Examining health care provider case and setting allocation shifts.

Health care delivery is trending more and more towards outpatient care, and hospitals are beginning to embrace this shift because it is expected to benefit patients through lower costs and better convenience relative to inpatient treatment options. We exploit a dataset comprised of the near universe of hospitalizations in Florida to explore the provider distortions in setting allocations, competitive hospital-physician consolidation, and unemployment shocks. We examined the changes in case mix trends in hospital outpatient surgery due to reclassifying total knee arthroplasty (TKA) coverage by the Centers for Medicare/Medicaid Studies (CMS) to remove the outpatient ban of TKAs. Physicians shifted Medicare TKA cases abruptly to the outpatient care and similarly shifted under-60 privately insured TKAs as well. We show some evidence of selection against the potentially riskiest Medicare TKA patients for outpatient delivery. Interestingly, these changes are primarily driven by independent or horizontally integrated physicians. Additionally, hospital ownership of physicians (i.e., vertical integration) is becoming more common as is the rise of ambulatory surgical centers (ASCs). The increase in ASC market concentration has weakened the consumer demand and profitability for hospitals. We investigate the presence and extent of anticompetitive effects from formal hospital-physician tie-ups in contested outpatient procedure markets. We find that following hospital acquisition, physicians shift their Medicare and commercially insured cases away from ASCs to hospital outpatient departments and are less likely to use an ASC at all. This distortion of physician decisions over treatment setting can lead to allocative inefficiencies and even forgo state and federal tax revenue. Another distortion of provider behavior frequently discussed in the literature is physician-induced demand. One theory is that in a poor economy, physicians would shift their case mix to more secure patients (Medicare) or increase the numbers of procedures per patient. We use the Great Recession of 2008 to assess the presence and extent that physicians are inducing demand due to an abrupt and severe economic downturn by comparing physicians in Florida counties which were least impacted to those in counties which were most impacted as measured by the county-level unemployment rate. We find no evidence of physician-induced demand, but rather a slight shift from privately insured utilization to other payers (e.g., self-pay) among those who were in the counties more affected by the recession. Additionally, we find evidence of a general long-term depression of health care utilization among privately insured beneficiaries across the treated and control groups.