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.
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 |
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Monthly data is provided by Alexander (2015).
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).
| 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 | |||
-
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).
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