Will Tort Reform Bend the Cost Curve? Evidence from Texas

Abstract

Will tort reform “bend the cost curve?” Health‐care providers and tort reform advocates insist the answer is “yes.” They claim that defensive medicine is responsible for hundreds of billions of dollars in health‐care spending every year. If providers and reform advocates are right, once damages are capped and lawsuits are otherwise restricted, defensive medicine, and thus overall health‐care spending, will fall substantially. We study how Medicare spending changed after Texas adopted comprehensive tort reform in 2003, including a strict damages cap. We compare Medicare spending in Texas counties with high claim rates (high risk) to spending in Texas counties with low claim rates (low risk), since tort reform should have a greater impact on physician incentives in high‐risk counties. Pre‐reform, Medicare spending levels and trends were similar in high‐ and low‐risk counties. Post‐reform, we find no evidence that spending levels or trends in high‐risk counties declined relative to low‐risk counties and some evidence of increased physician spending in high‐risk counties. We also compare spending trends in Texas to national trends, and find no evidence of reduced spending in Texas post‐reform, and some evidence that physician spending rose in Texas relative to control states. In sum, we find no evidence that Texas's tort reforms bent the cost curve downward.