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  • 7/26/2019 22. the Impact on Non-economical Damages Caps on Obstretics

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    The impact of non-economic damages caps on obstetrics:

    Incentives versus practice style

    Anca Cotet-Grecu *

    Department of Economics and Legal Studies, Seton Hall University, 400 South Orange Avenue, South Orange, NJ 07079, United States

    1. Introduction

    There is a good deal of research on the impact of

    malpractice cost and tort reform on medical practice,

    including the field of obstetrics, but not all of the findings

    are consistent. For instance, one strand of literature

    indicates that higher malpractice premiums are associated

    with an increased use of C-sections (Dubay et al., 1999;

    Grant and McInnes, 2004), but some researchers find that

    noneconomic damage caps, which decrease malpractice

    premiums, are associated with higher rates of C-sections

    (Currie and MacLeod, 2008).

    This paper makes several contributions to this litera-

    ture. First, I revisit two of the main findings of this

    literature: that non-economic damages caps1 are associat-

    ed with entry into the field of obstetricsgynecology (Klick

    and Stratmann, 2007) as well as with higher rates of C-

    sections (Currie and MacLeod, 2008). Using county-level

    data, I find that the results hold for the 19892001 reforms,

    the original period investigated by Currie and MacLeod

    (2008), but not when the more recent reforms are added,

    for the years spanning 19892010. Estimates lack external

    validity when the researcher fails to account for all margins

    of choice. I test whether general equilibrium effects

    explain this observation. I find that the observed change

    in C-section rates prior to 2002 is driven by areas with

    significant entry and that such a change is not present in

    the remaining areas where there is no/less scope for

    mobility. A similar pattern exists in the case of prenatal

    care initiation and of prenatal visits.

    Second, I find that these changes in procedures are

    associated with differences in health outcomes that follow

    a similar pattern. Between 1989 and 2002, non-economic

    Economics and Human Biology 17 (2015) 2941

    A R T I C L E I N F O

    Article history:

    Received 13 May 2014

    Received in revised form 11 December 2014

    Accepted 11 December 2014

    Available online 20 December 2014

    JEL classification:

    I12

    I18

    K13

    Keywords:

    Non-economic damages caps

    Ob-gyn

    C-sections

    Infant outcomes

    A B S T R A C T

    This paper uses 19892010 county-level data to reexamine the effect of non-economic

    damages caps on the field of obstetrics. Previous literature found that caps on damages

    lead to both changes in the number of physicians and changes in treatment patterns. This

    paper investigates whether the changes in procedures are attributable to changes in

    incentives or to selection when new entrants could have a different practice style than

    incumbents. First, I find that the relationship between non-economic damages caps and

    the number of physicians and procedures identified in previous literature is not robust to

    the inclusion of the newer policy changes. Second, over the period when such changes

    were observed, the impact on procedures is concentrated in areas with the greatest

    changes in the number of obstetricians/gynecologists per capita, suggesting that most of

    the effect on procedures is driven by differences in practice style between entrants and

    incumbents.

    2014 Elsevier B.V. All rights reserved.

    * Tel.: +1 973 761 9356.

    E-mail address: [email protected] Non-economic damages compensate for past or future non-economic

    losses, such as pain, suffering, emotional distress, mental anguish,

    disfigurement, physical impairment, loss of consortium, loss of compan-

    ionship, loss of parental guidance, loss of enjoyment of life, loss of society,

    humiliation, embarrassment, inconvenience, injury to reputation, and

    other such losses (Pace et al., 2004).

    Contents lists available at ScienceDirect

    Economics and Human Biology

    jou rnal homepage : h t tp : / /www.e lsev ier .com/locate /ehb

    http://dx.doi.org/10.1016/j.ehb.2014.12.002

    1570-677X/ 2014 Elsevier B.V. All rights reserved.

    http://dx.doi.org/10.1016/j.ehb.2014.12.002http://dx.doi.org/10.1016/j.ehb.2014.12.002http://dx.doi.org/10.1016/j.ehb.2014.12.002http://dx.doi.org/10.1016/j.ehb.2014.12.002http://dx.doi.org/10.1016/j.ehb.2014.12.002http://dx.doi.org/10.1016/j.ehb.2014.12.002http://dx.doi.org/10.1016/j.ehb.2014.12.002http://dx.doi.org/10.1016/j.ehb.2014.12.002http://dx.doi.org/10.1016/j.ehb.2014.12.002http://dx.doi.org/10.1016/j.ehb.2014.12.002http://dx.doi.org/10.1016/j.ehb.2014.12.002http://dx.doi.org/10.1016/j.ehb.2014.12.002http://dx.doi.org/10.1016/j.ehb.2014.12.002mailto:[email protected]://www.sciencedirect.com/science/journal/1570677Xhttp://dx.doi.org/10.1016/j.ehb.2014.12.002http://dx.doi.org/10.1016/j.ehb.2014.12.002http://www.sciencedirect.com/science/journal/1570677Xmailto:[email protected]://dx.doi.org/10.1016/j.ehb.2014.12.002http://crossmark.crossref.org/dialog/?doi=10.1016/j.ehb.2014.12.002&domain=pdfhttp://crossmark.crossref.org/dialog/?doi=10.1016/j.ehb.2014.12.002&domain=pdf
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    damages caps are associated with fewer births with low

    Apgar scores and a decrease in the incidence of neonatal

    injury deaths despite the higher rate of C-sections. These

    findings are suggestive of an improvement in fetal health.

    All these results are driven by areas with significant entry

    into the field of obstetrics and are not robust to extending

    the sample through 2010.

    One

    explanation

    relies

    on

    the

    observation

    that

    liability-sensitive physicians choose to locate where malpractice

    liability is low. When non-economic damages caps reduce

    liability, the resulting increase in competition in these

    areas could improve access to care, leading to better fetal

    health. At the same time, entrants could have a different

    practice style than the average provider in a particular

    area. For instance, if liability-sensitive physicians have

    poorer diagnostic skills and use surgical intervention more

    often (Currie and MacLeod, 2013), states with higher

    proportions of entrants would experience larger increases

    in C-section rates. This mechanism can explain why the

    impact of non-economic damages caps does not work in

    the

    opposite

    direction

    of

    the

    effect

    of

    an

    increase

    inmalpractice liability. This paper thus contributes to the

    literature by reconciling apparently conflicting findings in

    previous research. It is plausible that most of the change in

    treatment patterns due to non-economic damages caps is

    driven by selection and not by the impact of changes in

    incentives.

    This mechanism can also explain the lack of robustness

    of the estimated effect of non-economic damages caps over

    time. More recent reforms might not be associated with

    significant entry, possibly because the scope of mobility

    decreases as more states pass such legislation or because

    successful past repeals reduce expected gains from

    mobility.

    2. The economics of tort reform

    Where medical liability insurance is an important

    component of the operating cost of a medical practice,

    legislation that reduces malpractice insurance premiums

    should increase the profitability of the medical profession

    and induce entry into the medical field. Non-economic

    damages caps reduce insurer payouts (Sloan et al., 1989;

    Avraham, 2007; Hyman et al., 2009) and the probability of

    lawsuits (Kessler and McClellan, 1997; Browne and Puelz,

    1999) and, thus, they are expected to increase the supply of

    medical

    care.Previous literature has found evidence of an increase in

    the number of doctors (Encinosa and Hellinger, 2005;

    Kessler et al., 2005; Matsa 2007) and more so in high-risk

    specialties (Klick and Stratmann, 2007) such as obstetrics

    gynecology. This evidence is not always consistent, howev-

    er, and Yang et al. (2008) find no evidence that tort reform

    increased the number of obstetriciangynecologists.

    Nevertheless, even when the number of physicians does

    not change, a decrease in cost could still shift the supply of

    medical care and decrease prices. As predicted, the changes

    in the cost structure of the industry because of non-

    economic damages caps (and other tort reforms) have been

    found

    to

    be

    associated

    with

    higher

    prevalence

    of

    healthinsurance coverage for the most price-sensitive groups

    (Avraham and Schanzenbach, 2010). This in itself would

    lead us to believe that tort reforms lead to better health.

    Previous literature, however, has found only very limited

    evidence of health improvements. In particular, Klick and

    Stratmann (2007) found that non-economic damages caps

    are associated with a reduction in black infant mortality

    rates. One proposed explanation is that changes in

    physicians

    incentives

    lead

    to

    changes

    in

    treatmentpatterns (Currie and MacLeod, 2008) that are not

    necessarily associated with better health (Kessler and

    McClellan, 1996) and may in fact lead to more medical

    mistakes (Cotet, 2012).

    The case of obstetrics is especially confusing because of

    apparently conflicting results. There is some evidence that

    C-section rates are responsive to financial incentives

    (Gruber et al., 1999), but other evidence indicates that

    C-sections are not sensitive to medical malpractice risk

    (Kim, 2007). Previous literature found that higher mal-

    practice premiums are associated with an increased use of

    C-sections (Dubay et al., 1999; Grant and McInnes, 2004).

    At

    the

    same

    time,

    there

    is

    evidence

    that

    noneconomicdamages caps, which decrease malpractice premiums

    (Thorpe, 2004; Danzon et al., 2004), are associated with

    higher rates of C-sections (Currie and MacLeod, 2008).

    There are arguments to be made for both sets of results.

    C-sections could be used to protect against malpractice

    claims that argue that negative infant outcomes arose from

    waiting too long to perform surgery (see DAttilo versus

    Viscarello 2011, which resulted in a $58 million award; or

    Fielding and Martinez versusJohn Hopkins Hospital 2012,

    which resulted in a $55 million award). Therefore, C-

    sections could be one more way physicians practice

    defensive medicine. At the same time, C-sections entail

    risks.

    They

    could

    lead

    to

    injury

    or

    infections

    and

    couldaffect future fertility, all of which could lead to malpractice

    lawsuits. Thus, physicians may be reluctant to perform C-

    sections in an effort to avoid litigation.

    Ultimately, whether C-sections rates are too high boils

    down to determining whether at the margin additional

    procedures are associated with a net benefit. Previous

    literature found no evidence that higher rates of C-sections

    are associated with any changes in infant health (Baicker

    et al., 2006), findings that do not appear to suggest that

    physicians avoid C-sections because of potential liability.

    In addition, there may be general equilibrium effects. To

    the extent that the litigiousness of a place affects

    physicians

    scope

    of

    practice

    and

    location

    choices,

    changesin working environment driven by the decline in the

    likelihood of being sued due to non-economic damages

    caps could lead to geographical mobility (Matsa, 2007).

    Such mobility could differentially alter treatment choices

    and outcomes in the affected areas. Because the scope of

    mobility decreases as more states pass such legislation or

    fall under a federal tort reform, predictions based on early

    reforms may under/overestimate the impact of tort reform.

    Interestingly if the estimated effect of caps is driven by

    such mechanisms, all theories regarding the use of C-

    sections predict the same outcome. If a high rate of C-

    sections performed indicates a risk-taking physician, lower

    liability

    could

    attract

    the

    most

    risk-taking

    physicians,leading to an increase in C-sections in states with caps. In

    A. Cotet-Grecu / Economics and Human Biology 17 (2015) 294130

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    fact the same result would occur if C-sections were a form

    of defensive medicine. A risk-adverse physician that

    performs many C-sections might find a state with caps

    particularly attractive. C-sections might also increase

    where competition improves pregnancy health and more

    difficult pregnancies result in live births if these additional

    births are more likely to be associated with surgical

    deliveries.

    Alternatively,

    if

    the

    most

    liability

    sensitivephysicians that drive the increase in supply tend to have

    poorer diagnostic skills they may perform differentially

    more C-sections (Currie and MacLeod, 2013). In all these

    situations, there would be an amplification effect: the

    coefficients obtained would overestimate the incentive

    effect.

    3. Econometric strategy

    The following equation describes the empirical model2:

    Yct uCAPs;t1 bXc s t ac gtr vst ect (1)

    where s stands to state, c for county, r for region, t for yearand ectis the stochastic error term.

    Yctcould be one of the following outcomes variables in

    county c year t: obstetricians per 10,000 women; prenatal

    visits per live births; C-section rate among live births;

    births per 100 women of fertile age (1544 years old);

    percent mothers who initiated prenatal care during the

    first trimester, second trimester, third trimester, or did not

    receive prenatal care; percent premature births (

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    overall level of health of the population in a county do not

    confound the effect of non-economic damages caps. The

    equation also includes year fixed effects, gtr, meant tocapture time-varying differences in the dependent variable

    common to all counties, such as changes in federal-level

    healthcare policies. Because there are regional differences

    in physicians practice style that may change over time the

    year

    effects

    are

    allowed

    to

    vary

    by

    region.State-specific trends in medical-care utilization rates

    could impact a states likelihood to adopt a non-economic

    damages cap. To control for such a possibility, the model

    includes state-specific time trends, vst. Controlling forthese trends reduces the burden of the assumption of

    reforms exogeneity. Conditional on county, region by year

    fixed effects, and state-specific trends, the us are identifiedfrom year-by-year changes in legislation, after controlling

    for shocks common to all counties, differential shocks to

    different regions, and state-specific trends.

    One more issue about the estimation strategy should be

    mentioned. The independent variable of interest varies

    only

    at

    the

    state

    level.

    Moreover,

    it

    could

    be

    that

    the

    errorterms are correlated within states over time, although the

    fact that laws are also repealed during the period

    investigated is useful for identification because it helps

    ensure that general trends in outcomes are not confounded

    for the effect of caps. Nevertheless, misspecification of the

    autocorrelation process can lead to downward bias in the

    standard-error estimates (Bertrand et al., 2004). Conse-

    quently, robust standard errors clustered at the state level

    that allow for heteroskedasticity and autocorrelation of

    unspecified form are calculated and reported throughout

    the paper6.

    The key identifying restriction in this paper is that the

    adoption

    of

    non-economic

    damages

    caps

    is

    exogenous.

    Theliterature indicates that the timing of the adoption is mostly

    the resultof vagaries of the political process (Rubin,2005).

    A significant portion of the reforms is not specific to

    medical malpractice, but is instead broad tort reform,

    applying to accidents and product liability as well

    (Avraham and Schazenbach, 2010). Thus, it is unlikely

    that tort reforms were passed in response to changes in

    the obstetrics practice (Currie and MacLeod, 2008).

    Numerous papers, among which Rubin and Shepherd

    (2007), Avraham and Schazenbach (2010), and Cotet

    (2012) are just a few examples, investigated this point

    using a variety of balancing tests and graphical evidence

    and

    found no

    evidence

    of

    endogeneity

    so

    I

    will

    not

    repeatthe exercise here. However, because this paper investi-

    gates the robustness of the results over time in Table 1, I

    present summary statistics indicating whether the

    distribution of observable covariates is similar in all

    period investigated (Heckman and Hotz, 1989).

    4. Data

    The physician data comes from the Area Resource File

    (ARF), which contains county level information about the

    number of obstetricgynecologists starting in 1995. This

    data are also available separately by age.

    For the investigation of obstetric procedures and birth

    outcomes I use the 19892010 National Center for Health

    Statistics (NCHS) Natality Files, which provide a census of all

    births. This dataset contains information on the newborns

    health, the demographic characteristics of the parents, the

    pregnancy

    history

    of

    the

    mother,

    and the

    prenatal carehistory of the mother. In addition, these data provide

    information about childbirth procedures. Over the period

    of thisstudy, therewere significant changes in thecontent

    of the birth certificate. As a result, some of the data from

    the revised (2003) andunrevised (1989) birth certificates

    may not be comparable. I concentrate on C-sections

    because these data are consistent over the entire period

    investigated, while the prevalence of stimulation of labor

    may notbe fullyconsistent7. The dataon health outcomes

    is fully consistent over time. Although some states revised

    theprenatalcare initiationquestions on birth certificates I

    retain the data on prenatal care initiation, an outcome

    variable.

    If the measurement error

    in

    this dependentvariable is not correlated with the independent variables,

    it does not bias the estimates. All regressions that use

    Natality data control for an indicator variable for the

    states that revised birth certificatedafter the revision. All

    conclusions drawn based on results obtained using data

    from thetwo certificates combined are reinforced byother

    empirical tests usingonly data prior toany revision in any

    states, i.e. before 2003.

    Because in some regressions the period investigated is

    quite long (22 years) and there are changes over time in the

    prevalence of multiple births, I retain only the sample of

    singleton births. This ensures that the observed changes in

    the

    prevalence

    of

    C-sections

    and

    poorer

    birth

    outcomes

    arenot driven by trends in multiple births known to be more

    likely to be associated with surgical delivery and higher

    incidence of prematurity and low birth weight. The

    retained data are then collapsed at county level to allow

    the investigation of the differential effect of tort reform

    function of local characteristics. These data are then

    merged with the state legislative data.

    State by state legislative data are taken from Avrahams

    (2011) Database of State Tort Law Reforms (DSTLR

    4 dataset). The impact of the law is measured by

    introducing a dummy variable indicating whether the

    state has a cap on non-economicdamages in a given year,

    regardlessof

    the

    value

    of

    thecap.

    If

    theeffective

    date

    of

    thereform was on or after July 1st, it was coded as belonging

    to the following year.

    Although, as Avraham (2011) indicates, many states

    experimented with non-economic damages caps before

    1989, there was significant legislative activity both in the

    period of reference, 19892001, and in recent period,

    20022010. Specifically, given that, as will be shown

    below, this analysis suggests there is a one-year lag in the

    effect of caps, the investigation of the 19892001 birth

    cohorts covers fifteen reforms: six instances of caps

    6

    The

    standard

    errors

    are

    essentially

    the

    same

    when

    clustering

    by

    stateand year; results are available on request.

    7

    Some

    results

    regarding

    the

    prevalence

    of

    induction

    are

    discussed

    inthe paper. The data on induction is consistent over the entire period.

    A. Cotet-Grecu / Economics and Human Biology 17 (2015) 294132

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    adoptions (IL 1995, WI1995, MT 1996, ND 1996, SD, 1996,

    OH 1997) and nine instances of caps repeals (WA 1989, MN

    1990, NH 1991, WI 1991, OH 1992, AL 1993, IL 1998, OH

    1998, OR 2000) as shown in Fig. 1. The analysis of 1989

    2010 birth cohorts covers an additional ten reforms: nine

    instances of adoptions (FL 2003, MS 2003, NV 2003, OH

    2003, OK 2004, TX 2004, GA 2005, IL 2006, SC 2006) and

    one repeal (IL 2008) as shown in Fig. 2.

    The source of fetal death data is the NCHS Fetal Deaths

    Files. At the time of this research Fetal Death data are

    available only until 2006. Because different states have

    different gestation thresholds for reporting fetal death, I

    retain only the records indicating a gestation that would

    ensure data reliability and comparability across states.

    Table 1

    Summary statistics.

    19892001 19892010

    Mean Standard error Mean Standard error

    Ob-gyn 2.420 (1.473) 2.440 (1.454)

    C-sections 21.057 (4.369) 24.375 (6.223)

    Prenatal visits 11.298 (1.139) 11.277 (1.181)

    Prenatal care initiation

    1st Trim 80.083 (8.583) 79.417 (9.538)

    2nd Trim 15.283 (6.014) 15.794 (6.711)

    3rd Trim 3.230 (2.141) 3.394 (2.346)

    None 1.404 (1.608) 1.396 (2.087)

    Births 6.380 (2.635) 6.438 (2.719)

    Gestation

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    Specifically, I use fetal deaths per 1000,000 women aged

    18448 occurring after 28 weeks of gestation9.

    The source of neonatal mortality data is the Com-

    pressed Mortality Files compiled by NCHS. They contain

    information

    from

    all

    death

    certificates

    filed

    in

    the

    50

    statesand the District of Columbia. The per-capita personal

    income data come from the Bureau of Economic Analysis.

    The county level population data by gender, race and age

    come from National Center for Health Statistics (NCHS)

    Bridged Race Population Estimates. County level hospital

    data as well as data regarding urban-rural states come

    from the Area Resource File. The state-level education and

    marital status data for women come from the Current

    Population Survey, March Supplement.

    5. Results

    5.1.

    Main

    results

    5.1.1. Effect on supply

    First I show results obtained for the period running up

    to and including 2001, and subsequently I extend the

    period to cover all reforms passed until 2010. The

    2001 cut-off was chosen to match the period used by

    previous literature as closely as possible. Both Klick and

    Stratmann (2007), who find effects on physicians in high-

    risk specialties, such as obstetrics and gynecology, and

    Currie and MacLeod (2008), who find effects on C-sections,

    use data up to and including 2001.

    In Table 2, I present results suggesting that during the

    19952001

    period,

    non-economic

    damages

    caps

    wereassociated with an increase in the number of ob-gyns per

    10,000 women. The adoption of non-economic damages

    caps is associated with 0.103 more ob-gyn per 10,000

    women, the equivalent of a 4.26% increase in the supply of

    ob-gyn. This estimate is very close to the Klick and

    Stratmanns (2007) findings of a 4.1% increase in supply of

    physicians in high-risk specialties. However, the results do

    not hold when the period is extended to 2010. The

    estimated effect during the period 20022010 is signifi-

    cantly different from the estimated effect during the pre-

    2002 period (p-value 0.049). It is possible that scope of

    mobility decreases as more states pass such legislation. An

    alternative

    explanation

    is

    that,

    over

    time

    the

    high

    rate

    ofsuccessful repeals decreased the trust that a policy will

    Table 2

    Non-economic damages caps and the supply of medical care: the case of obstetrics.

    Dep. Var. Ob/Gyn [1] Prenatal visits [2] Cesarean [3]

    Panel A: 19892001

    NE Cap 0.103** (0.049) 0.102*** (0.037) 0.412** (0.200)

    Obs. 17,696 32,458 32,582

    Panel B: 19892010

    NE

    Cap

    0.033

    (0.030)

    -0.174

    (0.138)

    0.453

    (0.275)Obs. 40,048 54,496 54,728

    Panel C: 20022010

    NE Cap 0.005 (0.016) -0.147 (0.147) 0.254 (0.182)

    Obs. 22,352 22,038 22,146

    The dependent variables are: obstetriciansgynecologists per 10,000 women in column 1, average number of prenatal visit per live birth in column 2, and C-

    sections per 100 live births in column 3. Due to data availability column 1 only uses the data after 1995. NE Cap stands for non-economic damages caps

    reforms. The regressions reported in column 1 control for percent white (omitted), percent black, and percent other race; the age structure: percent under

    15 years old (omitted), 1544, 4564, 65 and older; log of county income per capita; and for state level variables such as womens education: percent with

    less than a high-school degree (omitted), percent with a high-school degree, percent with some college, and percent with a college degree or more

    education; and marital status. The regressions reported in columns 2 and 3 control for birth parity: first child, second child, third child, fourth child, fifth or

    subsequent child (omitted); gender; mothers age: under 25 (omitted), 2534; over 35 years old; mothers education: less than high-school education

    (omitted), high-school, some college, college or more; mothers race: white (omitted), black, other race; Hispanic; marital status; and log of county income

    per capita. All regressions control for joint and several liability reforms, punitive damages reforms, collateral source reforms, total damages reforms. All

    regressions include county fixed effects, year fixed effects that are allowed to vary by region and state specific time trends. The regressions reported in

    column 1 are weighted by the number of women in a county-year. The regressions reported in columns 23 are weighted by the number of live births in acounty-year. Robust standard errors clustered at state level are reported in parentheses.

    * Significant at 10% significance level.

    ** Significant at 5% significance level.

    *** Significant at 1% significance level.

    Fig. 2. Non-economic damages caps changes legislative changes 2002

    2010 (light gray for adoptions, dark gray for repeals, black for states that

    both adopted and repealed a cap).

    8 This specification is preferable to using fetal deaths/conceptions

    because of the measurement error in the variable conceptions (i.e. live

    births + fetal deaths). Such measure of conceptions would exclude all fetal

    deaths before 28 weeks of gestation, which could be affected more by the

    impact of non-economic damages cap leading to attenuation in the

    estimated effect of the reforms.9

    The

    results

    are

    robust

    to

    using

    all

    fetal

    deaths

    occurring

    after24 weeks of gestation. Results not reported but available on request.

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    stay in effect and, thus, the incentives to choose a state

    with caps over one without.

    The estimates reported in column 3 of Table 2 are also

    consistent with previous literature (Currie and MacLeod,

    2008) and indicate that during the 19892001 period there

    was a positive, significant correlation between non-

    economic damages caps and the prevalence of C-sections

    among

    live

    births.

    The

    estimated

    effect

    is

    small,

    a0.412 increase in C-sections per 100 live births, the

    equivalent of a 2% increase calculated at the mean10. In

    addition, during that period non-economic damages caps

    were associated with 0.102 more prenatal visits for the

    average women, the equivalent of a 0.9% increase.

    There is a lag between the year of adoption and any

    significant change in medical practice, providing reassur-

    ance that the causality runs from the legislation to the

    likelihood of surgical intervention during birth and not the

    other way around11. When investigating the effect of this

    reform on procedures over the entire 19892010 period,

    however, neither the estimated effect on prenatal visits nor

    that

    on

    C-sections

    is

    significant.

    Two

    standard

    deviationsaround the estimated effect on prenatal visits before

    2002 excludes the estimated effect over the 20022010

    period, and in fact the estimated effects are of different

    signs. The difference between estimates appears to be

    much smaller in the case of C-sections, although the

    0.254 estimated coefficient is the equivalent of 0.9%

    increase in C-sections, half the effect over the pre-2002

    period, and statistically insignificant. The lack of statistical

    significance is not driven by larger standard errors but by

    the smaller coefficient12. The smaller, insignificant effect of

    newer reforms leads to smaller and insignificant estimates

    on the pooled sample as well.

    5.1.2. Buyers response

    The second question is whether such supply changes

    elicited any demand response that could have led to

    changes in procedures. Do women respond to changes in

    medical practice? A noisy way to address this question is to

    look at the number of births. Women residing close to a

    state border could respond by choosing a physician in the

    border state. This measure is noisy because it is unlikely

    pregnant women are very mobile and because our data

    retain only live births, which contain a supply component:

    the quality of care. When non-economic damages caps

    affect the quality of care and thus are correlated with the

    likelihood of survival in utero, the information contained in

    the number of live births captures both a demand response

    and a supply response. The results reported in Table 3

    indicate noeffecton live births per 100 women of fertile age.

    A better way to investigate this hypothesis is to look at

    the initiation of an episode of care. While suppliers,

    physicians, may decide the course of treatment, they can

    only

    do

    so

    if

    women

    initiate

    an

    episode

    of

    care.

    Thus,

    thetiming of prenatal-care initiation represents a cleaner

    source of information about how women respond to

    changes in medical practice. I find that non-economic

    damages caps reforms passed during the 19892001

    period were associated with earlier prenatal-care initia-

    tion. This is consistent with previous literature indicating

    that some of the savings experienced by physicians in

    states with caps are passed to consumers: damage caps

    increase health insurance coverage (Avraham and Schan-

    zenbach, 2010).

    These results are also not robust on the more

    comprehensive sample and in fact change signs. Although

    the

    hypothesis

    that

    these

    results

    are

    driven

    by

    measure-ment error in the dependent variables due to birth

    certificates revision cannot be completely rejected, it does

    not seem to pose a significant problem. The exclusion of

    the control variable for revised data alters neither the sign

    nor significance of the coefficients. In addition, the results

    are consistent with those obtained on the sample of states

    that did not implement revised birth certificates.

    5.2. Falsification tests

    5.2.1. Effect on outcomes

    One way to investigate the plausibility of the results is

    to

    check

    whether

    other

    variables

    related

    to

    the

    supply

    ofmedical care changed in the same manner.

    Table 4 reports the effect of non-economic damages

    caps on a variety of birth outcomes. Interestingly, these

    changes are associated with better health outcomes.

    Between 1989 and 2001, non-economic damage caps are

    associated with fewer births with low Apgar scores and

    fewer instances of neonatal mortality due to injury.

    Although there is a positive correlation between non-

    economic damages caps and neonatal mortality due to

    adverse effects of medical care, this association is not

    significant at conventional significance levels13.

    These effects, however, are not robust to using the more

    comprehensive

    sample,

    which

    is

    fully

    consistent

    withprevious results indicating that the newer reform have less

    bite.10 Currie and MacLeod (2008) found a 5% increase in the probability of C-

    section, but they retain multiple births, while this paper does not, for

    reasons explained in the data section. The C-section rate is higher among

    multiple births.11 The estimated contemporaneous effect on ob-gyn is 0.031 with

    standard error 0.022 and not statistically significant. The contemporane-

    ous effect on C-sections is 0.267 with a standard error of 0.138 and, thus,

    smaller and significant only at 10%. The lead policy variable is not

    statistically significant.12 It is also not true that the lack of significance is driven by a longer lag

    between the adoption and the response, such as may be expected if

    people wait to see whether the reform will stick or be reversed. An event

    analysis performed on the 20022010 data indicates statistically

    insignificant

    effects

    at

    all

    lags;

    results

    reported

    in

    Appendix

    Table

    A2,available on request.

    13 I find no evidence of a statistically significant change in the

    prevalence of low birth weight, high birth weight, or in the average

    birth weight. There is some evidence that during the 19892001 period

    caps were associated with an increase in births at 39 weeks of gestation

    and a decrease in those at more than 41 weeks of gestation. These results

    are more suggestive of scheduled C-sections than of decisions taken at the

    time of delivery and thus do not provide evidence that changes in health

    drive the change in procedures. In addition, I find no evidence of a

    statistically significant effect on induction over the entire sample or

    within groups defined by gestation, which would suggest that a vaginal

    delivery

    was

    attempted.

    These

    results

    are

    not

    reported

    but

    are

    availableon request.

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    There are two possible explanations for these results.

    One is a demand-based explanation. For instance, women

    that care more about their health are more likely to be

    aware of their health risks and, thus, start prenatal care

    earlier and have better outcomes than women diagnosed

    later during pregnancy. If these women with high-risk

    pregnancies that warrant surgical intervention are more

    mobile in their search for the right physician, non-

    economic damages caps could be associated with more

    C-sections and better outcomes. This explanation has

    significant caveats. These women may be reluctant to

    travel too far. Expecting to need more care, they could also

    be

    more

    likely

    to

    avoid

    a

    state

    with

    a

    decreased

    cost

    ofmalpractice even when the price of care is lower.

    Alternatively, women that care more about their health

    and have healthier births but also request surgical

    intervention may be more mobile. In both situations, the

    births in states with caps could be significantly different

    from those occurring in the non-cap states. I follow Currie

    and MacLeod (2008) to define high-risk women as those

    suffering from following conditions: anemia, cardiac, or

    lung conditions, diabetes, herpes, eclampsia, or incompe-

    tent cervix, previous large or preterm deliveries, renal

    failure, rh problems, uterine bleeding, or other risk factors.

    Between 1989 and 2001 I find no evidence of a significant

    change in the proportion of births to high-risk women

    (coefficient

    2.984

    with

    standard

    error

    of

    1.865).

    It

    is

    moredifficult to test the hypothesis that women that care more

    Table 4

    The impact of non-economic damages caps on birth outcomes.

    Dep. Var. Premature births [1] 5 min Apgar

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    about their health are more mobile. The increase in the

    proportion of women that delay prenatal care reported in

    Table 3 could be consistent with this hypothesis. However,

    the

    lack

    of

    a

    significant

    change

    in

    the

    number

    of

    births

    instates with caps, also reported in Table 3, seems more

    suggestive of a response to lower prices, than of a selection

    story.

    A more fruitful area of investigation is a supply-based

    explanation. The gains from easier access to specialized

    medicalcare, ob-gyn,more than offsetany cost associated

    with the risk of injury during surgical intervention, thus

    leading to better overall outcomes. This explanation is

    plausible. Evenwhen newentrants have lower diagnostic

    skills and, thus, are both more prone to intervene

    surgically (Currie and MacLeod, 2013) and more prone

    to errors, the increase in competition may ensure that

    only the most error-free physicians can maintain asuccessful practice. Thus, the risk of iatrogenic injury

    might be small. The results regardingthe effect of caps on

    mortality frommedical care adverse effects provide some

    support for this proposed explanation.

    Thehypothesis that the results are driven by selection

    could also explain why none of the results obtained from

    the 19892001 data can be replicated with the extended

    19892010 sample14. In the following, I concentrate on

    testing the supply-based explanation using the sample of

    reforms passed before 2002, when the reforms are known

    to be binding and produce an effect in the total

    population. For instance, thepositivecorrelation between

    caps and C-sections could be explained by increased risk

    taking

    by ob-gyns or

    by a

    change in

    the

    characteristics ofob-gyns due to selection. To separate one explanation

    from the other I present results from a series of

    falsification tests that show that most of the effect on

    procedures is concentrated in areas with higher entry,

    with little to no effect in areaswhere the structure of ob-

    gyn population remained substantially the same, sugges-

    tive of selection effects.

    5.2.2. Effect by age of physicians

    The hypothesis that the effect is driven by selection

    relies on the assumption that the ob-gyn entrants are

    different from the incumbents. Due to data availability, I

    cannot

    test

    directly

    whether

    their

    practice

    style

    isdifferent. However, because practice style is built through

    education and experience, significant changes in the

    demographics of ob-gyns provide indirect evidence of

    differences in practice style. I find evidence of a statistically

    significant increase in the number of ob-gyns under

    35 years old in states that adopted caps before 2002

    (see Table 5). The adoption of caps is associated with a

    0.011 increase in ob-gyn per 10,000 women, the equivalent

    of a 10% increase calculated at the mean of the data. There

    is also some weak evidence, significant at the 10%

    significance level, of an increase in the number of

    physicians 6574 years old. Although quite noisy the

    estimate

    is

    large.

    It

    represents

    an

    almost

    10%

    increase,

    asignificant change if we are to compare it with the

    estimated effect on physicians age 35 to 44, the equivalent

    of a 2% increase.

    These findings are consistent with previous literature

    (Baicker and Chandra, 2005) and plausible, because young

    ob-gyns at the beginning of their career are more mobile.

    Once physicians have established their practices, which

    often rely on referrals, changing their locationwould bevery

    costly. At the same time, the prospect of lower practice costs

    may induce some ob-gyns to defer retirement.

    5.2.3. Effect by rurality

    According

    to

    the

    2003

    Socioeconomic

    Survey

    ofAmerican College of Obstetricians and Gynecologists

    Table 5

    the impact of non-economic damages cap on the supply of Ob-Gyn by age of the physician.

    Under 35 3544 4554 5564 6574 over 75

    Panel A: 19952001

    NE Cap 0.011** (0.005) 0.003 (0.004) 0.004 (0.005) 0.002 (0.003) 0.004* (0.002) 0.001 (0.002)

    Obs. 17,695 17,695 17,695 17,695 17,695 17,695

    Panel B: 19952010

    NE

    Cap

    0.004*

    (0.002)

    0.003

    (0.004)

    0.004

    (0.003)

    0.000

    (0.003)

    0.002

    (0.001)

    0.000

    (0.001)Obs. 40,047 40,047 40,047 40,047 40,047 40,047

    Panel C: 20022010

    NE Cap 0.002 (0.002) 0.003 (0.002) 0.001 (0.002) 0.000 (0.003) 0.001 (0.002) 0.001 (0.001)

    Obs. 22,352 22,352 22,352 22,352 22,352 22,352

    The dependent variables are the number of ob-gyn per 10,000 women by age of physician as noted in the heading of each column. The model specification

    used for these regressions is identical to the one used in regressions reported in Table 2 column 1.

    * Significant at 10% significance level.

    ** Significant at 5% significance level.*** Significant at 1% significance level.

    14

    Another

    explanation

    is

    that

    the

    most

    recent

    reforms

    are

    not

    binding.However, there is no evidence in support of that theory as the magnitude

    of the cap is similar over time. Yet another explanation is repeals have

    adoptions do not have symmetric effects. A large share of the variance in

    the pre-2001 period is repeals whereas only 1 of the changes in the

    2002 to 2010 period is a repeal. However, previous literature found there

    is no difference between the effect of adoptions and repeals in the case of

    medical procedures (Cotet, 2012). There is one paper that reports a

    difference. Yoon (2001) found that the amount that plaintiffs recovered

    fell by $23,000 in the period following the enactment of damage caps in

    Alabama relative to the control states; while following the repeal of the

    damage cap, the amount that plaintiffs recovered increased by $48,000

    relative to the levels in the control states, However, two unusually high

    payouts in the post-repeal period accounted for that asymmetry: after

    omitting those cases, the decrease after repeal was found to be about

    $20,000, an amount in line with the increase after enactment (Elliott,

    2004).

    There

    is,

    thus,

    no

    reason

    to

    believe

    that

    adoptions

    and

    repeals

    haveasymmetric effects.

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    (ACOG) Fellows, the vast majority of ob-gyns, 88%, practice

    in metropolitan areas. This number did not change

    between 1991 and 2003. This is quite plausible, given

    the nature of the demand for their services and the

    infrastructure used in the production of these services.

    Natality data indicate that 98% of births took place in a

    hospital. At the same time, ARF data indicate that

    approximately 10% of counties had no hospital and another

    40% had only one hospital. In fact, over the period

    investigated,

    80%

    of

    counties

    had

    a

    maximum

    of

    twohospitals. Because deliveries take place in hospitals, ob-

    gyns have to locate close to hospitals, which, as the data

    indicate, tend to be located in metropolitan areas and other

    urban areas. New entrants would also look for a location

    reasonably close to a hospital. It is likely that there is more

    entry into this field in metropolitan/urban areas. If our

    results are driven by changes in the characteristics of the

    body of ob-gyns practicing in an area, as opposed to a

    change in the incentives of existing ob-gyns, we should

    also observe larger changes in procedures and outcomes in

    metropolitan/urban areas.

    To test this hypothesis, I use the ARF 1995 classification

    of

    counties

    rurality

    and

    define

    urban

    as

    including

    allcounties in metropolitan areas regardless of population

    and counties with an urban population of 20,000 or more

    adjacent to a metropolitan area. For the sake of brevity, I

    report only the regressions for those outcome variables

    previously found to be significantly affected by non-

    economic damages caps. For all other variables, the effect is

    not significant on either the urban or the rural sub-

    sample15. The results reported in Table 6 are consistent

    with the theory delineated above. Two standard deviations

    around the effect on prenatal care initiation, or Apgar

    scores estimated for urban counties exclude the effect in

    rural areas. One standard deviation around the effect on

    ob-gyns, C-sections or neonatal injury mortality in urban

    areas excludes the effect estimated for rural areas.

    5.2.4. Effect by number of hospitals

    Although, ob-gyns prefer metropolitan locations, the

    choice of location also depends on the demand for their

    services. Matsa (2007) finds that the supply of physicians

    increases more in relatively underserved areas16. There are

    thus

    two

    margins

    of

    choice:

    infrastructure

    availability,

    i.e.hospitals, and the demand for ob-gyn services. The

    availability of hospitals captures the existence of infra-

    structure that could be used for obstetric services. It

    represents a measure of desirability of an area from a

    professional point of view. It also captures the availabil-

    ity of location options for an ob-gyn, thus being a

    measure of desirability from a personal point of view. If a

    county only has only one hospital then location options

    are very limited because the ob-gyn likely cannot locate

    too far from the hospital. This implies that ob-gyns may

    locate in areas with at least one hospital but that are

    relatively underprovided. To test this hypothesis, in

    Table 7, I

    split

    the sample

    by the

    number of

    hospitals

    per10,000 people. Most of the effect is concentrated in areas

    with a low number of hospitals per capita, with some

    effect on prenatal initiation but no effect on outcomes in

    areas with no hospitals or with many hospitals. This is

    credible because even women in areas without a

    significant influx of ob-gyns might benefit from lower

    prices and, thus, they may be more likely to initiate care

    Table 6

    The impact of non-economic damages capseffect in rural versus urban areas.

    Panel A. Supply

    Ob/Gyn Prenatal visits Cesarean

    All

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    Table 8

    The impact of non-economic damages caps by Lag ObGyn density.

    Panel A. Supply

    Ob/Gyn Prenatal visits Cesarean

    All

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    earlier, perhaps with a primary physician or general

    practitioner. These results provide further support for

    the hypothesis that the estimated effect of non-

    economic damages caps is driven mostly by entry rather

    than by changes in the practice style of existing

    physicians.

    5.2.5.

    Effect

    by

    lag

    ob-gyn

    per

    10,000

    womenAnother measure of an areas suitability for new

    entrants is the number of ob-gyn in previous period. A

    low number of ob-gyn per women signals under-provision,

    but the survival of any ob-gyn practices signals the

    existence of basic infrastructure. The results reported in

    Table 8 support the theory that before 2002 entry took

    place mostly in areas relatively underserved, albeit not in

    areas with most problems. The effect on procedures,

    prenatal visits and C-sections, is also larger in the same

    areas.

    Of more interest perhaps is the effect of caps on health

    outcomes, Apgar scores and neonatal mortality, which

    seems

    to

    be

    concentrated

    in

    areas

    with

    significantconcentrations of ob-gyn. These results match the results

    regarding prenatal care initiation. In areas with high initial

    concentrations of ob-gyn caps are associated with fewer

    women delaying prenatal care initiation until the third

    trimester. Thus, it could be that the effect on outcomes is

    mostly due to the demand response to caps.

    All this evidence is consistent with relatively small

    changes in the practice style of incumbent ob-gyns and

    larger changes in the overall practice style of ob-gyns in

    states with caps due to entry. Thus, failure to account for

    this source of variation would bias the estimate of ob-gyns

    response to financial incentives. The overall conclusion is

    that

    the

    lack

    of

    robustness

    of

    the

    effect

    of

    non-economicdamages caps over time is likely driven by weaker supply

    responses, either because of the signal contained in the

    numerous repeals of caps or due to the reduced scope of

    mobility.

    6. Discussion and conclusions

    Empirical results suggest that during the 19892001

    period, non-economic damages caps reforms were associ-

    ated with an increase in the number of ob-gyns, increases

    in the number of prenatal visits and the rate of C-sections,

    and better birth outcomes. The results are not robust to

    the

    addition

    of

    more

    recent

    reforms

    taking

    place

    during

    the20022010 period, however. This paper investigates the

    role of selection among new entrants in explaining these

    inconsistencies. It also provides some guidance toward

    understanding the inconsistencies found in the literature

    between the estimated effect of malpractice premiums on

    procedures and that of non-economic damages caps that

    reduce malpractice premiums on procedures.

    First, the results reported in this paper suggest that the

    earlier laws implementing caps on non-economic

    damages produced changes in procedures and outcomes

    in areas with more entry. In these areas, the demographic

    structure of ob-gyns changed toward more young

    physicians,

    suggestive

    of

    changes

    in

    the

    average

    practicestyle through selection. Thus, non-economic damages

    caps likely affected the market for obstetric services

    through changes in access, changes in the incentives of

    ob-gyns, and changes in the characteristics of service

    provided by the average ob-gyn due to selection among

    ob-gyns.

    Failure to account for all these margins of choice

    threatens the external validity of the estimated effect of

    this

    policy

    on

    physicians

    behavior,

    and,

    thus,

    extrapola-tion from state- to federal-level policies may not be

    appropriate. When a sizeable part of the effect of the policy

    is driven by young physicians location choices, the

    estimated coefficients overestimate the impact of changes

    in the incentives faced by the average ob-gyn.

    Second, the evidence presented in this paper suggests

    that although earlier non-economic damages caps reforms

    led to changes in medical practice that mirror the effect of

    higher malpractice premiums (i.e., they are positively

    associated with higher C-sections rates and more care),

    the results need not be inconsistent with each other. Rather,

    the correlation between malpractice premiums and proce-

    dures

    reflects

    incentive effects,

    while

    the

    associationbetween non-economic damages caps and procedures

    reflects selection effects that could obscure the effect of

    changes in incentives. Because malpractice premiums were

    found to lead to more C-sections (Dubay et al., 1999; Grant

    and McInnes, 2004) while non-economic damages caps

    were found to act mostly though selection, it is more

    plausible that in general, C-sections are not a sign of risk-

    taking among ob-gyns.

    In addition, the results are consistent with the idea that

    non-economic damages caps lead to changes in outcomes

    through increased pressure of competition. Both the lower

    cost of malpractice and the shift in supply toward

    physicians

    with

    less

    experience

    would

    suggest

    greaterpotential for medical errors. The results do not completely

    reject the hypothesis that non-economic damages caps

    increase medical errors, because although the estimated

    effect on infant mortality from medical care adverse effects

    is not statistically significant, it is positive and economi-

    cally significant. The implied effect, albeit very imprecisely

    estimated, is more than 30% increase in infant mortality

    due to adverse effects from medical care. Increased

    competition, however, can offset some of this increase in

    medical errors by easing access and putting pressure on

    physicians to perform, thus, leading to a net positive effect

    on outcomes, as identified in this paper.

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    Further

    reading

    National Center for Health Statistics, 1999. Bridged-race IntercensalEstimates of the July 1, 1990July 1, 1999, United States ResidentPopulation by County, Single-Year of Age, Sex, Race, and HispanicOrigin, Prepared by the U.S. Census Bureau with Support from theNational Cancer Institute. National Center for Health Statistics Avail-able on the internet athttp://www.cdc.gov/nchs/nvss/bridged_race.htm.

    National Center for Health Statistics, 2010. Postcensal estimates of theresident population of the United States for July 1, 2000-July 1, 2010,by year, county, single-year of age (0, 1, 2,. . ., 85 years and over),bridged race, Hispanic origin, and sex (Vintage 2010). Prepared Undera Collaborative Arrangement with the U.S. Census Bureau. NationalCenter for Health Statistics Available fromhttp://www.cdc.gov/nchs/nvss/bridged_race.htm.

    A. Cotet-Grecu /Economics and Human Biology 17 (2015) 2941 41

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