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 the 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 benefitts of a larger organization while preserving physician autonomy over the clinical and operational decisions of their practice. To align these decisions with the goals of the PPMC, PPMCs often use different financial incentives to increase revenue and clinical initiatives to increase quality. I estimate changes in physician treatment decisions by linking hospital discharge records between 2006 and 2014 to hand-collected data on PPMC practice acquisitions. Identification comes from difference-in-differences estimates leveraging 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 physician organizations affect clinical decisions and the quality of care.