Ambar La Forgia, Columbia Mailman School of Public Health
Abstract: Mergers and acquisitions are rapidly transforming the organization of physician services in the United States, raising concerns over the cost and quality of health care. This paper studies how medical practice acquisitions by Physician Practice Management Companies (PPMCs) impact physician behavior and patient health. PPMCs market themselves as providing physicians the economic benefits of a larger organization while preserving their autonomy over the clinical and operational decisions of their medical practices. PPMCs, however, use a variety of incentives to align physician behavior with the commercial and clinical interests of the PPMC. I analyze the effect of acquisitions on physician treatment decisions by linking hospital discharge records to hand-collected data on PPMC practice acquisitions between 2006 and 2014. Identification of difference-in-differences estimates comes from variation in the timing of acquisitions. I find that when PPMCs only incentivize financial performance, physicians increase the use of high-revenue, low-value procedures, resulting in less clinically appropriate care and worse patient outcomes. The opposite result is found when PPMCs incentivize both financial and clinical performance. This research provides new insights into how the managerial choices of health care organizations affect clinical decisions and the quality of care.
Full working paper available from the author by request.