Curb your premium! evaluating state intervention in medical malpractice insurance

Using data of Italian public healthcare providers over years 2001 through 2008, we evaluate the impact of two policies adopted by Italian Regions (i.e., States) to cope with increasing medical malpractice costs using a Difference-in-Difference specification. We assess the impact of the policies on premiums paid and legal expenditures. The first policy consisted in collecting information and monitoring both compensation requests and any legal action related to a medical malpractice claim against a public healthcare provider. The second policy is a switch from private to public insurance for damages up to 500,000 euros combined with a centralized-regional contracting out in the private insurance market for damages in excess of 500,000 euros. Both policies represent attempts to cope with multiple agency problems within the public sector. Our results show that the impact of central monitoring in malpractice claims trend can reduce up to 29% the premiums paid for the treated providers, while the effect is obviously stronger for public insurance (41%). We control for the effects of the latter also on the trend of legal expenditures as proxy for common pool behaviors which do not result from our data. Validity tests show that our results are not driven by a decreasing trend affecting the insurance expenditures of the analyzed units before the policies’ introduction.