Less Physician Competition Means Higher Prices

Basic competitive market economics suggest that in most cases, if there are fewer providers of a good or service, prices will be higher.  Little reason to think that doesn’t apply to health care.  And a new study published in Health Affairs finds that it does in regard to physician services.   (HA Article)   For a variety of reasons, including income security and increasing practice costs, the composition of the physician industry has moved from predominantly small, independent practices to larger aggregations, including ownership or employment by large health systems.  The authors primarily looked at the relationship between the level of physician practice concentration and prices for fifteen high volume, high cost procedures.  A large commercial health claim database was used to determine prices and Medicare data was used to create indices of physician concentration in a county, by specialty.  Among specialties, urologists and radiation oncologists had the highest level of concentration and general surgeons, orthopedists and ophthalmologists the lowest.  There was a wide range of variation of concentration within a specialty across all measured counties, with the most concentrated usually being two or three times higher than the lowest.  Physicians providing fourteen of the fifteen studied procedures showed very high concentration levels in over half the counties.  There was also great variation in prices and range of prices for the procedures across all counties.  Counties with smaller populations and rural characteristics tended to have higher concentration levels, which is intuitive.  The higher concentration counties also tended to have more hospitals, lower-income, lower educational status, more Medicare enrollment, and lower practice costs.  For ten of the fifteen procedures the price in the highest quartile of counties by concentration was significantly greater than that in the quartile of counties with the lowest level of concentration.  Adjusted prices in these counties are 13% to 26% higher or an average of $94 to $291 across all procedures.  This adds up to a lot of spending.  The failure of regulators to address the economic implications of greater provider, and health plan, concentration is a major failure in the effort to control health care spending.  And there is nothing in the research to suggest that this increased concentration has done anything to improve quality.