Tradeoffs from Integrating Diagnosis and Treatment in Markets for Health Care

Innovation and Economic Growth

Article Snapshot


Christopher C. Afendulis and Daniel Kessler


National Bureau of Economic Research Working Paper #12623, 2006


This paper analyzes the costs and benefits of using a single doctor to both diagnose and treat medical issues.

Policy Relevance

Diagnostic physicians who also treat patients have a self-interest in offering patients more expensive, and more profitable, treatments, but are also more efficient than using two doctors to do the same work. Balancing these issues, particularly in the case of Medicare is a serious policy concern.

Main Points

  • Diagnosticians are doctors who attempt to determine what is wrong with a patient who shows signs of an illness or malady. Some diagnosticians also treat patients; such doctors who fulfill both roles are called integrated diagnosticians.
  • Integrated diagnosticians have a personal incentive, profit, to offer patients who they diagnose more expensive treatments. Thus, it has been suggested that diagnosis and treatment should remain separated.
  • Despite this criticism of integration, the perceived efficiency of integration has resulted in more and more integrated diagnosticians.
  • To determine what the actual costs and benefits are of utilizing an integrated diagnostician, a study was performed analyzing a random sample of Medicare beneficiaries with coronary artery disease.
  • The study looked at 20% of patients who received Medicare treatment for coronary artery disease in 1998 and then compared the cost and success of the medical treatment offered to whether or not the patient used an integrated diagnostician.
  • The study showed, on the whole, that patients who used an integrated diagnostician spent 10% more, on average, than those who did not. However, there was no improvement in the health outcome associated with the increased cost.
  • These results suggest that the current payment system used by Medicare, and by medicine at large, needs to be refined to remove the incentive for doctors to offer more expensive treatments. One possible way to do this would be to pay doctors referral fees, thus creating a balancing incentive for a doctor to refer a patient to another physician.

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