Vertical Integration and a Changing Physician Workforce

Mounting evidence suggests that the trend toward financial integration between physicians and hospitals is associated with higher health care prices and spending. While consensus builds around the market outcomes associated with physician-hospital integration, there remain multiple possible explanations for the phenomenon itself. In this project, we provide the first national, claims-based evidence that changes in the physician workforce may contribute considerably to the ongoing trend of physician-hospital integration. Using 2008-2014 Medicare claims for physician services, Doximity data on physician residency, and publically available databases of physician characteristics, we identify the annual ~5 percent of physicians who are in their first and last year of billing Medicare. We classify each physician as vertically integrated based on the presence of provider-based billing, which indicates employment or ownership by a hospital. During our study period, physicians entering Medicare were significantly and increasingly more likely to practice in a vertically integrated setting than other physicians, while the opposite was true of physicians in their last year of billing Medicare. This suggests that the trend towards physician-hospital integration may be partially driven by changing preferences within the physician workforce, rather than the desire to gain bargaining power or exploit payment rules that favor integrated providers. Using our findings, we provide estimates of future changes in physician market structure due to workforce turnover, absent any policy change.