Fear and Defensive Medicine: Evidence from Physician Response to Malpractice Lawsuits in China

Using linked health insurance claims and malpractice lawsuit records from a Chinese city, we study how lawsuits shape physicians’ behavior. After a lawsuit, physicians practice more defensively––rejecting high-risk patients, reducing surgeries, and increasing diagnostic tests and traditional Chinese medicine––without improving patient outcomes. The effects spread to departments not named in the suit and dissipate within ten weeks. Evidence points to psychological rather than financial costs as the main drivers of defensive response: physicians respond similarly whether hospitals win or lose, and far more strongly to a nonfatal violent assault on a colleague. Our findings are also consistent with salience: departments clinically similar to the litigant department respond more strongly; responses do not vary with hospitals’ prior lawsuit exposure, and reactions to patient deaths depend on the recency of the last lawsuit. Overall, lawsuits trigger short-lived, mental-cost-driven defensive medicine.