Association for Public Policy Analysis & Management

The health care industry in the United States is experiencing consolidation at all parts of the system, including insurers, hospitals and health systems, and physician practices. This consolidation is a growing area of concern among regulators, policymakers, and consumers. While the effects of competition and consolidation on prices and premiums in health care markets are well known, how consolidation affects the behavior of health care providers is not well established. It is important to understand the extent to which consolidation influences the referral patterns of physicians. Referral networks are significant because physician referrals heavily influence the type, timing, quality, cost, and convenience of the care patients receive.

We use the SK&A physician dataset to identify consolidation events that have occurred in the United States from 2009-2013 among physician practices, including vertical consolidation, such as practices becoming owned by hospitals or health systems, as well as horizontal consolidation, such as practices becoming affiliated with medical groups or otherwise merging with other physician practices. We then link these data using the National Provider Identifier to the DocGraph dataset to assess the impact of consolidation events on observed physician referral patterns. DocGraph uses Medicare claims data to develop several proxy measures of the existence and strength of referral relationships between individual physicians.

After examining pre-consolidation trends, we use a dynamic difference-in-differences (event study) approach to estimate the effect of each type of consolidation on several network analysis outcomes among physicians whose practices experienced a consolidation during the study period compared to those who were already horizontally or vertically affiliated. These network analysis outcomes include raw and normalized measures of overall “widening” (the physician refers patients to a larger set of physicians than before) or “narrowing” (the physician refers patients to a smaller set of physicians than before) of physicians’ referral networks, as well as the strength of these networks (average number of shared patients within a referral relationship) and the stability of this network over time (percent of physicians who were in the physician’s network the previous year). We control for geographic market and physician specialty.