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Can Contingency Fee Reforms Improve Maternal & Infant Health? Evidence from Nevada

Philip DeCicca and Natalie Malak

Abstract

Contingency fee laws are intended to reduce the amount of defensive medicine practiced by physicians, but their impact on such behavior is theoretically ambiguous. While nearly half of all states have adopted some type of contingency fee laws, very little empirical evidence exists with respect to related impacts, and no rigorous studies examine their potential impacts on health. We examine the impact of a particular contingency fee reform that occurred in Nevada in 2004 using synthetic control methods. Consistent with our expectations, we find a systematic increase in the C-section rate of less-educated mothers in Nevada after implementation of the reform. However, we find no systematic effect on infant mortality, suggesting that contingency reforms contribute to an increase in defensive medicine without a corresponding improvement in health.

JEL Classification: I10; I18; K13

Corresponding author: Natalie Malak, Dept of Economics and Computational Analysis, The University of Alabama in Huntsville, Huntsville, USA, E-mail:

Acknowledgments

We would like to thank Ronen Avraham and Diane Alexander for graciously making their respective datasets publicly available. We would also like to thank Katherine Cuff, Janet Currie, Joseph Doyle, Jeremiah Hurley, Maripier Isabelle, Ilyana Kuziemko, Arthur Sweetman, and Michael Veall for their comments, as well as all the participants at the Canadian Economics Association Conference, the Health Economics at McMaster seminar series, the American Society of Health Economists Conference, the IRDES-DAUPHINE Workshop on Applied Health Economics and Policy Evaluation, and the American Economic Association Annual Conference.

Appendix A: Description of Common Medical Malpractice Tort Reforms

Non-economic damages refer to compensation for subjective, non-monetary losses such as pain, suffering, inconvenience, emotional distress, loss of society and companionship, loss of consortium, and loss of enjoyment of life. Tort reforms are enacted to cap this amount.

Punitive damages refer to damages awarded for the purpose of punishment, to deter intentional or reckless behavior or actions motivated by malice. Punitive damages are neither economic nor non-economic damages, as they are not awarded to compensate any loss. Tort reforms are enacted to cap this amount.

Collateral source rule: prohibits the admission of evidence that the plaintiff or victim has received compensation from some source other than the damages sought against the defendant. Tort reforms are enacted to remove this rule so that courts may offset awarded damages if the victim is receiving compensation from other sources.

“Joint and several” liability rule (“deep pockets rule”) is a theory of recovery that permits a plaintiff to recover full damages from any defendant regardless of their proportional fault. It is known as the “deep pockets rule” because a plaintiff would most probably choose to go after the defendant with the “deepest pocket”. Tort reforms are enacted to either impose that liability be based on the defendant’s individual fault, or the joint and several rule can be applied if the defendant is responsible for at least fifty percent of the damage caused.

Appendix B: Raw Average Annual Medicaid Physician Fee Schedule for Nevada

Year Vaginal delivery C-section Delivery Price difference
1995 $ 1032.23 $ 1219.87 $ 187.64
1996 1032.23 1219.87 187.64
1997 1032.23 1219.87 187.64
1998 1032.23 1219.87 187.64
1999 1032.23 1219.87 187.64
2000 1032.23 1219.87 187.64
2001 1032.23 1219.87 187.64
2002 1032.23 1219.87 187.64
2003 1032.23 1219.87 187.64
2004 1032.23 1219.87 187.64
2005 1032.23 1219.87 187.64
2006 1032.23 1219.87 187.64
2007 1032.23 1219.87 187.64
2008 956.96 1130.92 173.96
2009 806.42 953.01 146.59
2010 806.42 953.01 146.59
2011 806.42 953.01 146.59
2012 806.42 953.01 146.59

  1. Monthly data is provided by Alexander (2015).

Appendix C: Event-Study Plots for Table 2

Appendix D: State Weights & Root Mean Squared Prediction Error with Border States Removed

 
The first vertical line represents May 2003 when eighty percent of voters in Nevada said they would support limiting contingency fees. The second vertical line represents when the limit on contingency fees was enacted in Nevada (November 23rd, 2004).

The first vertical line represents May 2003 when eighty percent of voters in Nevada said they would support limiting contingency fees. The second vertical line represents when the limit on contingency fees was enacted in Nevada (November 23rd, 2004).

State Weight State Weight
Colorado 0.115 Nebraska 0.000
District of Columbia 0.087 New Mexico 0.000
Georgia 0.032 North Carolina 0.000
Idaho 0.000 North Dakota 0.000
Iowa 0.523 Ohio 0.000
Kansas 0.000 Oregon 0.000
Kentucky 0.000 Pennsylvania 0.000
Louisiana 0.000 South Carolina 0.000
Maryland 0.000 South Dakota 0.000
Minnesota 0.000 Texas 0.243
Missouri 0.000 Vermont 0.000
Montana 0.000 Washington 0.000
RMSPE 0.009

  1. The rest of the states that are excluded from this list either have already enacted contingency laws and thus cannot be part of the ‘donor pool’ (California, Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Maine, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Oklahoma, Tennessee, Utah, Wisconsin, and Wyoming) or had missing education data on the birth certificates over our sample period (Alabama, Alaska, Arizona, Arkansas, Mississippi, Rhode Island, Virginia, and West Virginia).

Appendix E: Synthetic Controls using only Lagged C-Section Rate as Predictor Variable

 
The first vertical line represents May 2003 when eighty percent of voters in Nevada said they would support limiting contingency fees. The second vertical line represents when the limit on contingency fees was enacted in Nevada (November 23rd, 2004).

The first vertical line represents May 2003 when eighty percent of voters in Nevada said they would support limiting contingency fees. The second vertical line represents when the limit on contingency fees was enacted in Nevada (November 23rd, 2004).

 
The first vertical line represents May 2003 when eighty percent of voters in Nevada said they would support limiting contingency fees. The second vertical line represents when the limit on contingency fees was enacted in Nevada (November 23rd, 2004).

The first vertical line represents May 2003 when eighty percent of voters in Nevada said they would support limiting contingency fees. The second vertical line represents when the limit on contingency fees was enacted in Nevada (November 23rd, 2004).

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Received: 2020-12-21
Revised: 2021-05-25
Accepted: 2021-06-21
Published Online: 2021-07-08

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