Team Formation and Performance: Evidence from Healthcare Referral Networks

Abstract: How does team structure affect productivity? We address this question with an application to healthcare by examining the teams that primary care physicians (PCPs) assemble when they refer patients to specialists. Our theoretical model analyzes how PCPs trade off costly coordination against beneficial specialization, predicting that coordination improves when PCPs concentrate their referrals within a smaller set of specialists. Empirically we find that patients of PCPs with concentrated referrals have lower healthcare costs. This effect exists for commercially insured and Medicare populations; is statistically and economically significant; and holds under identification strategies that account for unobserved patient and physician characteristics.