Tradeoffs from Integrating Diagnosis and Treatment in Markets for Health Care

19 Pages Posted: 20 Nov 2006 Last revised: 30 Jun 2010

See all articles by Chris Afendulis

Chris Afendulis

Harvard University - Department of Health Care Policy

Daniel P. Kessler

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Date Written: October 2006

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.

Suggested Citation

Afendulis, Chris and Kessler, Daniel Philip, Tradeoffs from Integrating Diagnosis and Treatment in Markets for Health Care (October 2006). NBER Working Paper No. w12623. Available at SSRN: https://ssrn.com/abstract=938416

Chris Afendulis

Harvard University - Department of Health Care Policy ( email )

180 Longwood Avenue
Boston, MA 02115
United States

Daniel Philip Kessler (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-4492 (Phone)
650-725-6152 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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