Raising the Stakes: Physician Facility Investments and Provider Agency

Elizabeth L. Munnich; Michael R. Richards; Christopher Whaley; Xiaoxi Zhao

doi:10.1257/aer.20211324

Raising the Stakes: Physician Facility Investments and Provider Agency

Elizabeth L. Munnich¹; Michael R. Richards²; Christopher Whaley³; Xiaoxi Zhao⁴

¹ Department of Economics, University of Louisville (email: ) · ² Jeb E. Brooks School of Public Policy, Cornell University, and NBER (email: ) · ³ Department of Health Services, Policy, and Practice, School of Public Health, Brown University (email: ) · ⁴ RAND Corporation (email: )

American Economic Review 2026

Principal-agent problems often extend beyond what can be directly addressed through conventional incentive arrangements. We examine a context where physicians are likely under-incentivized to minimize total medical costs until their private financial interests align with those of patients. Leveraging novel data on physician ownership of ambulatory surgery centers——that is, same-day facilities——we show that these equity holdings cause a substitution away from higher cost, rival settings that lowers Medicare spending by 10–40 percent per physician. We find no clear evidence of perverse behavior following these investments. Instead, our findings demonstrate how entrepreneurial activity can indirectly limit principal-agent problems and improve efficiency. (JEL D82, D91, G51, I11, I18, L84)

DOI: 10.1257/aer.20211324
Volume: 116 (2)
Pages: 502-534
Language: en
Export: BibTeX
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