For example, interdisciplinary healthcare teams have been found to reduce hospital costs—an economy of scope. Similarly, note the authors, “consumer transaction costs are expected to be lower in the case of IOAS because patients have ready access to ancillary services and have the opportunity to economize on identifying, vetting, locating, and traveling to a provider.”


Published 9/1/2012
Ashlen Anderson

Making the Case for In-office Ancillary Services

New study weighs economic benefits of integration versus potential costs

Physician ownership of in-office ancillary services (IOAS), specifically in-office imaging and integrated physical therapy services, has been under scrutiny for several years. A new study published online in the journal Health Economics Review uses the example of orthopaedic surgeons to examine the tradeoffs associated with IOAS, particularly with regard to the benefits of integrating clinical services versus the potential for overutilization of certain IOAS.

“Organizational boundaries of medical practice: The case of physician ownership of ancillary services” reviews the existing literature and critiques the methodology used and the conclusions reached by previous studies on the relationship between physician ownership and utilization of those services. The study, which was funded by the American Association of Orthopaedic Surgeons, was authored by John E. Schneider, Robert L. Ohsfeldt, Cara M. Scheibling, and Sarah A. Jeffers, of Oxford Outcomes, Inc., an international market leader in health economics, epidemiology, and patient-reported outcomes research and translation.

Although supporters of integrated clinical services say that IOAS improve efficiency and continuity of care, critics argue that IOAS create financial incentives for physicians to increase the volume of ancillary services ordered.

In their review of published literature on the topic, the authors concluded that critics of IOAS are missing key points in their economic analyses. The authors argue that any assessment of the effects of ancillary services ownership should account for the full set of tradeoffs associated with ownership, including the role of scope and transaction economies. Economies of scope result when producing two or more products result in lower costs, particularly when the products are based on common, shared knowledge. Transaction economies occur when relatively complex activities are efficiently organized in settings that have stronger administrative controls.

Studies have found that when orthopaedic surgeons work closely with physical therapists, they are more likely to recommend nonsurgical treatment options, potentially lowering healthcare costs.
Courtesy of Purestock\Thickstock

In addition, the authors argue that little evidence exists to support the assumption that supplier-induced demand works differently in ownership arrangements versus other forms of corporate governance, such as joint ventures, long-term contracts, and other tightly coupled arrangements that may share some of the benefits of full integration. In other words, the authors offer a critique of the methodology of studies that suggest that financial incentives induce suppliers of medical care (physicians) to promote demand for services they own.

The study also highlights the benefits of integrated clinical services—such as decreased wait times and improved information flow among care teams—that have been demonstrated in the literature. In particular, integrated physical therapy services have been shown to have cost-saving benefits because when orthopaedic surgeons work closely with physical therapists, they are more likely to recommend nonsurgical treatment options.

“Whether IOAS ownership is undesirable depends a great deal on whether induced services represent appropriate or inappropriate care,” the authors conclude. “Given the lack of consistent findings on inappropriate care in other settings, there appears to be considerable room for further research on the extent to which added ancillary services are appropriate or inappropriate.”

Ashlen Anderson is the manager, state legislative and regulatory affairs, in the AAOS office of government relations. She can be reached at

Additional Resources
The full text of the paper can be found here: