THE IMPACT OF MEDICAL MALPRACTICE LAWSUITS ON DEFENSIVE MEDICINE AND HOSPITALS' RESOURCE ALLOCATION

Abstract

This paper investigates the impact of medical malpractice lawsuits on physicians’ defensive medicine and hospitals’ resource allocation. I use a hospital-level panel data covering 250 hospitals in Chengdu, a city in China, from 2009 to 2015. Given the dependent variables are time-persistent I use a system GMM framework to control for unobserved heterogeneity. The empirical results show that medical malpractice lawsuits increase physicians' defensive medicine and affect hospitals’ resource allocation. Specifically, I find that one medical malpractice lawsuit increases the test cost and surgery cost per capita by 2%. Hospitals increase their human capital and service capacity in response to medical malpractice lawsuits. I find one medical malpractice lawsuit increases the number of physicians, nurses, imaging technicians and laboratory technicians by 1-4%. Moreover, I find a 2% and 6% increase in number of beds and equipment respectively resulted from one medical malpractice lawsuit. However, I find no evidence showing a decline in death rate.