Exploring the Relationship Between Inpatient Facility and Physician Services

Abstract

Medicare hospitalizations involve both facility and physician services. Although several studies analyze hospital-level variations in Medicare inpatient facility and inpatient physician services per admission, few studies directly explore the relationship between these services. Theoretically, inpatient facility and physician services may be complements or substitutes. That is, an increase in facility services may lead to an increase or decrease in physician services and vice versa. This article contributes to the existing literature by exploring directly the relationship between facility and physician services. Medicare physician claims were linked to inpatient hospital stays using data from the Medicare hospital cost reports, the Medicare Patient Analysis and Review file, and the Medicare National Claims History System. In multivariate regression analyses, the (partial) correlations between facility and physician services were positive, which is consistent with complementarity. Standardized regression coefficients indicate that physician services are the single most important determinant of facility services; however, facility services are a less important determinant of physician services. A 10% increase in physician services is associated with at least a 3.0% increase in facility services. Proposals that reduce inpatient physician expenditures also would reduce facility expenditures in the long-run.