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Health Services Management Research

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The effects of hospital-physician financial ! The Author(s) 2020
Article reuse guidelines:
integration on adverse incident rate: sagepub.com/journals-permissions
DOI: 10.1177/0951484820948647
An agency theory perspective journals.sagepub.com/home/hsm

Soumya Upadhyay1 , Robert Weech-Maldonado2 and

William Opoku-Agyeman3

Abstract
Background: Patient safety is an important aspect of quality of care. Physicians’ alignment with hospitals by means of financial
integration may possibly help hospitals achieve their quality goals. Most research examines the effects of financial integration on
financial performance. There is a need to understand whether financial integration has an effect on quality and safety.
Purpose: The aim of this study is to examine the association between hospital physician financial integration (employment,
joint ventures, and ownership) and Adverse Incident Rate.
Methodology: A longitudinal panel study design was used. A random effects model with hospital, year, and state effects was
used. Our sample contained 3,528 hospitals observations within U.S. from 2013–2015.
Findings: Contrary to our hypotheses, hospital physician financial integration does not influence AIR. Besides financial
integration, hospitals need to have a high commitment towards quality and safety to influence a lower AIR.

Keywords
financial integration, patient safety, physicians

Introduction
Patient safety is an important aspect of quality of care.1
Patient safety has been defined as freedom from acciden-
tal injury or medical errors,2 and its outcomes include
complications, infections, deaths and adverse events that
happen after medical treatments and surgeries.2
The US Institute of Medicine (IOM) in its report
‘To Err is Human’ exposed medical errors as a leading
cause of death in the US that resulted in approximately
98,000 deaths each year.2 This report also indicated that
the cost associated with medical errors is between $17
billion and $29 billion, making it a significant and costly
healthcare expense.2
According to IOM’s ‘Crossing the Quality Chasm’
report, one of the big challenges towards reducing med-
ical errors and becoming a safer healthcare system is
lack of ‘cooperation’ by clinicians and health care pro-
fessionals. This report invokes a new breed of ‘citizen-
ship’ by clinical professionals in work systems.3 One
potential mechanism to achieving collaboration from
physicians is to financially integrate them with the hos-
pital, for example, through employment, joint ventures,
and ownership; this is also known as economic integra-
tion.4 Literature suggests that congruence of goals
between physicians and hospitals through economic
integration is a way of improving clinical processes,
quality of care and outcomes of care.4 While studies in
the past have examined the effects of financial integra-
tion on financial performance, hospital costs, clinical
integration, and quality,5,6 there is a lack of studies
that explore the effects of integration on patient safety.
Therefore, this study aims to examine the relationship
1
Department of Healthcare Administration and Policy, School of Public
Health University of Nevada Las VegasLas Vegas, NV, USA
2
Department of Health Services Administration, School of Health
Professions, University of Alabama at Birmingham, Birmingham, AL, USA
3
School of Health and Applied Human Sciences College of Health and
Human Services, University of North Carolina Wilmington, Wilmington,
NC, USA
Corresponding author:
Soumya Upadhyay, University of Nevada Las Vegas, 4505 S Maryland Pkwy,
Las Vegas, NV 89154-9900, USA.
Email: soumya.upadhyay@unlv.edu
2 Health Services Management Research 0(0)
between financial integration of hospital and physicians
and Adverse Incident Rate (AIR). This topic is of prac-
tical relevance as the U.S. healthcare system gradually
shifts from a traditional model towards an integrated
model of hospitals and physicians, in which providers
are held accountable for achieving improvements in
quality of care.
Background
Hospital–Physician financial integration
The traditional relationship between physicians and hospi-
tals in the U.S. was such that physicians had independent
relationships with hospitals, and regarded hospitals as
work sites to provide patient care and do research, without
much alignment of hospital-physician goals.7 This relation-
ship has evolved in recent times. Tremendous pressure to
improve quality while keeping costs low led to an interde-
pendent type of symbiotic relationship between hospitals
and physicians where incentives are compatible and
aligned. This relationship is also known as integration.
Integration is defined as the extent to which activities
and functions are appropriately coordinated across
units and is broadly classified into two types: non-
economic, and economic. Of relevance to this study is
economic integration, also known as financial integra-
tion. Financial integration is the extent to which physi-
cians are economically related to the system, use its
facilities and services, and actively participate in plan-
ning and management.8 This collaboration may be of
many forms including employment relationships with
physicians, hospital ownership by physician groups,
and joint ventures between hospitals and physicians.8
Financial integration includes the alignment of incen-
tives between hospital and physicians, and significant
input by physicians in overall strategic decision-making.9
Conceptual framework and hypotheses
Agency theory
This paper uses underpinnings of agency theory to assess
the relationship between hospital physician financial
integration and AIR. Agency theory, which has its foun-
dation in financial economics literature, includes two
entities, a principal and an agent.10 A ‘principal’ is one
who engages another person, an ‘agent’ to perform serv-
ices on the principal’s behalf. In this process, some
decision-making authority is devolved to the agent.10,11
In the U.S. hospital context, governing boards, who rep-
resent community’s issues and agendas are the ‘princi-
pals’.12 Hospital governing boards assign certain tasks to
management and medical staff, who represent ‘agents’,
to serve the community.12 Physicians are an integral part
of management and medical staff in hospitals, regardless
of their level of hierarchy, and thus they are surrogates
for ‘agents’ within the framework of agency theory.
Agency theory has two prime tenets. First, agency
theory assumes that the principals’ and agents’ interests
may be incongruent because each party seeks to maxi-
mize their own welfare.11 Several studies have looked at
how interests of the principals and agents diverge.
Second, information between the principal and agent is
asymmetric, meaning agent has information that is not
available to the principal.13 Information asymmetry in
the principal-agent relationship arises in situations when
the agent has more specialized knowledge than the prin-
cipals, regarding task performance. For instance, physi-
cians may have a better knowledge about clinical tasks
as compared to the governing board.13
The above two tenets of agency theory give rise to the
“agency” problem. The agency problem arises when
desires or goals of the principals and agents conflict.13
In the hospital case, board (principal) delegates the
responsibility for patient safety to physicians (agents),
and financial integration can facilitate the process of
holding physicians accountable for patient safety.
Hospital physician financial integration is an example
of an attempt to encourage cooperative behavior
among individuals with diverse interests.
We studied three strategies by which hospital physi-
cian financial integration can occur, thereby potentially
alleviating the agency problems: 1) salaried employment
as compared to contractual and other arrangements, 2)
ownership of hospitals by physicians, and 3) financial
integration through joint ventures. Our primary research
question is- Are hospitals that use one or more of these
hospital-physician financial integration strategies associ-
ated with lower AIR?
To examine the above question, we focus on the use of
hospitalists and intensivists at U.S. hospitals. Hospitalists
are specialists in inpatient medicine. They are responsible
for managing the care of hospitalized patients in the same
way that primary care physicians are responsible for man-
aging the care of outpatients.14 Intensivists are physicians
that work in the intensive care environment.15
Financial integration through employment
Physician employment is a form of financial/economic inte-
gration that includes physician salaried relationships with
hospitals.8 Employment economically ties physicians to the
system, allowing them to use hospital facilities and partic-
ipate more extensively in planning and management there-
by promoting collaboration to achieve common
objectives.9 For example, studies have suggested that physi-
cians’ employment, as a strategy, has the potential to con-
tribute to hospitals’ objectives of improving quality.16
Upadhyay et al.
Employed physicians who are a part of an integrated
delivery system may be in a better position to provide
collaborative and coordinated care that can potentially
result in lower AIR. For instance, it is easier to set clin-
ical priorities for physicians that are employed, and are
more willing to provide emergency department coverage
as compared to those who are not employed, because
non-employed physicians seldom and unenthusiastically
participate in hospital activities.12 Specifically, employ-
ing hospitalists and intensivists has benefits that include
reduced length of stay, reduced mortalities, ability to
treat higher acuity, better resource use, and improved
efficiency.12,16 A higher availability and participation
of employed physicians in hospital activities can trans-
late in better efficiency and lower AIR. Therefore, we
suggest the following hypothesis:
Hypothesis 1: Hospitals with a higher proportion of
employed physicians will experience lower AIR as com-
pared to other arrangements.
Financial integration through ownership
There has been a recent emergence and growth of physi-
cian ownership of hospitals, especially the ones that pro-
vide specialized treatments.17 Direct ownership of hospitals
is another way to integrate physicians into the hospital and
includes either partial or full ownership.17 Because physi-
cians share financial risks associated with ownership, it is
reasonable that there will be a greater integration of goals
and objectives between physicians and hospitals including
goals for quality and patient safety.6 Studies have shown
that, with ownership, both physicians and hospitals see the
need to collaborate on service lines. In addition, through
ownership, physicians have a focused set of clinical prior-
ities, and respond to pay-for-performance incentives to
improve safety and quality of care.18
According to agency theory, information asymmetry
in the principal-agent relationship is prominent when the
principal lacks specialized knowledge that the agent has,
which can be ameliorated with ownership as physicians
become an integral part of the governing board.11
Agency theory also confirms that goal conflicts are
resolved through co-alignment of financial incentives.
Agreement of hospitals and physicians on goals is espe-
cially critical on patient safety initiatives because such
initiatives seek direction, guidance, and innovation from
physicians.18 Thus, we suggest the following hypothesis:
Hypothesis 2: Hospital-physician financial integration
through physician ownership of hospital is positively relat-
ed to lower AIR.
3
Financial integration through physician joint ventures
Joint ventures refer to those ownership arrangements in
which physicians own healthcare facilities to which they
refer patients for services.17 It is a stronger integration
method (e.g., investment in medical office buildings,
ambulatory centers, diagnostic imaging centers, service
lines, and specialty hospitals) as compared to other
weaker integration methods (e.g., renting facilities to
physician groups).6,7 Approximately half of all hospitals
that participate in Accountable Care Organizations go
through joint ventures between physicians.19 Empirical
findings suggest that hospitals with joint ventures have
shown progress in coordination of care across settings
and safer transitions among care settings.20
Joint ventures involve physicians in hospital gover-
nance, in terms of sharing common interests, resources,
and meshing of hospital and physicians’ strategic objec-
tives for quality goals, while bringing clinical perspective
to board decisions.6,7 Furthermore, linking physicians
with hospitals through joint ventures (clinical labs,
ambulatory centers etc.) facilitates the coordination
across the continuum of care and the provision of com-
prehensive care, which may reduce the probability of
adverse events.20 Thus, we hypothesize that:
Hypothesis 3: Hospital physician financial integration
through physician joint ventures is positively related to
lower AIR.
Methods
Data and sample
This study includes panel data from 2013–2015. The
sample contains all hospitals across the U.S. that pro-
vide acute care and are privately owned. Data for this
study were obtained from the American Hospital
Association (AHA) annual survey, U.S. Area Health
Resource File (AHRF), and Centers for Medicare and
Medicaid Services (CMS) Hospital Compare. The AHA
data had the following hospital-year observations: 7,073
in 2013, 7,600 in 2014, and 7,107 in 2015. After merging
with the AHRF and Hospital Compare data, we had
1,042 hospital year observation in 2013, 1,546 hospital
-year observations in 2014, and 940 hospital-year obser-
vations in 2015. The final analytic sample had 3,528
hospital-year observations.
Variables
Dependent variables. CMS collects and reports data on
AIR, or Patient Safety Indicators (PSIs), which are
measures that screen for potential patient safety prob-
lems as a result of exposure to the healthcare system, and
4 Health Services Management Research 0(0)
that could have been prevented at the system level.21
Previous research has found that PSIs have sufficient
validity for screening cases with a high likelihood of
having quality of care problems.21
For this study, we use the ‘Patient Safety and Adverse
Events Composite’, PSI_ 90, a hospital-level composite
measure or weighted average of a subset of PSIs as
follows:22
PSI 03 Pressure ulcer rate
PSI 06 Iatrogenic pneumothorax rate
PSI 08 In hospital fall with hip fracture rate
PSI 09 Perioperative hemorrhage and hematoma rate
PSI 10 Postoperative acute kidney injury rate
PSI 11 Postoperative respiratory failure rate
PSI 12 Perioperative pulmonary embolism or Deep Vein
thrombosis rate
PSI 13 Postoperative sepsis rate
PSI 14 Postoperative wound dehiscence rate
PSI 15 Unrecognized abdomino-pelvic accidental rate
Each PSI represents the rate per 1000 of at-risk indi-
viduals for the Medicare fee-for-service inpatient popu-
lation. Weighting of indicators is based on the volume of
adverse events and harm associated with adverse
events.23 Online Appendix A includes the numerator
and denominator used in calculating each of the PSIs
of the PSI 90 composite. The measure is a composite
that captures the overall Adverse Incident Rate (AIR),
higher AIR is an indication of worse patient safety
outcomes.
Independent variables. Hospital-physician financial inte-
gration comprises measures of physician employment,
physician ownership, and physician joint ventures from
the AHA annual survey. Physician employment (hypoth-
esis 1) consists of the ratios of hospitalists and intensiv-
ists employed by the hospitals as follows:
[Total hospitalists (FTEs) employed/Total hospital inpa-
tient days] *1000, and
[Total intensivists (FTEs) employed/Total hospital inpa-
tient days] *1000.
Physician ownership (hypothesis 2) is operationalized
using the following item: Is the hospital owned in
whole or in part by physicians or physician groups
(1 ¼ Yes, 0 ¼ No). Finally, physician joint ventures
(hypothesis 3) is operationalized using the following
indicator: Does the hospital participate in joint venture
arrangement by physician or physician groups (1¼ Yes,
0 ¼ No).
Control variables. Organizational characteristics of hospi-
tals such as bed size, teaching status, system member-
ship, ownership status, and staffing have been associated
with lower mortality, adverse events, and lower AIR.24
Proportion of Medicare and Medicaid patients’ accounts
for patients’ severity of illness, and physicians who work
as contractors with hospitals, may play a role in improv-
ing patient safety. The following organizational varia-
bles were used as control variables: 1) Ownership
status- For profit, and Not-for profit, 2) System mem-
bership- Hospitals are considered system affiliated if
they are members of a multi-hospital system, 3)
Teaching status- Hospitals are considered to be teaching
of they are either a member of the Council of Teaching
Hospitals (COTH), or affiliated to a medical school, or
provide residency training, 4) Bed size-measured as total
number of inpatient beds. (Small ¼ 0–99 beds,
Medium ¼ 100–299, Large ¼ 300 and above), 5)
Registered Nurse (RN) staffing ratio ¼ (FTE RN/Total
hospital inpatient days)*1000, 6) Proportion of
Medicare patients and Medicaid patients:(Medicare
inpatient days/Total inpatient days) *100, and
(Medicaid inpatient days/Total inpatient days)*100, 7)
Total contract hospitalists (Total hospitalists con-
tracted/Total hospital inpatient days)*1000, and 8)
Total contract intensivists (Total intensivists con-
tracted/Total hospital inpatient days)*1000.
Geographic location, market competition and per
capita income account for market characteristics that
may influence hospitals’ policies regarding patient
safety thus affecting AIR: 1) Geographic location-
Metro, Urban, and Rural. Rural and Urban
Continuum Codes (RUCC) were used to create the
above categories. RUCC codes 1, 2, and 3 were included
in the metro category, 4, 5, and 6 included in the urban
category, and 7, 8 included in the rural category. A
description of these codes has been given in online
Appendix B. 2) Competition is measured by the
Herfindahl-Hirschman Index (HHI) and consists of the
sum of the square of the market shares for hospitals in
the hospital service area (HSA). HHI values have a
range between 0 and 1, with 1 representing monopolistic
markets and values close to 0 indicating highly compet-
itive markets, and 3) Per capita income represents the
average income per person for the hospital county.
Analytical approach
Our dataset is a longitudinal (panel) data that is
designed to investigate changes of inpatient AIR over
time for each hospital. Given the relatively short study
period, we did not expect large changes in the dependent
and independent variables; therefore, a random effects
(RE) regression model was chosen. The RE model
assumes that variation across hospitals is random and
Upadhyay et al. 5

not correlated with the independent variables included in Table 1. Descriptive characteristics of all variables in the sample
the model. A Hausman test provided support for the use (N ¼ 3,528).
of a RE model. We also adjust for within-hospital var- Mean (SD) or
iation or heteroscedasticity by calculating robust cluster Dependent variable percent %
standard errors. State and year fixed effects were includ-
ed. Our regression model consists of: Adverse Incident Rate (AIR) 85.95 (20.17)
(PSI_90_Safety composite Score)
Independent variable
AIR (measured by PSI_90) it¼ b0þb1 phy_employment it
Physician employment per
þb2 phy_ownership itþ b3 joint_ventures itþb4 controls
1000 hospital inpatient days
it þ State iþ Year þ Uit Hospitalists 0.35 (0.84)
Intensivists 0.26 (2.51)
Where subscripts i, and t represent the ith hospital in Physician ownership
the tth year. Owned 4.05%
Before running the random effects model, we con- Physician joint ventures
ducted a pooled cross-sectional Ordinary Least Yes 52.66%
Squares (OLS) regression model to assess if there was Controls
any significant relationship between AIR and financial Ownership
integration because of the low within-hospital variability Not for profit 87.27%
For profit 12.73%
year by year for our independent variable. This was con-
System affiliation
ducted to assess if no effects exists between AIR and
Non-system affiliated 20.49%
financial integration or if our longitudinal data had System affiliated 79.51%
insufficient variation to detect an effect. Teaching status
Teaching 61.88%
Results Non-teaching 38.12%
Size
Table 1 presents descriptive statistics on all the variables Small (0-99 beds) 11.68%
included in the study. The AIR on average, was approx- Medium (100-299 beds) 46.43%
imately 86 for all hospitals during 2013–2015. The aver- Large (300 plus beds) 41.89%
age hospitalist employment in our sample was 0.4 FTE Registered Nurse staffing 0.93 (1.42)
per 1000 inpatient days, a little higher than the average Proportion Medicare 52.17 (12.32)
Proportion Medicaid 18.03 (9.65)
intensivist employment, which was 0.3 FTE per 1000
Contract hospitalists 0.23 (0.51)
inpatient days. Approximately 4% of the hospitals
(per 1000 hospital IPD)
were owned either in whole or in part by physician Contract intensivists 0.16(0.64)
groups, and approximately 53% of the hospitals (per 1000 hospital IPD)
engaged in joint ventures with physicians or physician Location
groups. Metro 91.07%
Among organizational characteristics, the majority of Urban 8.82%
the hospitals were not-for profit (87%). Approximately Rural 0.11%
80% of the hospitals were a member of a system; and HHI (1 ¼ monopoly) 0.5 (0.33)
62% had teaching status. The average RN staffing ratio Per capita income 45961.5 (12095.2)
was 0.9 RN FTE per 1000 inpatient days. Additionally,
the proportion of Medicare patients was 52%, and the
proportion of Medicaid patients was 18% in our sample. to year low variations in the financial integration meas-
Among market characteristics, the majority of the hos- ures. We found no association between the above two
pitals in our sample were located in a metro area variables.
(91%). Furthermore, hospitals in our sample were Table 3 presents results from random effects model.
predominately medium (46%) and large (42%) in size. Hospitalist employment, physician group ownership,
Finally, the average score for market competition mea- and physician joint ventures showed no statistically sig-
sured by the Herfindahl-Hirschman Index was 0.5, nificant relationship with AIR. Therefore, our hypothe-
which indicates that hospitals in our study tend to be ses H1, H2, and H3 were not supported.
in more monopolistic markets with a mean per capita For-profit hospitals (b ¼ 1.05, p < 0.05) compared to
income of about $45,961. not-for-profit, and large (b ¼ 2.33, p < 0.05) as compared
Table 2 presents results of the pooled cross-sectional to small hospitals, had a statistically significant higher
OLS regression between AIR and measures of financial AIR. On the other hand, hospitals that were teaching
integration. We conducted the OLS to account for year (b ¼ 2.75, p < 0.01), were associated with a statistically
6 Health Services Management Research 0(0)

Table 2. Multiple linear regression (OLS) results of the relationship between hospital physician financial integration and adverse incident
rate (N ¼ 3,528).

Dependent variable ¼ adverse incident rate Beta (S.E) Confidence interval

Physician employment (per 1000 hospital inpatient days)

Hospitalists 0.80 (0.64) 0.45  2.06
Intensivists 0.12 (0.35) 0.81  0.58
Physician group ownership (Ref ¼ not owned)
Owned 2.59 (1.87) 6.27  1.10
Physician joint ventures (Ref ¼ No)
Yes 0.01 (0.68) 1.36  1.34
Controls
Ownership (Ref ¼ not-for-profit)
For-profit 0.08 (1.13) 2.30  2.15
System (Ref ¼ not affiliated to a system)
System affiliated 0.01 (0.85) 1.66  1.67
Teaching status (Ref ¼ non-teaching)
Teaching 2.89 (0.79) ** 4.44  –1.33
Size (Ref ¼ small)
Medium 1.13 (1.22) 3.53  1.26
Large 2.44 (1.40) 0.31  5.18
Location (Ref ¼ metro)
Urban 0.40 (1.31) 2.97  2.18
Rural 0.56 (10.00) 20.16  19.04
RN staffing 0.04 (0.50) 0.94  1.02
Proportion Medicare 0.05 (0.03) 0.11  0.01
Proportion Medicaid 0.16 (0.04) ** 0.08  0.24
Contract hospitalist (per 1000 IPD) 0.08 (0.74) 1.54  1.38
Contract intensivists (per 1000 IPD) 0.58 (0.70) 1.96  0.80
HHI (1 ¼ monopoly) 1.82 (1.17) ** 4.13  0.49
Per capita Income 0.00(0.00) * 0.00  0.00

significant lower AIR. Contrarily, hospitals located in
more competitive markets (b ¼ 5.47, p < 0.01) were
associated with higher AIR.
Discussion
This study tested a model, based on agency theory,
which examined the effect of hospital physician financial
integration through employment, ownership, and joint
ventures on AIR. Contrary to what we hypothesized,
hospital physician financial integration does not influ-
ence AIR. This suggests that financial integration
between hospitals and physicians, by itself, may not be
sufficient to influence AIR. In addition to the financial
strategies examined in this study, hospitals need to have
a high commitment towards quality and safety to have
lower AIR. Resource adequacy, physician involvement,
and a positive nursing work environment may be needed
to supplement financial integration’s effect towards
patient safety improvement. Other strategies may
include having good collegial physician nurse relations,
adequate nurse staffing and a competent nursing leader-
ship to create a conducive work environment for nurses
to achieve a reduction in patient safety errors. Consistent
with our study, other studies have found that despite a
higher number of physicians, an organizational environ-
ment needs to be fostered for the implementation of
evidence-based practices, where physicians are prepared
to solve problems.25
Even though we expect that with employment, a
higher availability of physicians would translate to
lower AIR; their objectives may not be in congruence
with those of the hospital. Researchers have found that
physician employment does not have a relationship with
better patient care and a higher intensivist staffing is not
related with improvement in outcomes such as mortality
rates.25 Consistent with prior studies, our study found
no relationship between hospital employment and AIR.
Prior studies only considered employment as a form of
integration,25 however we used a comprehensive con-
struct that includes employment, ownership, and joint
ventures. Nevertheless, our finding remained consistent
with prior research that shows no relationship between
financial integration and AIR.25
In our study, the average intensivists staffing was
only 0.3 per thousand hospital inpatient days, which
may not be large enough to influence AIR. Besides
having a higher number of employed hospitalists, it is
Upadhyay et al. 7

Table 3. Multiple linear regression results with random effects of the relationship between hospital physician financial integration and AIR
(N ¼ 3,528).

Dependent variable ¼ adverse incident rate Beta (Robust S.E.) Confidence Interval

Physician employment (per 1000 hospital inpatient days)

Hospitalists 0.04 (–0.61) 0.93  0.85
Intensivists 0.14 (0.34) 0.41  0.58
Physician group ownership (Ref ¼ not owned)
Owned 2.33 (2.61) 7.08  1.40
Physician joint ventures (Ref ¼ No)
Yes 0.60 (0.80) 2.80  0.83
Controls
Ownership (Ref ¼ not-for-profit)
For-profit 1.05 (0.81)* 0.43  7.67
System (Ref ¼ not affiliated to a system)
System affiliated 0.34 (1.06) 3.21  1.24
Teaching status (Ref ¼ non-teaching)
Teaching 2.75 (0.78)** 4.15  0.66
Size (Ref ¼ small)
Medium 0.84 (1.44) 3.30  2.23
Large 2.33 (1.67)* 0.01  6.39
Location (Ref ¼ metro)
Urban 0.78 (1.94) 2.91  3.67
Rural 1.35 (12.83) 7.01  19.72
RN staffing 0.24 (0.46) 1.12  0.47
Proportion Medicare 0.03 (0.03) 0.12  0.01
Proportion Medicaid 0.00 (0.04) 0.04  0.12
Contract hospitalist (per 1000 IPD) 1.17 (0.74) 0.25  2.59
Contract intensivists (per 1000 IPD) 0.82 (0.85) 2.13  1.20
HHI (1 ¼ monopoly) 5.47 (1.72)** 8.56  2.19
Per capita Income 0.00 (0.00) 0.00  0.00
Note-State random effects were included.
*p < 0.05; **p < 0.01.
R2 within ¼ 0.19; R2 between ¼ 0.13; R2 overall ¼ 0.15.

imperative that hospitalists are motivated and
collaborate to pay attention to the content, format and
timely delivery of clinical information to avoid losing
important information that may cause patient safety
errors.26
Hospital physician financial integration such as own-
ership and joint ventures align priorities between hospi-
tals and physicians, where physicians bring clinical
knowledge to decisions made by the governing board
thereby removing goal conflicts. However, ownership
of hospitals by physicians and physician groups has con-
cerned hospital managers about added requirements
from the governance. In addition, it has also concerned
patients about referral restrictions to other hospitals.18
While it is true that involvement of physicians in the
hospital governance brings critical perspective to board
decisions, simply bringing clinical guidance to board
decisions may not necessarily mean that quality of care
is being affected.
Our analyses found several significant relationships
between certain organizational characteristics such as
ownership, teaching status, and size with AIR. For-
profit hospitals had higher AIR than non-profit hospi-
tals. Our finding is consistent with results from previous
studies that compared the quality of care at both
for-profit and not-for-profit hospitals and found that
for-profit hospitals were associated with lower quality
(higher AIR) when compared across markets.27For-
profit or investor-owned hospitals are required to pay
taxes, their employees tend to have higher salaries and
bonuses, and their shareholders expect return on their
investments.27 For these reasons, such hospitals may
have an incentive to minimize expenses, potentially
resulting in inadequate staffing and therefore lower qual-
ity and safety.
Our subsequent finding about teaching hospitals
being associated with lower AIR is corroborated by
the fact that teaching hospitals provide graduate medical
education, and residents provide much of direct patient
care. Such hospitals have an academic culture in which
residents need to be certified as being proficient in per-
forming a number of procedures.28 Teaching hospitals
also provide residents with workshops and training to
improve their competence in performing procedures.28
8 Health Services Management Research 0(0)
Our findings are reflective of a positive patient safety
environment that engages residents in patient safety
activities at academic medical centers.
Finally, large hospitals had higher AIR, which may
be due to a large volume of patients with a wide varia-
tion in case mixes, that necessitates a range of compli-
cated procedures, opening up possibilities of lower
quality and patient safety. Future studies can evaluate
an in depth understanding of the rationale behind large
hospitals having higher AIR.
Our findings show that a higher market competition is
related with higher AIR, which are consistent with prior
research that have shown that a higher market competition
is related with higher mortality rates.29 However, other
studies concerning competition in healthcare markets and
its impact on quality have shown that competition
increases quality of healthcare.30 Higher competition
may result in higher AIR (worse safety outcomes) because
hospitals in more competitive markets may focus on
aspects that are observed and visible to patients and attract
physician referrals, for example, investment in high tech-
nological capabilities and reduction in patient wait times.
However, it may take away resources that are needed for
improvement in patient safety.
This study has some limitations. We used secondary
data sources to measure hospitalist and intensivist
employment, as well as AIR, which may sometimes be
incomplete or available only for some years. This may
cause issues of generalizability because the study popu-
lation represents only those hospitals that have provided
patient safety outcome data. In addition, the PSI 90 may
not be a comprehensive measure that includes all the
AIRs. Future studies can explore other staffing data
and use longer study periods that would help draw
more complete conclusions about associations examined
in this study. Additionally, using data on other AIRs
besides CMS’ PSI data, would shed more light on the
research questions answered in this study. Finally, stud-
ies in the future should control for average DRG case
mix in the data analysis.
For hospital managers, a take away from this study is
that even though hospital physician integration can help
increase the number and availability of physicians, it may
not have far reaching distal effects on improving AIR.
Besides integrating physicians into hospitals, organizations
should consider increasing their commitment towards
quality and safety. An organizational culture of patient
safety can possibly be nurtured and fostered through
physicians’ involvement in hospitals’ patient safety priori-
ties. Healthcare quality and safety is an important issue
that calls the attention of researchers, policymakers, and
administrators in the years to come. Our study uncovers a
gap that hospitals need to fill if they integrate physicians
into hospitals with the goal of improving patient safety.
Declaration of conflicting interests
The author(s) declared no potential conflicts of interest with
respect to the research, authorship, and/or publication of this
article.
Funding
The author(s) received no financial support for the research,
authorship, and/or publication of this article.
ORCID iD
Soumya Upadhyay https://orcid.org/0000-0002-4651-0925
Supplemental material
Supplemental material for this article is available online.
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