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Stanford Report, January 21, 1998

Economists win Kenneth Arrow award: 1/98

Health economists win award for study of 'defensive medicine'

Two Stanford assistant professors of health economics have been honored for their research on how liability laws influence health care costs and treatment.

The Kenneth Arrow Award in Health Economics for 1997 was presented Jan. 2 in Chicago at the annual meeting of the American Economics Association to Daniel Kessler of the Graduate School of Business and Mark McClellan of the departments of economics and medicine. Both hold doctoral degrees in economics, but Kessler also holds a law degree and McClellan a medical degree. The two professors are the core faculty of the Center for Health Policy of Stanford's Institute for International Studies, and McClellan directs the "outcomes research program" of the Medical School's Center for Evaluation of Health Practices and Advancement of Primary Care.

Kessler and McClellan won the award for their paper titled "Do Doctors Practice Defensive Medicine?" published in the Quarterly Journal of Economics in May 1996. An international panel of health economists judged it to be the most important research paper in the field during the previous year.

Medical malpractice liability laws were created to compensate patients who suffer harm at the hands of negligent doctors and to provide incentives for doctors to be responsible, but they don't always have their desired effects and can increase the cost of health care, the researchers concluded.

They found that when states reformed malpractice laws to put caps on damages for pain and suffering, or to eliminate punitive damages, hospital expenditures for heart disease patients were reduced by about 5 percent, yet did not leave the patients with worse health outcomes. They concluded that fears of malpractice lawsuits prompt doctors to practice "defensive medicine," giving more tests and treatment than they would otherwise deem appropriate.

McClellan and Kessler are also studying how technological changes in medicine have affected costs and quality of care. They have organized an international conference on that subject to be held on campus Feb. 26 through 28, sponsored by the Center for Economic Policy Research and the Graduate School of Business.

The Arrow Award is named in honor of Kenneth Arrow, Stanford professor emeritus and winner of the Nobel Memorial Prize in Economic Sciences. Arrow's research on risk and insurance is one of the foundations of modern health economics, according to Associate Professor Alan Garber, who directs the Center for Evaluation of Health Practices and Advancement of Primary Care. SR