Skip to main content

Health Spending for Hospital-owned Physician Groups

By October 23, 2014Commentary

Hospitals and health systems have been rapidly acquiring physician practices, claiming that it will result in greater care coordination, and lower costs due to less duplication of services and use of high-cost settings.  Concerns have been expressed that such acquisitions increase market power and actually end up costing more.  A study published in the Journal of American Medical Association examines total health spending per patient in hospital-owned physician practices versus those owned by the doctors themselves.  (JAMA Article)   The study was conducted in California and looked at commercially-insured populations.  The physician networks were described as integrated medical groups or IPAs (independent practice associations).  These were then characterized as either physician-owned, local hospital-owned or multi-hospital system-owned.  Data was obtained for 2009 to 2012 on the total spending for patients, that made by both the third-party payers and the patients themselves.  Expenditures for patients handled by each physician organization were adjusted by the disease burden across each organization’s patient population and by input cost indices.  During the study period, the number of physician organizations declined from 162 to 158 due to mergers.  In 2009, independent hospitals owned 10 physician organizations with 7.7% of patients, by 2012 this had increased to 19 with 16.2% of patients.  Multihospital systems owned 21 organizations accounting for 15.7% of patients.

Across all organizations, spending per patient increased by 16.5% during the study period.   In 2012, doctor-owned practices had an average per patient spend of $3066; independent hospital-owned ones were an average of $4312, and multihospital-owned groups had an average of $4776.  On an adjusted basis, local hospital-owned organizations had 10% greater spending and multihospital ones 20% greater spending than doctor-owned organizations.  IPAs had 5% greater spending than did integrated medical groups.  The larger the organization in terms of number of patients, the greater its spending.  Let us be clear here, this is a massive total health spending difference.  This is tens of billions of dollars a year of wasted money due solely to higher prices and excessive utilization in hospital-owned practices.  Any one come up with any cogent reason why this should be permitted?

One easy solution to some of the issues caused by this trend is to equalize payments for the same service across all settings.  I can’t think of a single logical objection to that.  But the broader structural reform needed is not only to ban future vertical or horizontal acquisitions by health systems but to force the undoing of most of them.  There is absolutely no research supporting the notion of better quality in hospital-owned practices and consumers are better served by disaggregated  providers.  Any supposed benefits from greater care coordination, which are largely lost anyway due to the unwieldiness of large organizations, can be achieved in other ways, such as more effective health information exchange.  This is an outrage which consumers and employers should demand be fixed now.

Leave a comment