Treatment consolidation after vertical integration

Evidence from outpatient procedure markets

by Michael R. Richards, Jonathan Seward, Christopher M. Whaley

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Hospital ownership of physician practices has grown across the US, and these strategic decisions seem to drive higher prices and spending. Using detailed physician ownership information and a universe of Florida discharge records, we show novel evidence of hospital-physician integration foreclosure effects within outpatient procedure markets. Following hospital acquisition, physicians shift nearly 10% of their Medicare and commercially insured cases away from ambulatory surgery centers (ASCs) to hospital outpatient departments and are up to 18% less likely to use an ASC at all. Distorting physician choices over treatment setting can generate allocative inefficiencies and forgo state and federal tax revenue.

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This research was funded by the National Institutes on Aging and conducted by RAND Health Care.

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