Academic Articles Physician Compensation Specialists Supply of Medical Services

Integrating Diagnosis and Treatment in Markets for Health Care

In a recent NBER working paper (“Tradeoffs“), authors Christopher Afendulis and Daniel Kessler, pose an interesting question: should the physician who is diagnosing you also be the one who provides treatment? On the one hand, a physician who both diagnoses and provides treatment has a financial incentive to recommend to the patient that they should have more aggressive (i.e.: read ‘expensive’) treatment. Similarly, car mechanics both diagnose the car’s problem and sell the appropriate remedies (i.e.: parts and labor). For this reason, car mechanics also are often stereotyped as recommending services you don’t need.

On the other hand, having the same physician (or mechanic) provide diagnosis and the treatment, may create efficiency gains. For example “the diagnostician may¬†have better information about how to treat the problem than he could (or would) provide
to an independent third party. Or, the diagnostician may be able to treat the problem¬†himself less expensively or more effectively (‘half the cost is opening the engine block’).”


To test how the diagnosis/treatment dynamic works in health care, Afendulis and Kessler use 1998-2000 data on Medicare patients with coronary artery disease. They compare type of treatment, spending and outcome measures when the patients were treated by the following 3 types of doctors:

  • ‘Non-integrated’ Cardiologists – these physicians only diagnose the disease and provide non-surgical treatment (e.g.: pharmaceuticals). They do not conduct angioplasties.
  • ‘Integrated’ Cardiologist – cardiologists who both diagnose and are able to preform surgical procedures (e.g.: angioplasties).
  • Cardiac surgeons – unlike cardiologists, cardiac surgeons do not provide catheterization services for diagnostic purposes. These physicians preform the more complex heart surgeries (e.g.: bypass surgery).


The authors wish to identify how the type of physician impacts treatment types. The treatment types are angioplasty, bypass surgery, and drugs/non-surgical care. The authors use a multinomial logit framework but worry about selection bias. Selection bias would occur if there were “…unobserved differences in the health or preferences of patients treated by an interventional versus a non-interventional cardiologist.” To control for this, the authors employ predicted values of both physician type and hospital characteristics based on a patient’s three-digit-zip-code average rather than the patient’s actual choice of provider and hospital. This should increase the accuracy of the estimates, but the precision likely suffers.


The authors conclude that treatment by an integrated cardiologists (rather than a non-integrated cardiologist) increases spending by $2800 per patient, but leads to no statistically significant change in health outcomes. However this is not the entire story. Some patients who would have not received surgery now receive angioplasties. On the other hand, some patients who would have been referred by the non-interventional to the surgeon for the more invasive, expensive bypass surgery, now have the less expensive, less invasive angioplasty preformed by the interventional cardiologist.

Looking at efficiency measures, diagnosis by an interventional cardiologist leads to higher spending on angioplasty patients with no health improvement; diagnosis by an interventional cardiologist leads to higher spending on bypass patients as well, but mortality drops significantly. Non surgical patients treated by the interventional cardiologist have similar spending levels, but higher mortality.


After analyzing the data, the authors make an interesting point regarding ‘kickback’ payments for referrals.

“Explicit ‘kickback’ payments from treating to diagnosing doctors are banned by law (for public purchasers such as Medicare and Medicaid) and by contract (for private purchasers like insurance companies and large employers). However, the principle underlying this ban is not generally applied to doctors’ decision to provide integrated diagnosis and treatment, even though integration can have the same effects on incentives and behavior as kickbacks do. In addition, allowing integration but banning kickbacks effectively allows rent capture by integrated but not non-integrated doctors, which can distort treatment decisions even further.”


  1. This study goes really well along with Dr. William Boden’s study on the failure of angioplasties to improve results versus a standard medication regimen for non-emergency heart patients. Triaging in these cases is becoming more of a necessity and creating incentives for diagnosis versus treatment for different physician types could be one really simple way of solving the problem.

    According to the Boston Globe article below, Dr. Boden’s article is supposed to be out in NEJM on April 12th.

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