Doctor Discretion in Medical Evaluations

This paper analyzes the importance of doctor discretion in medical evaluations. Leveraging comprehensive administrative data and random assignment of doctors to medical exams in workers’ compensation insurance, we identify the scope for doctor discretion in medical evaluations of physical impairments among injured workers and the impacts of this discretion on later claimant outcomes. Our analysis illustrates there is wide variation across doctors in medical evaluations and this substantially impacts claimant outcomes in the years following the exam, with estimates indicating being evaluated by a one standard deviation more generous doctor increases subsequent cash benefits by 20%, compensated time out of work recovering from injury by 20%, injury-related medical spending by 12%, and total workers’ compensation costs by 17%. Moreover, our analysis illustrates doctor effects vary systematically by observed doctor characteristics—such as education, sex, and experience. In addition, we analyze the relationship between doctor effects in medical evaluations and market allocation when claimants can select their own doctors. Our estimates suggest both claimants and insurers influence the allocation of doctors in line with their respective incentives, indicating market forces shape the distribution of program benefits. Finally, we conclude with supplemental analysis exploring alternative allocation systems and discussion of the policy implications of these findings.