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Hospital Buying of Physician Practices Raises Unit Prices

By October 21, 2015Commentary

Consolidation among providers of any good or service, whether vertical or horizontal, is likely to lead to higher prices at some point.  We obviously reached that point in health care some time ago and a study carried in JAMA Internal Medicine seems to validate that notion.  (JAMA Int. Med. Article)   The authors measured the degree of financial integration between physicians and hospitals (i.e., hospital employment of doctors or ownership of physician practices) and any association between the level of that integration and the prices paid by commercial health insurers.  Changes in hospital control of physicians and prices paid by health plans were measured over the period 2008 through 2012.  I know it will shock you, but greater levels of ownership or employment appear to result in higher unit prices.  Hospital acquisition of physicians has increased rapidly in recent years, supposedly justified by resulting better care coordination for patients, more efficient delivery of care and administrative efficiencies.  There is little evidence to support the occurrence of those benefits, but hospitals sure seem to making it work to their financial benefit.  Medicare and Medicaid can set prices by fiat, subject to provider political power, but commercial insurers have to bargain with providers.  The researchers constructed measures of market concentration for MSAs for both providers and health plans, and further identified the level of hospital ownership of physician practices.  They then looked at outpatient spending for several million commercial plan enrollees over the study period; with spending decomposed into utilization and unit price.  Across the 240 MSAs included in the research analysis, financial integration increased by 3.3% from 2008 to 2012, although there was a wide range among individual MSAs.  In the MSAs with greater change in financial integration, outpatient utilization was essentially unchanged, but prices rose by 3.1%, or $75 per member per year, beyond what would otherwise be expected.  Note that the lack of change in utilization suggests no integration benefit from greater care coordination, etc.  Interestingly, there was no apparent change in inpatient utilization or prices.  So let’s say there are 150 million Americans getting commercial insurance, that would be $11 billion in excess spending.  This research just provides a further rationale for regulators and policymakers to stop this continued consolidation in the health care provider sector.

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