Physician Mobility and the Differential Effects of Defensive Medicine

The empirical literature on defensive medicine includes studies utilizing date at the state or county level. In comparison to the rest of the literature, these jurisdictional studies typically find the least evidence that rising malpractice liability costs induce cost-increasing or quality-reducing practices by physicians. A key assumption in these studies is that changes in malpractice pressure have no cross-jurisdictional effects on health care spending and quality. If physicians are mobile and malpractice pressure influences their location decisions, these studies neglect an important channel for such cross-jurisdictional effects. This paper constructs a theoretical model in which multiple insurers compete to provide consumers with health insurance while facing mobile physicians. Analytical and numerical results show that, through this mobility channel, changes in malpractice pressure unique to one jurisdiction influence health care spending and quality in other jurisdictions. This physician location decision can also be interpreted as one of allocating time over different types of patients or procedures, allowing the model to investigate how defensive medicine differentially affects distinct, contemporaneous patient populations.