The surprising reason that doctors buy expensive homes

Fears of being sued for malpractice can affect physician behavior in lots of ways. But here's an unusual one: That fear translates into physicians buying bigger, more expensive homes in states where that asset is protected from bankruptcy and malpractice suits.

A working paper published by the National Bureau of Economic Research says that physicians invest 13 percent more in the value of their homes in states with unlimited "Homestead" exceptions, which protect a home when individuals file for bankruptcy. That was not true for other professionals, such as business executives and lawyers, who made similar salaries. But it was true that dentists, who can also face malpractice suits, bought bigger, more extravagant homes, according to the research. 

Additionally, more physicians living in areas with higher liability risk, where they had greater incentive to insure against financial risks, bought expensive houses, the researchers found.

"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," Anupam Jena, M.D., an associate professor of healthcare policy at Harvard Medical School and one of the authors, told The Washington Post. "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."

The study showed physicians with incomes between $300,000 and $350,000 a year in states with unlimited Homestead exemptions bought homes worth $613,712 on average. That compared to an average home value of $528,090 for other professionals in that income range. In states where Homestead exemptions were limited, there was little difference between the two groups.

The findings suggest physicians do make financial decisions to protect themselves against uninsured malpractice risk, the researchers said.

Malpractice concerns can also influence where doctors choose to practice medicine, FiercePracticeManagement previously reported. Interestingly, a recent analysis of data over a 10 year period, found about 1 percent of physicians account for almost one-third of all malpractice claims paid on behalf of physicians.

To learn more:
- read the working paper
- check out The Washington Post article