing plaintiffs from holding a minor contributor responsible for the entire judgment, reduced C-sections and complications of labor and delivery. The authors of the study say this shows that doctors behave more carefully when they fear that an injured plaintiff may go after them and not just a deep-pocket co-defendant such as a hospital. But caps on damages were found to increase the use of the C-section procedure. The authors suggest that damages caps make doctors less cautious because they are less fearful of litigation.

The article does not attempt to examine all the possible impacts of punitive damages reforms - - it only examines one small corner of the big picture. But perhaps this study represents the first step in an effort to raise the level of debate about punitive damages reforms by studying empirical results.