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Tradeoffs from Integrating Diagnosis and Treatment in Markets for Health Care

Author

Listed:
  • Christopher C. Afendulis
  • Daniel P. Kessler

Abstract

To identify the important tradeoffs in consulting a single expert for both diagnosis and treatment, we examine the costs and health outcomes of elderly Medicare beneficiaries with coronary artery disease. We compare the empirical consequences of diagnosis by cardiologists who can provide surgical treatment – "integrated" cardiologists – to the consequences of diagnosis by a nonintegrated 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 nonsurgical care. (JEL I11, I18)

Suggested Citation

  • Christopher C. Afendulis & Daniel P. Kessler, 2007. "Tradeoffs from Integrating Diagnosis and Treatment in Markets for Health Care," American Economic Review, American Economic Association, vol. 97(3), pages 1013-1020, June.
  • Handle: RePEc:aea:aecrev:v:97:y:2007:i:3:p:1013-1020
    Note: DOI: 10.1257/aer.97.3.1013
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    References listed on IDEAS

    as
    1. Hubbard, Thomas N, 2002. "How Do Consumers Motivate Experts? Reputational Incentives in an Auto Repair Market," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 437-468, October.
    2. 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.
    3. Victor R. Fuchs, 1978. "The Supply of Surgeons and the Demand for Operations," NBER Chapters, in: The Economics of Physician and Patient Behavior, pages 35-56, National Bureau of Economic Research, Inc.
    4. Asher Wolinsky, 1993. "Competition in a Market for Informed Experts' Services," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 380-398, Autumn.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Christopher Afendulis & Daniel Kessler, 2011. "Vertical Integration and Optimal Reimbursement Policy," NBER Working Papers 17316, National Bureau of Economic Research, Inc.
    2. Jonathan T. Kolstad, 2013. "Information and Quality when Motivation is Intrinsic: Evidence from Surgeon Report Cards," NBER Working Papers 18804, National Bureau of Economic Research, Inc.
    3. Timothy Bresnahan & Jonathan Levin, 2012. "Vertical Integration and Market Structure," Introductory Chapters, in: Robert Gibbons & John Roberts (ed.), The Handbook of Organizational Economics, Princeton University Press.
    4. Uwe Dulleck & Rudolf Kerschbamer & Matthias Sutter, 2011. "The Economics of Credence Goods: An Experiment on the Role of Liability, Verifiability, Reputation, and Competition," American Economic Review, American Economic Association, vol. 101(2), pages 526-555, April.
    5. Toshiaki Iizuka, 2012. "Physician Agency and Adoption of Generic Pharmaceuticals," American Economic Review, American Economic Association, vol. 102(6), pages 2826-2858, October.
    6. Uwe Dulleck & Rudolf Kerschbamer & Matthias Sutter, 2009. "The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition," Working Papers 2009-03, Faculty of Economics and Statistics, University of Innsbruck.
    7. Ian McCarthy & Sean Shenghsiu Huang, 2018. "Vertical Alignment Between Hospitals and Physicians as a Bargaining Response to Commercial Insurance Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 53(1), pages 7-29, August.
    8. Baker, Laurence C. & Bundorf, M. Kate & Kessler, Daniel P., 2016. "The effect of hospital/physician integration on hospital choice," Journal of Health Economics, Elsevier, vol. 50(C), pages 1-8.
    9. Andrew J. Epstein & Jonathan D. Ketcham & Sean Nicholson, 2010. "Specialization and matching in professional services firms," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 811-834, December.
    10. Wu, Bingxiao, 2019. "Physician agency in China: Evidence from a drug-percentage incentive scheme," Journal of Development Economics, Elsevier, vol. 140(C), pages 72-89.
    11. Jonathan T. Kolstad, 2013. "Information and Quality When Motivation Is Intrinsic: Evidence from Surgeon Report Cards," American Economic Review, American Economic Association, vol. 103(7), pages 2875-2910, December.
    12. Janet Currie & W. Bentley MacLeod, 2017. "Diagnosing Expertise: Human Capital, Decision Making, and Performance among Physicians," Journal of Labor Economics, University of Chicago Press, vol. 35(1), pages 1-43.
    13. Koch, Thomas G. & Wendling, Brett W. & Wilson, Nathan E., 2017. "How vertical integration affects the quantity and cost of care for Medicare beneficiaries," Journal of Health Economics, Elsevier, vol. 52(C), pages 19-32.
    14. Laurence C. Baker & M. Kate Bundorf & Daniel P. Kessler, 2015. "The Effect of Hospital/Physician Integration on Hospital Choice," NBER Working Papers 21497, National Bureau of Economic Research, Inc.
    15. Ater, Itai & Givati, Yehonatan & Rigbi, Oren, 2014. "Organizational structure, police activity and crime," Journal of Public Economics, Elsevier, vol. 115(C), pages 62-71.
    16. Christopher Afendulis & Daniel Kessler, 2011. "Vertical integration and optimal reimbursement policy," International Journal of Health Economics and Management, Springer, vol. 11(3), pages 165-179, September.
    17. Chen, Brian K. & Gertler, Paul J. & Yang, Chun-Yuh, 2016. "Physician ownership of complementary medical services," Journal of Public Economics, Elsevier, vol. 144(C), pages 27-39.
    18. Andrew Epstein & Scott Johnson, 2012. "Physician response to financial incentives when choosing drugs to treat breast cancer," International Journal of Health Economics and Management, Springer, vol. 12(4), pages 285-302, December.

    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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