The Impact of Management on Clinical Performance: Evidence from Physician Practice Management Companies

Abstract

Mergers and acquisitions in healthcare are increasingly leading to changes in firm management. This paper studies how a change in firm management impacts clinical performance using data on an understudied phenomenon: medical practice acquisitions by physician practice management companies (PPMCs). PPMCs market themselves as offloading the administrative burden of running a medical practice without compromising physician autonomy over clinical decisions. However, a PPMC’s management strategy and practices, such as performance monitoring and financial incentives, could influence physician behavior. For example, some PPMCs advertise increasing revenue through better financial management, whereas others also advertise improving quality through better clinical management. In this paper, I collect data on three large PPMCs that manage the practices of more than 40% of obstetricians and gynecologists (Ob-Gyns) in Florida between 2006 and 2014. An Ob-Gyn’s main clinical decision in childbirth involves a tradeoff between financial and clinical outcomes: cesarean sections (C-sections) are often more highly reimbursed than vaginal births but pose risks to maternal and infant health when not medically necessary. Using difference-in-differences methods, I find heterogeneous effects on C-sections depending on a PPMC’s publicized management strategy. Physicians acquired by PPMCs that focus on financial management increase the use of C-sections, resulting in less clinically appropriate care and worse patient outcomes. The opposite result is found when PPMCs focus on clinical management. I provide qualitative and quantitative evidence that differences in firm management are the most likely driver of changes in C-sections. This paper informs how the corporatization of medicine can alter clinical performance outcomes. This paper was accepted by Stefan Scholtes, healthcare management. Funding: This project was supported by grants from the Agency for Healthcare Research (AHRQ), the National Science Foundation (NSF), and Wharton’s Mack Institute for Innovation [Mack Institute Research Fellowship]. The analysis was conducted using data from the State of Florida’s Agency for Healthcare Administration (AHCA). The content is solely the responsibility of the author and does not necessarily represent the official views of AHRQ, NSF, Mack Institute, or AHCA. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2022.4571 .