CONTEXT: The US medical malpractice system is designed to deter negligence and encourage quality of care through threat of liability. OBJECTIVE: To examine whether state-level malpractice environment is associated with outcomes and costs of colorectal surgery. DESIGN, SETTING, AND PATIENTS: Observational study of 116,977 Medicare fee-for-service beneficiaries who underwent colorectal surgery using administrative claims data. State-level malpractice risk was measured using mean general surgery malpractice insurance premiums; paid claims per surgeon; state tort reforms; and a composite measure. Associations between malpractice environment and postoperative outcomes and price-standardized Medicare payments were estimated using hierarchical logistic regression and generalized linear models. MAIN OUTCOME MEASURES: thirty-day postoperative mortality; complications (pneumonia, myocardial infarction, venous thromboembolism, acute renal failure, surgical site infection, postoperative sepsis, any complication); readmission; total price-standardized Medicare payments for index hospitalization and 30-day postdischarge episode-of-care. RESULTS: Few associations between measures of state malpractice risk environment and outcomes were identified. However, analyses using the composite measure showed that patients treated in states with greatest malpractice risk were more likely than those in lowest risk states to experience any complication (OR: 1.31; 95% CI: 1.22-1.41), pneumonia (OR: 1.36; 95%: CI, 1.16-1.60), myocardial infarction (OR: 1.44; 95% CI: 1.22-1.70), venous thromboembolism (OR:2.11; 95% CI: 1.70-2.61), acute renal failure (OR: 1.34; 95% CI; 1.22-1.47), and sepsis (OR: 1.38; 95% CI: 1.24-1.53; all P < 0.001). There were no consistent associations between malpractice environment and Medicare payments. CONCLUSIONS: There were no consistent associations between state-level malpractice risk and higher quality of care or Medicare payments for colorectal surgery.