Physician Ownership of Non-Physician Medical Services

Brian Chen , 2011 AHPP/CEAS Visiting Scholar,Stanford University

RSVP required by 5PM May 16


We examine the tradeoffs between moral hazard and efficiencies in the integration of physician and non-physician medical services in the presence of asymmetric information. We exploit a policy intervention that prohibited self-referrals of patients to physician-owned pharmacies unless the physician group integrated pharmacy services into the clinic by hiring an onsite pharmacist. We find that the policy reduced drug expenditures by close to 30 percent among physicians that did not have an onsite pharmacist. However, these physicians responded by increasing the overprovision of diagnostic services not covered by the policy, thereby reducing the effectiveness of the policy. And 45 percent of the clinics that did not have an onsite pharmacist prior to the policy hired one subsequent to the implementation of the policy. Overall, after integration, the policy applied to only 17% of clinics, and only reduced average discretionary expenditures by about 2.5 percent.  We also show that despite the reduction in drug utilization, patients treated at clinics without an onsite pharmacist did not have greater observable adverse health events than patients treated at integrated clinics. Our results show that moral hazard costs of self-referral incentives are large, that the “safe harbor” exemption severely reduces the effectiveness of the policy, and that the exemption explains much of the recent integration of ancillary services into physician offices.

Dr. Brian Chen recently completed his Ph.D. in Business Administration in the Business and Public Policy Group at the Haas School of Business, University of California at Berkeley. He received a Juris Doctor from Stanford Law School in 1997, and graduated summa cum laude from Harvard College in 1992.

Tuesday, May 17, 2011 | 12:00 pm — 1:30 pm
Okimoto Conference Room, Encina Hall East, 3rd Floor

Asia Health Policy Program, Shorenstein APARC