Healthcare Integration May Increase Commercial Health Spend

The healthcare business is no stranger to mergers and acquisitions, whether it’s the pharmaceutical industry or health insurers or providers of care. Over the past few years, physician practices have rapidly been acquired by large hospital systems. The launch of alternate payment models and accountable care organizations have pushed healthcare leaders to constantly modify their business plans. Now a new study in JAMA Internal Medicine has found that financial integration between physicians and hospitals has led to higher spending in outpatient care.

The authors, collected data on more than 7 million non-elderly enrollees in preferred-provider organizations or point-of-service plans that were included in the Truven Health MarketScan Commercial Database during the study period. Changes in physician-hospital integration between January 1, 2008, and December 31, 2012, was associated with changes in spending. The primary outcomes measures were annual inpatient and outpatient spending per enrollee and associated use of healthcare services.

Of the 240 metropolitan statistical areas (MSAs) covered by the study, a 3.3% increase in physician-hospital integration was observed during the 4-year study period. In terms of spending, the study recorded an average increase of $75 (95% confidence interval (CI), $38 to $113) per enrollee in annual outpatient spending. This translated into a 3.1% increase in in mean outpatient spending in 2012 to $2407 per enrollee (95% CI, $2400 to $2414). The authors recognized that this spending was driven entirely by price increase because minimal changes in healthcare utilization as observed in the study population. At the same time, inpatient spending and utilization remained steady.

The authors remark that consolidation is changing the balance in the healthcare marketplace and increasing an organizations market power with insurers.

“Payment reform is critically important to achieving a high-performing health system, but the price increases we found do suggest a potential unintended consequence,” said J. Michael McWilliams, associate professor of health care policy and medicine at Harvard Medical School, a practicing general internist at Brigham and Women's Hospital and senior author of the study.

The study has been coauthored by Michael E. Chernew, PhD, co-editor-in-chief of The American Journal of Managed Care.