Understanding How Vertical Integration Influences Physician Behavior

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The share of physicians working in practices owned by hospitals has increased dramatically over the last decade. On one hand, this vertical integration may foster improved care coordination and drive efficient allocation of resources. On the other hand, the greater market power that vertical integration affords may also allow health care organizations to raise prices, encourage physicians to steer patients toward high-cost hospitals, and generally create incentives that influence physicians' treatment decisions and referral patterns. Indeed, a recent study showed that physicians working in practices bought by hospitals were able to raise prices. More analysis is needed to understand the extent to which physicians alter their referral pathways and treatment decisions after their practice is purchased by a hospital, as well as what those changes entail. Zack Cooper and his team will analyze how vertical integration affects physician referrals and treatment decisions. Focusing on lower-limb MRIs, the team will determine whether vertically integrated physicians are more likely to refer patients to the hospitals where physicians are employed and how much patients and payers could save if patients received MRIs from lower-priced providers. Using the additional examples of hospital admissions from emergency departments and cesarean section deliveries, the researchers will assess whether vertically integrated physicians make different treatment choices than physicians who own their practices. They will also consider how payment policy can affect total spending, depending on how vertical integration is structured. The study will rely on claims and prior-authorization data from United Health Group, which operates in all 50 states. This project will produce some of the first empirical evidence on the effect of vertical integration on referral and treatment decisions-information that is crucial to the debate over the changing structure of the nation's health care delivery system. The target audiences for this work are researchers, federal and state policymakers, journalists, and elected officials.

Grant Details

Grantee Organization:
Yale University
Principal Investigator:
Zack Cooper, Ph.D.
Award Amount:
$225,824.00
Approval Date:
July 11, 2017

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