Team Formation and Performance: Evidence from Healthcare Referral Networks

Primary care physicians (PCPs) assemble teams of specialists to care for their patients. To examine these teams, we develop a new measure of team relationships (“team referral concentration”), which is distinct from existing patient-based care coordination measures. Team referral concentration is higher when PCPs work with fewer specialists of a given type (e.g. cardiologists). In our theoretical model, PCPs with higher team referral concentration invest more in relationship-specific capital, which facilitates care coordination. Consistent with our model, we show that team referral concentration is associated with lower spending, exploiting three identification strategies. First, for commercially insured patients in Massachusetts, higher team referral concentration leads to significantly lower spending, conditional on observed patient health status: patients treated by PCPs with below median team referral concentration have 8% lower spending, compared to those treated by above median PCPs. Second, we exploit within-PCP variation in level of team referral concentration across different specialties, and controlling for PCP fixed effects. Patients seeing a specialist in a PCP’s more concentrated specialty spend less than other patients at that PCP. Third, we use an instrumental variable strategy for Medicare beneficiaries who switch doctors as the result of a move across regions. Movers who experience an increase in team referral concentration have lowered spending.