Adjusting Physician Payment for Malpractice Risk

The current Medicare reimbursement system for physican services does not distinguish among procedures in the degree of malpractice risk. This raises the possibility that at the margins physicians may avoid or unduly favor certain procedures if the malpractice risk varies across procedures. Our in this report is to assess the degree to which this risk varies and thus whether changes in the payment system may be warranted. We proceed by estimating the probability of a claim in various groupings of procedures that we devised. Our measures of claims and volume of procedures in each group come from one hospital. Moreover, measures of claims come from different years than measures of volume, and so our estimates should be treated as suggestive. Nonetheless, the data show a much greater likelihood of a claim if the procedure was invasive.