Friday, December 28, 2018

The Hidden System That Explains How Your Doctor Makes Referrals

The WSJ has an article today on The Hidden System That Explains How Your Doctor Makes Referrals.  This should come as no surprise.  I pointed to this as a reason for hospital acquisition of physician groups a number of years ago:

The economic reality is that in a world of price caps for certain hospital services, firms will attempt to increase the bottom line by increasing the total provision of hospital services. Given anti-steering rules, the best way to increase the total provision of services is through “buying” referrals. As long as the hospital has some unfilled beds, it can increase its total profits by filling them. One way to do this is by using referrals. The difference between the hospital’s charges and the marginal cost of an additional patient will flow to the bottom line as additional profit. This business strategy has the consequence of foreclosing competition by favoring in-network providers over out of network providers.

Hospital Mergers and Economic Efficiency, 91 Washington Law Review 1 (2016) (with Roger Blair and Christine Durrance)

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