The researchers found that in states with unlimited "homestead" exceptions, which mean that financial assets in a house are protected if a person files for bankruptcy, physicians bought homes that cost on average 13 percent more than they would if that quirk of law didn't exist. Other professionals who made the same income — business executives and lawyers — did not buy bigger homes in those states. But dentists, who are also vulnerable to malpractice lawsuits, did.
The patterns are merely suggestive — they can't show that physicians are motivated by this threat. But to Anupam Jena, an associate professor of health-care policy at Harvard Medical School, it suggests that fear of malpractice is a major force in physicians' lives, even though successful lawsuits that exceed the insurance cap are relatively rare.
"If you’ve ever talked to a physician who has been sued, it’s a really dramatic thing. People will probably rank it just below losing a loved one," Jena said. "We have been interested in understanding how does that pervasive aspect of a physician's career influence the decisions they make, whether it means they practice more defensive medicine, whether it means they quit their jobs earlier, whether it means they invest more in houses to protect themselves against liability."
For example, the researchers found physicians with incomes between $300,000 and $350,000 a year in states with unlimited homestead exemptions bought homes worth $613,712, on average, while other professionals in that income range bought homes worth $528,090. In states where the exemptions were limited, physicians bought homes worth $691,894 — quite comparable to other professionals, whose average home value was $689,901. The net effect of the exemption on doctors' spending on homes was $83,629 — a calculation they repeated across other income brackets.
It's hard to know whether a provision of bankruptcy law could really be influencing physician behavior, but Jena's anecdotal experience suggests it might. The idea for the study was planted when a colleague in Florida mentioned to Jena that the state's bankruptcy law provided an incentive for doctors to squirrel away more of their wealth in their homes. Jena decided to study the question rigorously, but also began to notice that when financial planners targeted doctors with marketing information, they weren't just talking about estate planning, but how to manage an estate to protect it against malpractice liability.
Joseph Hollen, a financial planner and former physician at Open Window Financial Solutions Limited in Reno, Nev., said he counsels clients in the medical field to file for a homestead declaration, even though there is a $550,000 limit on the exemption in his state. But he noted that it wasn't that big a part of a financial plan for asset projection.
"Now if I was in a state — Florida or Texas — where you have an unlimited homestead exemption, there’s a temptation there to kind of use that," Hollen said. "But by and large it’s very rare that these judgments go beyond the insurance limits," so he would never counsel a doctor to buy a bigger home.
In fact, Hollen said, if anything, he thinks doctors, who go through long periods of training in which they make very little money, may step up their lifestyles too quickly once they finally make a good salary.
"Doctors are deprived for so long," Hollen said. "You've lived in this 100-square-foot room that you're renting and you get out of training, and you can get a 4,000-square-foot house."
Victor López, acting chairman of the department of accounting, taxation and legal studies in business at Hofstra University, said the paper illustrates the inconsistency in bankruptcy law, which can sometimes benefit the creditor and sometimes benefit the debtor. He advocated for a more balanced and consistent policy.
In states with homestead exemptions,"the losers, of course, are general creditors and injured patients whose jury verdicts will not be able to be satisfied from the forced sale of a doctor’s home," López wrote in an email.
To Jena and colleagues, it's simply another piece of evidence showing that malpractice fear affects physician behavior in a wide range of ways, and policymakers should not ignore it.
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