Defensive Medicine: Evidence from Military Immunity

We estimate the extent of defensive medicine by physicians, embracing the no-liability counterfactual made possible by the structure of liability rules in the Military Health System. Active-duty patients seeking treatment from military facilities cannot sue for harms resulting from negligent care, while protections are provided to dependents treated at military facilities and to all patients active duty or not that receive care from civilian facilities. Drawing on this variation and exploiting exogenous shocks to care location choices stemming from base-hospital closures, we find suggestive evidence that liability immunity reduces inpatient spending by 5 percent with no measurable negative effect on patient outcomes.