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To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jhealeco.2007.01.004 Byline: Paul Fenn (a), Alastair Gray (b), Neil Rickman (c) Keywords: Medical malpractice; Insurance; Litigation Abstract: We test for effects of tort liability on the use of certain diagnostic procedures, where the health care providers' expected cost of litigation is proxied by the risk-sharing arrangements agreed with their insurers. 2SLS and GMM estimators are adopted to test for possible endogeneity of these risk-sharing arrangements. Our findings are consistent with the exercise of liability-induced discretion by hospitals, especially regarding use of costly diagnostic imaging procedures. Hospitals facing higher expected costs per claim as a consequence of higher deductibles used these tests more frequently, after controlling for activity levels and casemix. These results are consistent with hospitals reacting to the incentives provided by a clinical negligence compensation system. Author Affiliation: (a) Nottingham University Business School, Jubilee Campus, Wollaton Rd, Nottingham NG8 IBB, UK (b) Health Economics Research Centre, University of Oxford, UK (c) University of Surrey and CEPR, UK Article History: Received 28 July 2005; Revised 29 September 2006; Accepted 8 January 2007

Economic evaluations are being done simultaneous to the analysis of clinical trial data on the effectiveness of particular treatments. Economic data on the resource consequences of treatment paths are likely to be incomplete among some patients. Survival analysis techniques with covariates were suggested to be applied to data on total program costs. Coefficients derived from these procedures should be carefully interpreted.

A model of the contractual relationships between the providers of hospital care in the UK and the country's dominant health care purchasers known as District Health Authorities is developed. The comparative static analysis shows that there are four important determinants in choosing a contract. These are the transaction cost of using non-local hospitals, the anticipated patient demand, the degree of excess capacity in local hospitals and the percentage of that excess capacity predicted to be lost to competitive purchasers.