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Are firms with ‘deep pockets’ more responsive to tort liability? Evidence from nursing homes

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  • James A. Brickley
  • Susan F. Lu
  • Gerard J. Wedig

Abstract

We provide time series evidence of tort reform's impact on inputs and quality in the nursing home industry. Between 2000 and 2010, 11 state reforms capped noneconomic damages for health care services. Small chain and unaffiliated nursing homes enjoyed “judgment proof standing” and were less apt to be sued, prior to reform. We find that the managers of such homes were relatively unresponsive to the implementation of state caps on noneconomic damages. Large “deep‐pocketed” chain‐affiliated homes lacked judgment proof standing and implemented greater reductions in their nursing inputs in the aftermath of tort relief. However, we find little evidence of service quality erosion across four measured dimensions of care outcomes. Our findings are consistent with a “defensive care” model in which large chain homes employ unproductive inputs in an effort to meet a negligence standard of care.

Suggested Citation

  • James A. Brickley & Susan F. Lu & Gerard J. Wedig, 2022. "Are firms with ‘deep pockets’ more responsive to tort liability? Evidence from nursing homes," Health Economics, John Wiley & Sons, Ltd., vol. 31(8), pages 1590-1617, August.
    • Handle: RePEc:wly:hlthec:v:31:y:2022:i:8:p:1590-1617
    DOI: 10.1002/hec.4528
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