Physician ownership of ancillary services: Indirect demand inducement or quality assurance?

This paper analyzes two competing explanations for the ownership of ancillary facilities by referring physicians: indirect demand inducement and quality assurance. Consistent with the demand-inducement explanation we find physician-owned clinics treat patients for 50 percent more visits than do independent clinics and the differential is directly related to factors facilitating demand inducement. We find no difference in quality of care across ownership structures, however. In further support of the demand-inducement hypothesis we find that physical therapists are less likely to work in physician-owned clinics in states where therapists are allowed to practice independently.