NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Brian K. Chen

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Working Papers

November 2013Moral Hazard and Economies of Scope in Physician Ownership of Complementary Medical Services
with Paul J. Gertler, Chuh-Yuh Yang: w19622
When physicians own complementary medical service facilities such as clinical laboratories and imaging centers, they gain financially by referring patients to these service entities. This situation creates an incentive for the physician to exploit the consumers' trust by recommending more services than they would demand under full information. This moral hazard cost, however, may be offset by gains in economies of scope if the complementary services are integrated into the physician's practice. We assess the extent of moral hazard and economies of scope using data from Taiwan, which introduced a "separating" policy, similar to the Stark Law in the US, that restricts physician ownership of pharmacies unless they are fully integrated into the physician's practice. We find that physicians who...

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