Response to the Risk of Service Liability: the Case of Medical Malpractice Liability

Abstract: We compare responses from private for-profit organizations and private not-for-profit organizations to the changing risk of service liability using hospital medical expenditures, state medical malpractice awards, and state tort reform data in the United States from 1997–2006. We find that not-for-profit hospitals responded more aggressively than for-profit hospitals. The difference can be partly explained by not-for-profit hospitals being more sensitive to the potential reputational damage of medical malpractice liability. These findings highlight not-for-profit as a unique governance form and its influence on strategy.