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Tradeoffs from Integrating Diagnosis and Treatment in Markets for Health Care

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  • Christopher C. Afendulis
  • Daniel P. Kessler
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    Abstract

    What are the important tradeoffs in consulting a single expert for both diagnosis and treatment? On one hand, an integrated diagnostician may have the incentive to recommend treatments that are not in the buyer's best interests. On the other hand, joint production of diagnosis and treatment by an integrated diagnostician may be more efficient. We examine an important special case of this problem: the costs and health outcomes of elderly Medicare beneficiaries with coronary artery disease. We compare the empirical consequences of diagnosis by an "integrated" cardiologist -- one who can provide surgical treatment -- to the consequences of diagnosis by a non-integrated cardiologist. Diagnosis by an integrated cardiologist leads, on net, to higher health spending but similar health outcomes. The net effect contains three components: reduced spending and improved outcomes from better allocation of patients to surgical treatment options; increased spending conditional on treatment option; and worse outcomes from poorer provision of non-surgical care. We conclude that accounting more completely for doctors' incentives to refer patients in setting reimbursements, or in the alternative, allowing doctors more freedom to make and receive payments for referrals, could reduce spending and improve quality.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12623.

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    Date of creation: Oct 2006
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    Handle: RePEc:nbr:nberwo:12623

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    1. Steven D. Levitt & Chad Syverson, 2005. "Market Distortions when Agents are Better Informed: The Value of Information in Real Estate Transactions," NBER Working Papers 11053, National Bureau of Economic Research, Inc.
    2. Mark V. Pauly, 1979. "The Ethics and Economics of Kickbacks and Fee Splitting," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 344-352, Spring.
    3. Victor R. Fuchs, 1978. "The Supply of Surgeons and the Demand for Operations," NBER Working Papers 0236, National Bureau of Economic Research, Inc.
    4. Jonathan Gruber & Maria Owings, 1996. "Physician Financial Incentives and Cesarean Section Delivery," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 99-123, Spring.
    5. Taylor, Curtis R, 1995. "The Economics of Breakdowns, Checkups, and Cures," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 53-74, February.
    6. Thomas N. Hubbard, 1998. "An Empirical Examination of Moral Hazard in the Vehicle Inspection Market," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 406-426, Summer.
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