The Shift in Care from Physician Offices to Hospital Outpatient Departments

There has been a very dramatic increase in hospital ownership of physician practices and employment of doctors, usually accompanied by a substantial shift in the setting for services from a free-standing doctor’s office to a hospital outpatient department.   (HCCI Analysis)   The researchers looked at trends between 2009 and 2017 in share of services performed in different settings and compared prices actually paid in the different settings.  Across a common set of services, the share performed in hospital outpatient departments rose from 11.1% in 2009 to 12.9% in 2017.  But the trend appears to worse for more expensive services, meaning the cost impact is likely much greater.  For example, level 3 ultrasound share went from 20.9% to 25.2%.  Level 5 drug administration, typically infusions, skyrocketed from 23.4% to 45.9%.  On the other hand, level 3 endoscopy use was steady at around 19% across the period.  The average price of a service in the outpatient department was always higher than the price for the same service in a physician office and prices grew faster in the outpatient department setting.  If you want to know why I get outraged at hospital pricing behavior, look at some of these statistics.  For ultrasounds, the price rose from $233 in 2009 to $241 in 2017; or a 4% increase.  In the outpatient setting, the price started out almost two and a half times higher, $568 and increased to $650, a 14% growth rate.  For drug administration, physician office prices rose from $220 to $254, a 15% increase, while outpatient ones rose from $423 to $664 or a 57% increase.  And endoscopy in a doctor’s office went from $463 to $527, a 14% increase, while hospital outpatient prices rose an astounding 73% from a price already more than three times the physician office price, at $1552 to one five times that price, $2679.

It is fairly clear that there has been a shift to more use of hospital outpatient departments for common services and that this has increased spending because prices are higher in the outpatient department.  Medicare has addressed this issue by instituting neutral site of service payment policies, which were long overdue.  Commercial payers may have a harder time enforcing that kind of policy.  You have to believe that once the Medicare policy is implemented, health systems will begin moving services back to stand-along doctor offices, which probably are somewhat cheaper to operate.  Commercial payers would then likely see some beneficial spillover effect.  But the whole episode is just another lesson in the inevitable unintended (usually bad) consequences of government regulation and of the evils of consolidation, vertical or horizontal.