Employed for Higher Pay? How Medicare Payment Rules Affect Hospital Employment of Physicians

Hospitals employ an increasing number of physicians and bill for a growing share of outpatient procedures. We exploit a plausibly exogenous increase in Medicare prices for hospital-employed physicians relative to Medicare prices for other physicians to show that payer reimbursement rules explain part of this trend. The shock we study explains 20 percent of the increase in physician employment and 75 percent of the increase in hospital-billed outpatient procedures between 2009 and 2013.(JEL G22, I22, I13, J23, J31, J44)