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Defensive medicine—the ordering of unnecessary tests and procedures to reduce the threat of malpractice litigation—has long been a lightning rod in the debate over health-care spending. Many physicians maintain that fear of lawsuits significantly affects the practice of medicine, and that reform of the malpractice system is crucial for containing costs. On the other hand, several economic studies (including work by us) have found that states that have enacted malpractice reforms experienced a mere 2%-5% reduction in health-care spending compared to states that have not. This has led to a loose consensus among most economists and policy makers that defensive medicine is not an important contributor to U.S. health-care spending—and therefore that malpractice reform is not of much significance for containing costs. There are reasons to believe this consensus understates the amount of defensive medicine.