Does Capping Malpractice Damages Alter Physicians’ Behavior?

This study asked whether limiting malpractice payouts in North Carolina affected how doctors make childbirth decisions, especially the use of cesarean deliveries. Using hospital discharge data from North Carolina and Florida from 2008 to 2017, the authors compared outcomes before and after North Carolina’s 2011 cap on noneconomic damages. They found that c-section rates fell by about 5 percent on average, and nearly 7 percent five years after the law took effect. Doctors also used fewer vacuum or forceps deliveries but slightly increased medical inductions, suggesting they adjusted their approach to maintain control while reducing costly or risky procedures.

The Policy Scientist’s Perspective

This article offers an examination of how malpractice reforms shape physician behavior, addressing a long-standing policy concern over “defensive medicine.” The authors employ a difference-in-differences design using comprehensive hospital discharge data from two states, which, while not experimental, provides credible causal inference. The dataset’s statewide scope and decade-long coverage strengthen its validity, and the results—showing a 5–7 percent decline in cesarean deliveries following North Carolina’s damage cap—are statistically robust. In an era of renewed debate over healthcare costs and liability reform, this work stands as one of the more substantive recent contributions to understanding how legal constraints alter physician decision-making.

Full Citation and Link to Article

Chen, A. J., Richards, M. R., & Shriver, R. (2025). Regulating malpractice risk and medical decision-making: Evidence from births. Journal of Policy Analysis and Management, 44(4), 1194–1210. https://doi.org/10.1002/pam.70044

Extended Summary

Central Research Question

This article examines how medical malpractice reforms influence physician decision-making, focusing specifically on childbirth practices. The authors ask whether North Carolina’s 2011 cap on noneconomic malpractice damages affected the rate of cesarean deliveries and related obstetric procedures. The study addresses a broader policy question of whether reducing physicians’ exposure to malpractice risk changes the intensity of medical services provided. In this case, the authors investigate whether limiting potential financial penalties discourages “defensive medicine”—the tendency of doctors to perform more procedures than medically necessary to avoid legal liability. By narrowing the analysis to a well-defined clinical context—obstetric care, where malpractice risk is high and decisions about intervention are often discretionary—the authors provide empirical evidence on how liability reform translates into measurable changes in medical behavior.

Previous Literature

The literature on malpractice reform and physician behavior spans several decades but remains inconclusive. Early studies in the 1980s and 1990s found inconsistent results regarding whether tort reforms reduced healthcare costs or unnecessary procedures. Some research suggested that malpractice risk leads doctors to overuse interventions such as cesarean sections and diagnostic tests, raising costs without improving outcomes. Others argued that malpractice pressure might improve quality by discouraging negligence. Theoretical frameworks, such as those proposed by Currie and MacLeod (2008) and Frakes (2015), suggest that physicians balance malpractice risk with financial and professional incentives. When liability risk declines, doctors may perform fewer defensive procedures, but the direction of the effect depends on the relative risks of omission versus commission.

Empirical findings have been similarly mixed. Baicker, Fisher, and Chandra (2007) documented a positive relationship between malpractice premiums and treatment intensity, implying that greater liability pressure increases healthcare utilization. By contrast, Frakes (2012) found that reduced malpractice exposure in some states led to lower use of episiotomies and shorter hospital stays but did not clearly affect c-section rates. Other studies—such as those by Bertoli and Grembi (2019) and Dubay, Kaestner, and Waidmann (1999)—offered contradictory evidence on whether malpractice reforms increased or decreased surgical deliveries. The diversity of results likely reflects differences in time periods, local legal environments, and data quality.

The current study builds on this mixed body of evidence by examining a recent and clearly defined reform—the 2011 North Carolina statute capping noneconomic damages at $500,000. Unlike older reforms studied in previous decades, this law occurred in a modern healthcare environment with consistent hospital data and less confounding by concurrent policy changes. By using Florida as a control state, the authors isolate the causal effects of malpractice reform on physician decisions within obstetrics.

Data

The analysis relies on the complete universe of hospital discharge data from North Carolina and Florida from 2008 through 2017. These data are provided by the Cecil G. Sheps Center for Health Services Research in North Carolina and the Florida Agency for Healthcare Administration. The dataset includes all births occurring in hospitals during the period, covering millions of observations and allowing the authors to control for both patient- and hospital-level characteristics.

The data contain detailed procedure codes that identify delivery types, including cesarean sections, vaginal deliveries, medically induced labors, and assisted deliveries using vacuum or forceps. Demographic and clinical variables capture maternal age, race, insurance status, and comorbidities such as hypertension, diabetes, and obesity. The authors also use population data from the Federal Reserve Bank of St. Louis to calculate birth rates per capita and ensure there were no significant changes in fertility trends around the policy’s implementation.

Florida serves as an ideal comparison state because it experienced no major malpractice legislation during this period and had long maintained a similar $500,000 cap. The two states share comparable malpractice insurance environments, statutes of limitations, and demographic profiles, making Florida a credible counterfactual for assessing what would have happened in North Carolina in the absence of reform.

Methods

The authors employ a difference-in-differences (DiD) design to estimate the causal impact of North Carolina’s 2011 reform. This approach compares changes in delivery practices in North Carolina (the treatment state) to contemporaneous changes in Florida (the control state) before and after the policy was enacted. The baseline period runs from 2008 to 2011, while the post-treatment period covers 2012 to 2017.

The key dependent variable is whether a birth was delivered by cesarean section. Additional dependent variables include the use of vacuum or forceps assistance, medical induction, and other obstetric procedures. The main explanatory variable is the interaction term between being in North Carolina and the post-policy period (NC × Post). The specification includes hospital fixed effects to control for unobserved, time-invariant differences in delivery practices across hospitals, and year fixed effects to absorb common temporal trends. Standard errors are clustered at the hospital level.

To test the validity of the parallel-trends assumption, the authors conduct an event study version of the DiD model that estimates year-specific effects relative to the pre-policy period. The event study shows that North Carolina and Florida had parallel trends before 2011, supporting the identification strategy.

The authors further stratify analyses by insurance type (Medicaid vs. private coverage) and by maternal risk factors such as hypertension, obesity, and diabetes. This allows them to assess whether the reform affected subgroups differently. Finally, they conduct robustness checks, including triple-difference (DDD) models interacting treatment, year, and insurance status, to confirm that results are not driven by compositional changes or omitted variables.

Although not a randomized control trial, the DiD approach provides a strong quasi-experimental framework for causal inference when assumptions are met. The use of complete state-level hospital data and a natural policy shock strengthens the credibility of the results relative to simple regression designs.

Findings/Size Effects

The main finding is that c-section rates declined significantly after the North Carolina damage cap took effect. On average, the probability of cesarean delivery fell by about 1.4 to 1.5 percentage points, equivalent to roughly a 5 percent reduction relative to North Carolina’s baseline c-section rate. This effect grew over time, reaching nearly 7 percent five years after the policy’s implementation. The decline was consistent across both Medicaid and privately insured births, suggesting that physicians’ behavioral responses were not driven by differences in financial incentives tied to payer type.

The event study results show no pre-policy differences between the states, followed by a steady post-policy divergence. Physicians also reduced their use of vacuum and forceps deliveries, though the changes were smaller. At the same time, medical inductions increased by about 1.5 percentage points, roughly a 10 percent rise relative to baseline. This pattern suggests that doctors substituted toward less invasive methods that still allowed them to maintain control over the timing of delivery.

The composition of mothers receiving c-sections also shifted. After the reform, those who underwent cesarean deliveries were more likely to have hypertension, diabetes, or obesity—conditions associated with higher-risk pregnancies. This indicates that the procedures forgone were likely among lower-risk mothers, implying an efficiency gain in the allocation of medical interventions.

A back-of-the-envelope calculation estimated that North Carolina avoided roughly 1,500 c-sections annually as a result of the reform, translating into hospital cost savings between $2.6 million and $7.9 million per year, depending on the assumed cost-to-charge ratio. About half of these savings accrued to the Medicaid program. The authors note that the effect is both statistically and economically significant, suggesting that malpractice reform can yield meaningful changes in provider behavior and healthcare spending without measurable harm to patients.

Conclusion

The study provides robust evidence that reducing malpractice risk through noneconomic damage caps can lower physicians’ reliance on intensive procedures such as cesarean delivery. The results align with theoretical models predicting that physicians respond to lower liability exposure by scaling back precautionary or defensive medical practices. Importantly, the decline in c-section rates occurred across patient and insurance groups and was accompanied by increased use of less invasive alternatives, suggesting a genuine behavioral response rather than a statistical artifact.

Although the study’s findings are specific to obstetric care and two states, the underlying mechanisms are likely generalizable to other medical contexts where malpractice risk influences clinical discretion. The authors acknowledge that differences in legal environments, healthcare infrastructure, and patient expectations could moderate the magnitude of effects elsewhere. Nonetheless, the analysis demonstrates the continuing relevance of malpractice policy in shaping healthcare delivery even in a modern regulatory setting.

From a methodological standpoint, the study is rigorous and transparent. The DiD framework, supported by event study validation and hospital-level fixed effects, provides credible causal inference in the absence of experimental data. The comprehensive dataset, covering an entire decade of hospital births, enhances both internal and external validity.

In the broader policy landscape, the article contributes to ongoing debates over the efficiency of the U.S. malpractice system and the persistence of defensive medicine. As several states reconsider damage caps or other tort reforms, this paper offers rare empirical clarity about their behavioral and financial consequences. While not definitive on all fronts, it stands as one of the most substantive recent contributions to the literature on malpractice regulation and medical decision-making.