Regulating malpractice risk and medical decision‐making: Evidence from births

Abstract The literature remains mixed on the extent to which medical malpractice reforms affect physician overuse of procedures (i.e., “defensive medicine”). We bring new evidence to this discourse by examining a recent reform in North Carolina that introduced caps on noneconomic damages. We focus on a setting where malpractice risk is high and service intensity is strongly subject to physicians’ discretion: obstetrics care. Comparing discharge data from North Carolina to Florida, we show that caps on noneconomic damages causally reduce the likelihood of a cesarean delivery by, on average, 5%, with the effect size nearing 7% five years post‐policy implementation. Physicians also substitute away from other intensive procedures such as vacuum and forceps deliveries but maintain control over the timing of births by increasing medical inductions. Our findings suggest that the reduction in cesarean deliveries due to North Carolina's damage caps can reduce annual spending by approximately $4.6 million.