HMN 2026: How tort reform in hospitals cuts costs and patient satisfaction

Hospitals across the United States are always looking for ways to reduce costs and avoid medical malpractice lawsuits, while not sacrificing quality of health care. So how are hospitals impacted when government policy reduces their exposure to malpractice liability? Researchers from Georgia State University and Michigan State University analyzed how state-level tort reform laws on non-economic damages, which limit how much money patients can be awarded in medical malpractice lawsuits, affect hospital performance.

In “The Effects of State Government Policy on Operations Performance in the Hospital Industry,” recently published in Productions and Operations Management, the researchers examine if tort reform laws reduced wasteful medical practices and improved hospital efficiency, and how that impacted patient satisfaction.

Tort reform is a legal term for policies that limit how much someone can be awarded in a lawsuit. In health care, these laws often cap the amount a patient can receive for pain and suffering after a medical error. More than 30 states have passed some version of tort reform in an effort to lower health care costs.

One reason? Many doctors and hospitals practice what’s called defensive medicine—ordering additional tests or procedures not because they’re needed or required, but to protect themselves in case of a lawsuit. This adds billions to the nation’s health care bill every year.

“There’s been a lot of research on tort reform but mostly looking at its impact on specific medical specialties or at the state or county level,” said co-author Deepa Goradia, associate professor of management at Georgia State’s Robinson College of Business. “Our research is the first study to focus on hospital operations, which we felt were important to examine, considering hospitals account for nearly a third of all health care spending.”

The research team looked at data from more than 55,000 hospital-year observations between 1996 and 2018. They used difference-in-differences analysis, a rigorous statistical that compares hospitals operating in states that passed tort reform to similar hospitals in states that didn’t—before and after the reform.

They focused on two sets of outcomes:

1. Cost and efficiency measures: How much hospitals spent on defensive medicine, their operating costs, labor per bed, and patient occupancy rates.
2. Patient-centered measures: Patients’ ratings of their overall experience and satisfaction with hospital care.

“We focused on both cost efficiency and patient satisfaction because the Affordable Care Act‘s value-based purchasing program links hospital reimbursement to performance on multiple metrics,” said Goradia. “Because hospitals rely heavily on Medicare and Medicaid payments, these programs increasingly reward hospitals that deliver care efficiently while maintaining strong patient experiences.”

To make the comparisons fair, researchers matched hospitals based on size, location, patient mix, teaching status, and other factors.

The study found that tort reform did reduce hospital costs. After states capped lawsuit payouts:

• Hospitals spent $372 less per patient on defensive medicine—saving an average hospital about $2.38 million per year.
• Operating costs dropped by $664 per patient, or $4.23 million annually for a typical hospital.
• Hospitals used fewer staff per bed, suggesting more streamlined labor practices.

“For an average-size hospital, these are significant savings, considering most hospitals are operating in the red, and could open up resources to invest in patient improvement,” said Goradia.

However, there was no significant change in how full hospitals were (occupancy rates), which is a sign that efficiency improvements didn’t necessarily translate into more patients served.

But there was a tradeoff: patient experience declined. After tort reform:

• Experiential quality—how well patients felt they were treated—fell by 3.5%.
• Patient satisfaction dropped by 5.6%.

“It’s important to understand that three and five percent decreases in patient satisfaction may seem small but can have a dramatic impact on the reimbursements hospitals receive,” said Goradia.

These findings come at a time when hospitals are under pressure to do more with less. This study highlights how difficult it is to achieve both cost efficiency and patient satisfaction reimbursement metrics under the value-based purchasing program.

“Tort reform helps reduce unnecessary care and cuts costs, but it may influence how patients perceive their care. However, that doesn’t necessarily mean they are getting less quality care,” said Goradia. “Hospitals with tort reform may be able to better retain departments that had previously been prone to liability lawsuits or to performing more high-risk surgeries, which could reduce health care disparities and improve overall health care access to patients.”

As more states consider legal reforms and as federal payment programs continue to evolve, this research could help shape smarter, more balanced health care policy—ones that protect both hospital budgets and patient experience.

The content is provided for information purposes only.