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					                                                                                        Carrie Hopkins
                                                                                              10-20-11


                                         Research Proposal
       Health care is a current media buzz word. The focus ranges from the Affordable Care Act

to restructuring Medicare, but there are other important aspects of the medical care system that

need to be examined. One of the controversial areas that researchers have started studying with

inconclusive results is the effect of liability pressure on the supply of physicians.


       The concern for liability pressure on the supply of physicians has grown since the price

of premiums has grown 8.1% annually from 1994 to 2002,i and continues to increase at a high

rate now. Malpractice premiums have increased due to the increase in malpractice suits and the

rising medical and health care costs. If nothing stops a patient they can sue a doctor for any

amount and since going to court is more of a cost in terms of time and money the cases are often

settled outside of court. This means that the physicians’ insurance will pay whatever the lawyers

come up with. As malpractice suits increase, insurers must respond by raising their premiums to

remain profitable. With these rising costs from liability pressure physicians may choose to stop

practicing or to relocate. Currently, the policy response to deterring liability pressure is to pass

tort reform laws. The scopes of these laws vary by state from nothing to severe economic cap.

Do states with more stringent malpractice tort reform laws have an increase in supply of

physicians or conversely do states without malpractice tort reform laws see a decrease in the

number of physicians? More importantly do the rising costs of medical malpractice premiums

drive physicians to locate in “cheaper” places to practice.


       Previous studies have looked into these questions. When this problem came to the

attention of medical researchers their first response was to survey physicians. Although many

survey studies I disregarded because it is more difficult to make economically significant
                                                                                      Carrie Hopkins
                                                                                            10-20-11


conclusions from them, there is one survey study that I found highly relevant to the question and

what I want to research. The study, by Mello and Studdert, that uses a survey focuses on the

south eastern area of Pennsylvania and randomly surveys doctors in that area who are registered

with the AMA.ii What I found beneficial about this method is that the researchers are trying to

find out if the doctors change their practice, not just if they stop practicing or relocate. The

researchers do find that physicians are cutting down in their high risk practices and that some are

willing to retire early. “Forty-three percent had already personally reduced or eliminated high-

risk aspects of their practice, and 50% said they would likely (continue to) do so over the next 2

years”iii The authors also look into how patient experience has changed. Again I do not believe

survey results can be considered for thorough statistical analysis, but it is insight into the way

physicians think about malpractice premiums. Also another study I looked at highlighted that

physicians might not relocate, but may just cut out the highest risk aspects of their practice. By

just counting numbers it would be hard to account for that change in supply.


       The other studies I looked at do use raw data from the American Medical Association,

(AMA), although two of them use differences in differences methods, while the others do run

regressions. I will talk about these in order that they were published since these articles have in

fact built off each other and set up the framework that I hope to build off of. Kessler et. al.

published Impact of Malpractice Reforms on the Supply of Physician Services in 2005 and he

uses a differences in differences model to look at the effect of direct tort reform laws, (economic

caps on damages), on the supply of physicians in group practices verse solo practices.iv The

authors find that physician supply increased by 3.3% after three years. They also find that the

effect is larger on non-group physicians. I am critical of the differences in differences method
                                                                                      Carrie Hopkins
                                                                                            10-20-11


and think that a standard OLS regression with an indicator variable for group practice or non-

group would have been a more sufficient way to study this, but I do like that the authors identify

the difference. I dislike that they look at doctors with greater than twenty years’ experience and

less than 20 years. I think the more important groups of physicians to look at are those just

entering the market and those close to retiring since they will be the ones most likely to choose to

practice or to stay in practice in areas where malpractice premiums are low.


               In 2007 Klick builds off the Kessler study by analyzing AMA data with a triple

differences model.v Klick et. al. introduces the idea of looking at high risk specialists since they

face the higher premiums and therefore are more likely to react to an increase in premiums.

Klick uses a triple differences model looking at the difference between states with verse without

tort reform laws on high risk specialists vs. low risk specialist within each state. Basically the

low risk specialists serve as a control group and the high risk as the treatment group. Again I

would have preferred a regression with an indicator variable for high or low risk physicians.

Klick et. al. found that caps on noneconomic damages have a significant effect on increasing

physician supply and that this effect is concentrated on those physicians with the highest risk.vi

The authors also do an interesting analysis of the effect of tort reform on health outcomes.

Although I do not plan to focus on this for my capstone I believe it is another area that should be

examined.


       The last two articles I look at move into some higher economic analysis, but still lack the

rigor I hope to use with my study. In 2008 Yang et. al. focus more on the idea of high risk

specialties, by only looking at the supply of OB/GYN in relationship to malpractice premiums

and tort reforms.vii The authors use panel data form the AMA from 1994 to 2002 for information
                                                                                       Carrie Hopkins
                                                                                             10-20-11


OB/GYN for all 50 states and Washington D.C., along with data on number of births and number

of birthing age women to find the effect or premiums on relative supply. The authors run a mixed

model, which basically means they control for time through trend variables, but they do not

control for states. Instead they include many variables they are supposed to prevent omitted

variable bias, but that allow for with in state variation. This is one of the biggest issues I have

with the study. A fixed effects model should have been run, even if it was not their base

regression. Now I did like that the authors introduce the idea of lagging the data from the AMA.

I thought this was a good idea because physicians cannot immediately react to changes in

malpractice premiums there are too many hindrances that come with relocating to allow that. The

authors find that their no significant relationship between malpractice reform or malpractice

premiums with the supply of OB/GYN. They argue one of the reasons for this may be that

OB/GYN can cut out the highest risk aspects of their practice in response to increase in

premiums because it is a lower cost than moving.


       Finally a study in 2009 by Chou et. al. looks at how new physicians choose to locate

based on malpractice premiums.viii Chou only looks at residents who graduate from New York

Medical schools and in three specialties: surgery, primary care, and OB/GYNs. The authors find

that there is a significant negative association between malpractice premiums and surgeons, but

neither of the other specialties are significantly related. This does not surprise me that primary

care physicians are not related significantly since PCP are low risk. The OB/GYN find is similar

to that of what Yang et. al reported in 2008. What I especially like about this study is that the

authors are looking at what residents chose to do. This is the right question to ask since it looks

at the marginal decision not the cumulative, which is the smarter economic question to ask. Also
                                                                                       Carrie Hopkins
                                                                                             10-20-11


physicians finishing their residency are more likely to choose where they practice based on

premiums because they have more choice then physicians who are settled with a family. My

ultimate goal is to ask a similar question as Chou et al, but with general panel data from AMA.


       To build on this previous work and to hopefully clear up the answer I plan to design my

own project. My study will not be based solely on AMA data, which some of the previous

studies have used. Similar to the studies by Mello and Chou I will be focusing on specific states

first to lay the ground work. The two states I will look at have opposite reactions to tort reform

laws. Texas, which leading up to its tort reform had really high malpractice premiums, but in

2003 passed a stringent malpractice law to drive down malpractice premiums. From Texas

Department of State Health Services I have data from 2000-2010 that account for all physicians

in direct patient care.ix The data set includes where the physicians went to medical school, where

they currently practice, where they are from, their specialty, whether the area is urban or rural,

and much more. From this data I plan to study if and how supply has changed leading up to the

2003 law and after in Texas. My dependent variable will be the number of physicians choosing

to start practice in Texas that year and I will use an indicator variable for before tort reform or

after as my focal independent variable. Other variables I will control for are population, an

indicator for urban or rural, high risk or low risk specialty, and possibly cost of living. I plan to

explore different variables that need to be controlled for. I would also like the run the same

regression with malpractice premium data. Although there are flaws in this model, (for example

it cannot be generalized), I believe it will give me insight into how a state with tort reform effects

the choice of residents. I will be expanding on the study by Chou because I will look at several
                                                                                       Carrie Hopkins
                                                                                             10-20-11


different specialties. I will also be looking at doctors who come from many different medical

schools and areas who choose to practice in Texas.


               The state that has an opposite approach to tort reform is Pennsylvania. Now

Pennsylvania has some of the highest malpractice premiums and has had no direct malpractice

tort reforms. One of the studies I mentioned earlier was the study that used the survey of

Pennsylvania physicians, focused primarily on the Philadelphia area. I want to look at how the

Pennsylvania physician supply changes. I do not have the same data set as the Texas data set

hence any real comparison would be difficult to do, but I think an analysis of both side by side

yield interesting results. For Pennsylvania my data comes from Jefferson Medical school and it

follows their alums back from 1968.x The data accounts for the year they graduated from medical

school, their age, their sex, where they are from, where they practiced their first year of

residency, where they practice now, their specialty, and their type of practice. I would like to

either run a probit model that looks at the probability of practicing in Pennsylvania and uses

control variables from above or I would like to look at how the number of physicians change

running a similar regression as the one for Texas.


       Finally if possible I would like to get my hands on the American Medical Association

Physician Master file.xi This data costs money and has been elusive to get, but if I can get it I

would like to run a regression similar to the one I described using the Texas data. What I would

do is regress malpractice premiums in a given year, fixed effects for states and trends, and other

control variables against the number of physicians finishing resident that choose to practice in a

given state in a given year. If possible I will break this down into specific high risk specialties. I

may also do a similar regression, but input tort reform law for each state for malpractice
                                                                                                    Carrie Hopkins
                                                                                                          10-20-11


premiums. The malpractice premium data will come from Medical Liability Monitor.xii This data

does cost money and thus will cause a roadblock in my work.


         What I hope to get from my research is a thorough, rigorous, economic analysis of the

relationship between liability pressure and physician supply. As I highlighted in my introduction

this is an extremely important topic because of the rapid grown in health care costs and the need

for physicians. I hope to be able to conclude if they are significantly related and to feel as though

my analysis puts an end to the inconclusiveness that still remains in the topic area. If you’ll

notice none of the studies I mention above are published in economic journals in fact using econ

lit, I was only able to find three studies listed, only one of which was published in a journal.

This topic area lacks the analysis of economists and I hope that my capstone will be a step,

(albeit very small), towards filling that void.


i
   A Longitudinal Analysis of the Impact of Liability Pressure on the Supply of Obstetrician-Gynecologists Author:
Yang, YT. Published in: journal of empirical legal studies, v. 5 no. 1, pp. 21 Date: 2008
ii
  Effects of a Malpractice Crisis on Specialist Supply and Patient Access to Care, MM Mello, DM Studdert… -
Annals of Surgery, 2005
iii
    Mello et. al.
iv
    Impact of malpractice reforms on the supply of physician services Author: Kessler, DP. Published in: jama, v.
293 no. 21, pp. 2618 Date: 2005
v
    Medical malpractice reform and physicians in high-risk specialties Author: Klick, J. Published in: journal of legal
studies
vi
    Klick et. al.
vii
     Yang et. al.
viii
     Practice Location Choice by New Physicians: The Importance of Malpractice Premiums, Damage Caps, and
Health Professional Shortage Area Designation Author: Chou, CF. Published in: health services research, v. 44 no.
4, pp. 1271 Date: 2009
ix
    http://www.dshs.state.tx.us/chs/hprc/
x
    http://www.jefferson.edu/jmc/crmehc/medu/longitudinal.cfm
xi
    http://www.ama-assn.org/ama/pub/about-ama/physician-data-resources/ama-database-licensing/more-about-ama-
database-licensing.page?
xii
     http://www.mlmonitor.com/rate-survey.php

				
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