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Vertical Integration in Health Care

By March 1, 2023Commentary

Among the worst trends in health care over the last two decades has been the unfettered growth of large health systems which consolidate hospitals and buy all types of health care providers, including physician practices.  The goal of these systems, which are often supposedly not-for-profit, has been to dominate a market and charge very high prices for services, while paying exorbitant administrative salaries.  While they often claim to be attempting to improve quality, there is little to no evidence that this occurs; in fact it often declines.  I mean, if people have no where else to go for care, why worry about quality, which often costs more to deliver.  So when these health systems buy a physician practice, their goal is for it to charge more for services, while controlling costs.  Quality isn’t really a concern.

This paper from the National Bureau of Economic Research examines the impact of a health system buying gastroenterology practices.  It isn’t pretty.  The authors used a large Medicare database to track physician behavior after their practice was acquired by a hospital or health system.  The acquired practices quickly changed behavior, using less intensive procedure methods that lowered the cost of the procedure, while the price was increased.  The practices became more efficient by one measure–the doctors did more procedures, but that may have contributed to one aspect that didn’t improve–quality.  After the acquisition, patients had more serious complications, including bleeding after colonoscopy.  Sounds like a recipe for improving health care right; charge for each service, do more services, but get worse outcomes.     (NBER Paper)

The solution is pretty obvious to me, force hospitals to spin out all physician practices and other facilities they acquire and focus solely on being inpatient care providers.  Improve competition, lower spending, and quality likely would go back up.

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