WINTER 2024 NO.90 / THOUGHT LEADERSHIP BRIEF 2 Regions with frequent medical malpractice and inadequate medical liability systems are often found in developing countries, where they face various challenges, including population growth, a severe shortage of healthcare resources, health inequality, and tense doctor-patient relationships. As the world’s most populous developing country, China’s healthcare system has long faced challenges in accessibility, quality and efficiency of care. Uneven distribution of healthcare resources and severe information asymmetry between healthcare providers and patients have led to a lack of trust and high tension between physicians and patients. Data from the China Judgments Online platform shows that the number of civil lawsuits related to medical malpractice liability disputes increased from 53 cases in 2009 to 26,331 cases in 2019, reaching the highest level in nearly 20 years. ASSESSMENT In this study, we explore the effects of medical litigation on diagnostic testing behaviors in Chinese hospitals. The analysis leverages hospital quarterly reports and civil lawsuits regarding medical damage liability disputes in Shenzhen. A primary challenge in identification is the endogeneity of medical litigation. For example, the occurrence of medical malpractice among different healthcare providers and patients’ decision to file a lawsuit might be correlated with unobserved characteristics of both the healthcare providers and the patients, leading to omitted variable bias. We address this concern in several ways. First, we compare various time-invariant characteristics between hospitals with and without medical litigation and control for the interaction terms between these characteristics and a linear time trend. Additionally, we examine whether the timing and outcomes of court verdicts are correlated with hospital characteristics. Reassuringly, we find no significant correlation between court verdicts and hospital characteristics. Secondly, we use hospitals being sued but facing different verdicts (i.e., won or lost) as control and treatment groups, respectively, to investigate further the impact of losing litigation on hospitals' diagnostic testing outcomes. This allows us to utilize the quasi-randomness of the court verdicts and compare marginal winners and marginal losers with more similar characteristics. Thirdly, we use the event study framework for each of our results and show that there is no significant trend difference between the treatment and control hospitals prior to the court verdict. We first examine the effects of medical litigation on hospitals’ diagnostic testing outcomes, including X-ray, computed tomography (CT) and MRI tests. We find that, on average, medical litigation results in a significant reduction in the positive rate of MRI test by 3.4 percentage points, and this reduction is mainly driven by the increase in negative cases. Specifically, after the litigation, the number of cases tested negative rose by a remarkable 36.2% (Figure 1). In contrast, we do not find any significant change in the number of positive cases. No significant effects are found for cheaper and more commonly prescribed X-ray and CT scans. Figure 1. Effects of Medical Litigation on Positive and Negative Cases of MRI Tests. Note: Panel A and B plot the event study estimates using Poisson regression for positive and negative cases of MRI tests, respectively. The estimated coefficients are reported in the form of Incidence Rate Ratios (IRRs). 2.5 2 1.5 1 .5 0 2.5 2 1.5 1 .5 0 Panel A. E ect on the Number of Positive Cases of MRI Tests Panel B. E ect on the Number of Negative Cases of MRI Tests Estimated Coefficients (IRR) Estimated Coefficients (IRR) Quarter Relative to Medical Litigation Quarter Relative to Medical Litigation ≤-6-5-4-3-2-1 0 1 2 3 4 5≥6 ≤-6-5-4-3-2-1 0 1 2 3 4 5≥6
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