Ambar La Forgia, Health Care Management, The Wharton School
Abstract: This paper studies a growing form of medical practice consolidation: the Physician Practice Management Company (PPMC). Over 60,000 physicians have joined PPMCs to increase their collective market power and leverage economies of scale. In contrast to acquisitions by hospitals, physicians in a PPMC retain autonomy over the clinical and operational decisions of their practice. PPMCs, however, can influence physician behavior by using a combination of financial incentives, such as providing physicians with equity in the PPMC, and non-financial incentives, such as distributing peer comparison reports. In this paper, I analyze novel data on three PPMCs that represent 40% of Obstetricians and Gynecologists (Ob-Gyns) in Florida to study how PPMCs influence Ob-Gyn treatment decisions. The empirical analysis estimates changes in C-section rates by linking data on the staggered timing of Ob-Gyn practice acquisitions to hospital discharge records between 2006 and 2014. This treatment decision presents a trade-off between revenue and quality: C-sections are more highly reimbursed than vaginal births but pose risks to maternal and infant health when not medically necessary. I find that Ob-Gyns increase C-sections among low-risk mothers by 8-10% after joining PPMCs that only incentivize financial performance. Instead, when Ob-Gyns join a PPMC that incentivizes both financial and clinical performance, low-risk C-sections decrease by 22%. The rise in C-sections occurs among less medically appropriate patients and results in increased morbidity, while treatment becomes more appropriate when the C-section rate declines. I also test for changes in birth volume and C-sections by payer type to examine the role of financial incentives. This research provides new insights into how the business strategies of physician organizations affect the utilization of medical treatments and the quality of care.