The Right Medicine
Private equity in the hospital industry
Janet Gao, Yongseok Kim & Merih Sevilir
Journal of Financial Economics, September 2025
Abstract:
We examine the survival prospects, employment profiles, and patient outcomes at private equity (PE)-acquired hospitals. Target hospitals maintain their survival rates while significantly reducing employment and wage expenditures. The number of core medical workers drops temporarily, but returns to its pre-acquisition level in the long run. However, administrative job and wage cuts persist over the long term, particularly at previously nonprofit hospitals. Using proprietary insurance claims data, we find no significant changes in patient demographics or inpatient prices at PE-acquired hospitals. While patient satisfaction declines, there is no evidence of increased patient mortality or readmission rates at PE-acquired hospitals.
Do For-Profit Hospitals Cream-Skim Patients? Evidence from Inpatient Psychiatric Care in California
Donghoon Lee et al.
Journal of Health Economics, August 2025
Abstract:
The paper examines whether, among inpatient psychiatric admissions in California, for-profit (FP) hospitals engage in cream skimming, i.e., choosing patients for some characteristic(s) other than their need for care, which enhances the profitability of the provider. We propose a novel approach to identify cream skimming using cost outcomes. Naïve treatment effect estimates of hospital ownership type consist of the impact of differential patient case mix (selection) and hospital cost containment strategies (execution). In contrast, an instrumental variable (IV) approach can control for case mix and establish the causal effects of ownership type due to its execution. We interpret the difference in naïve and IV treatment effects to be driven by FP hospitals’ selection (cream skimming) based on unobserved patient case mix. We find that FP specialty hospitals are more likely to treat high-cost patients than their not-for-profit (NFP) counterparts, providing no evidence of cream skimming by FP hospitals. Our findings may alleviate concerns about the recent proliferation of FP psychiatric hospitals, particularly regarding cream skimming.
Psychiatry’s New Validity Crisis: The Problem of Disparate Validation
Nicholas Zautra
Philosophy of Science, July 2025, Pages 646-665
Abstract:
In response to the crisis in validity of the Diagnostic and Statistical Manual of Mental Disorders, psychiatry has seen a proliferation of alternative research frameworks for studying and classifying psychiatric disorders. In this paper, I argue that the existence of multiple frameworks in which each employs their own standards of validity is problematic methodologically speaking for trying to do any kind of unified validation work. Fundamental disagreements concerning the underlying phenomenon, sources of validating evidence, and the very nature of validity move each framework into an unrecognized plurality. The consequence for psychiatry is a new validity crisis.
Does Universal Occupational Licensing Recognition Improve Patient Access? Evidence from Healthcare Utilization
Yun taek Oh & Morris Kleiner
NBER Working Paper, July 2025
Abstract:
Optimizing state and regional physician labor supply has been an important policy issue in healthcare in the United States. One of the proposed solutions has been the universal licensing recognition (ULR), which allows out-of-state physicians to provide healthcare services without relicensing and increases the local labor supply of physicians. There has been no empirical analysis of the effect of such regulatory relaxation on the local labor supply and subsequent improvements of consumer welfare. In this study, we use the Behavioral Risk Factor Surveillance System to investigate the effect of universal reciprocity of physician licenses on healthcare utilization, and use data from IPUMS-USA, IPUMS-CPS, and the Doctors and Clinicians National Downloadable File from the Centers for Medicare & Medicaid Services to examine the changes in the local labor supply of physicians through interstate migration and out-of-state practices. Our results show that adopting the ULR significantly raises the proportion of individuals accessing healthcare, particularly among older individuals, and reduces the proportion of individuals not getting healthcare services because of costs. We provide empirical evidence that these effects are from the universal reciprocity of physician licenses, instead of unknown factors related to the ULR. We also show that the positive effect of the ULR on healthcare utilization is closely related to the increase in out-of-state practitioners to include temporary and telehealth physicians, by showing no changes in interstate migration of physicians and an increase in out-of-state practices. The adoption of ULR may allow for a more efficient regional distribution of physicians and result in greater access to healthcare.
Women in Charge: Evidence from Hospitals
Katharina Lewellen
Journal of Finance, August 2025, Pages 2199-2253
Abstract:
The paper examines the decision-making, compensation, and turnover of female CEOs in U.S. hospitals. Contrary to the literature on lower-ranked executives and directors in public firms, there is no evidence that gender differences in preferences for risk or altruism affect decision-making of hospital CEOs: corporate policies do not shift when women take (or leave) office, and male and female CEOs respond similarly to a major financial shock. However, female CEOs earn lower salaries, face flatter pay-for-performance incentives, and exhibit greater turnover after poor performance. Hospital boards behave as though they perceive female CEOs as less productive.
Are Hospital Acquisitions of Physician Practices Anticompetitive?
Zack Cooper et al.
NBER Working Paper, July 2025
Abstract:
This paper empirically analyzes the effects of mergers between complementary firms on competition and pricing. As these non-horizontal mergers have become more common, there is increasing interest in evaluating both potential efficiencies such as eliminating double marginalization and potential anticompetitive effects such as foreclosure and recapture. The mergers we study -- hospital acquisitions of physician practices -- have reshaped the $1 trillion US physician industry, nearly doubling the share of physicians working for hospitals between 2008 and 2016. We combine novel data and machine learning algorithms to identify a large number of integration events, spanning a wide range of markets with different competitive circumstances. We merge the integration events with claims data from a large national insurer to study their effects on prices. Focusing on childbirths, the most ubiquitous admission among the privately insured, we find that, on average, these mergers led to price increases for hospitals and physicians of 3.3% and 15.1%, respectively, with no discernible effects on quality measures. Using demand estimation to characterize substitution patterns for both physicians and hospitals, we construct tests that demonstrate price increases are larger among transactions with greater scope for foreclosure and recapture. Our estimates suggest that the costs of these mergers of hospitals and physicians have been substantial, and our mechanism tests offer guidance in predicting where the anticompetitive effects of non-horizontal mergers are likely to be strongest.
Drug Coverage Policies And Clinical Guidelines Alignment: Most Coverage Decisions Include Additional Restrictions
Julia Rucker et al.
Health Affairs, July 2025, Pages 839-845
Abstract:
Utilization management criteria influence patients’ access to specialty drugs, yet the processes used by health plans to establish these criteria are not well understood. This study examined the alignment between clinical practice guidelines and plans’ utilization management criteria. Using the Tufts Medicine Specialty Drug Evidence and Coverage Database (December 2023), we reviewed US-based guidelines for 389 drug-indication pairs, excluding oncology and biosimilar treatments. We categorized guidelines as recommending or not recommending utilization management, based on alignment with each drug’s Food and Drug Administration label -- specifically, line of therapy and clinical requirements (for example, disease severity). We analyzed 5,699 coverage policies from eighteen large commercial health plans. When guidelines recommended utilization management, 67 percent of plans’ coverage decisions aligned with the recommendation; when guidelines did not recommend utilization management, only 37 percent of decisions were consistent. Most plans imposed utilization management criteria (61 percent of all decisions), and plans were more likely to be consistent with guideline recommendations when utilization management was recommended, indicating a weak alignment with guideline recommendations.
Strategic Patenting: Evidence from the Biopharmaceutical Industry
Michael Frakes & Melissa Wasserman
NBER Working Paper, July 2025
Abstract:
Biological drugs account for just two percent of prescriptions filled in the U.S. but fifty percent of prescription-drug spending. To explore the role patents play in explaining high biologics prices, we build the first comprehensive database of patents associated with all FDA-approved biologics. We first establish that much of what drives biologic patenting is the desire to block entry by competing biosimilars. For these purposes, we estimate the response to a 2010 Act that created an abbreviated pathway for biosimilars to receive FDA approval. We then document robust evidence consistent with two patenting strategies that may block biosimilar competition: thicketing and evergreening, whereby firms supplement primary patents with a dense web of later-expiring patents on secondary drug features. We conduct various exercises to suggest that these behaviors are undertaken with exclusionary purposes that go beyond the traditional justifications of the patent system. We then set forth various descriptive statistics surrounding biosimilar entry to suggest that these patenting strategies are, in fact, effective at delaying biosimilar entry. Finally, we simulate the degree to which biologics patent portfolios are impacted by policy proposals currently under consideration to address thicketing and evergreening.
A change of plans: Switching costs in the procurement of health insurance
Eran Politzer
Journal of Health Economics, August 2025
Abstract:
The provision of public health insurance through regulated markets requires a dynamic procurement of insurers over time. Using data from Medicaid managed care bids, I study the impacts of regulators’ decision to drop an insurer from the market on health care use among affected enrollees, who must switch to another health plan. Using a difference-in-differences framework, I find that after a plan is replaced, enrollees from the exiting plan have fewer visits to primary care physicians, lower utilization of prescription drugs, including those for chronic conditions, and more hospital admissions. These disruptions disproportionately affect sicker enrollees, particularly children and non-white beneficiaries. In the year following the exit, insurers’ spending on enrollees from exiting plans is 7% lower than the pre-exit baseline. Changes in provider networks and drug formularies may serve as mechanisms.
The effect of Certificate-of-Need laws on physician earnings and labor supply
Moiz Bhai
Southern Economic Journal, July 2025, Pages 152-175
Abstract:
Despite considerable research on Certificate-of-Need (CON) laws in healthcare provision, there is limited evidence on healthcare providers' labor market responses to these laws. Using data from the American Community Survey between 2005 and 2019, I show that physicians in CON states earn approximately 2.5%–3% less than physicians in non-CON states and are less likely to be self-employed. This occurs despite no differences in hours worked or alternative measures of labor supply. Next, I use variation from the Affordable Care Act Medicaid Expansion as a demand shock to examine how physician earnings and labor supply respond in CON and non-CON states. While I observe no differences in earnings and hours worked, I find higher rates of self-employment and lower rates of part-time work in CON states compared to non-CON states. The difference in earnings without corresponding differences in hours worked suggests that CON laws add frictions to the labor market. More importantly, the Affordable Care Act analysis revealing differences in self-employment and part-time work indicates that these rigidities prevent adequate provider response to changing market conditions.
Government Monitoring of Health Care Quality: Evidence from the Nursing Home Sector
Yiqun Chen & Marcus Dillender
NBER Working Paper, July 2025
Abstract:
In contracting out, monitoring is an important policy tool to extract information on firm quality and incentivize quality provision. This paper examines a central quality inspection of nursing homes, a sector with significant welfare implications but widespread public concerns about its quality of care. Using data on nursing homes across the US, we find that nursing homes exhibit strategic responses to the inspection. Nursing homes increase the quantity and quality of labor inputs, reduce admissions, increase temporary discharges, and improve patient care in response to the inspection. However, nearly all responses described above drop immediately once the inspection is completed. While inspection rating is unlikely to reflect nursing homes’ absolute quality given the strategic responses, using a quasi-experimental research design we find that inspection rating predicts nursing homes’ relative quality. Finally, we examine the effects of quality deficiency citations issued by the inspection on incentivizing nursing homes to improve quality of care, finding mixed impacts.