Market Concentration Increases Orthopedic Surgery Fees

Horizontal and vertical consolidation among hospitals, physician groups and other providers has increased market concentration in many geographic areas.  Typically when markets become more concentrated, prices are likely to go up.  Providers have reacted to concerns about the increased concentration by claiming they are creating scale efficiencies that will reduce costs and are engaging in better care coordination.  (I am trying not to gag.)  Research carried in Health Affairs looks at the association between the level of concentration among orthopedic surgeons and fees for knee replacement surgery.   (HA Article)   Surgeries are relatively expensive medical procedures and account for around a third of all US health spending.  The surgeon fee portion is typically significantly smaller than the facility fee, but is still a substantial part of the total cost.  The authors used a large commercial claims data base to determine fees paid for knee replacement in 311 counties over the period 2001 to 2010.  The primary analysis involved tracking changes in concentration within a county over time and the potential relationship between concentration and fees.  Using the common Herfindahl-Hirschman Index to measure market concentration, the authors found that most counties had some level of concentration throughout the study period and that concentration rose modestly during the study period.  The average physician fee during the period was $2537, but in the third quartile of markets ranked by increasing concentration, the fees were about 4% higher and in the highest quartile they were about 7% higher.  The results accord with basic economics and suggest that if consolidation among providers does result in cost efficiencies, those are being retained by the providers, not shared with payers, and the providers are raising prices at the same time.