The impact of medical malpractice insurance cost on physician behaviour: the role of income and tort signal effects
The paper examines the impact of medical malpractice insurance cost on physician behaviour. Changes in malpractice insurance premiums can potentially influence physician behaviour directly through income effects from changes in medical practice earnings, and indirectly through tort signal effects that indicate exposure to malpractice risk. A structural model of the physician/firm is estimated to assess the significance, magnitude, and relative importance of income and tort signal effects of premium changes on physician time allocation and service supply. Using data on solo practice physicians, evidence is found of both income and tort signal effects for primary care physicians and surgeons. Results also indicate that income effects have a relatively larger impact on measures of physician behaviour such as services provided and fees, while tort signal effects, which reflect defensive measures, have a much smaller impact.