Impact of Physician-Hospital Financial Integration on Prices and Spending

Hospital employment of physicians and ownership of physician practices is associated with higher prices and spending for outpatient care in the commercial healthcare market, according to a study published in JAMA Internal Medicine. There were no accompanying changes in utilization that would suggest more efficient care from better care coordination and economies of scale.

Investigators led by Hannah T. Neprash, BA, from the Department of Health Care Policy at Harvard Medical School, and colleagues at Brigham and Women’s Hospital in Boston assessed the association between recent increases in physician-hospital integration and changes in spending and prices for outpatient and inpatient services. One of the authors, Michael E. Chernew, PhD, is co-editor-in-chief of the American Journal of Managed Care.

“Conceptually, physician-hospital integration could increase or decrease spending on health care,” the authors wrote. “Integration could yield efficiencies through better coordination and management of health care, but it could also strengthen the bargaining power of provider organizations over insurers, leading to higher commercial health care prices.”

The authors used regression analysis to estimate the relationship between changes in physician-hospital integration from January 1, 2008, through December 31, 2012, in 240 metropolitan statistical areas (MSAs) and concurrent changes in spending. Adjustments were made for patient, plan, and market characteristics, including physician, hospital, and insurer market concentration. The study included over 7 million nonelderly enrollees in preferred provider organizations or point-of-service plans in the Truven Health MarketScan Commercial Database. They measured physician-hospital integration by using Medicare claims data as the share of physicians in an MSA who bill for outpatient services with a place-of-service code indicating employment or practice ownership by a hospital.

Among the 240 MSAs, physician-hospital integration increased from 2008 to 2012 by a mean of 3.3 percentage points, with considerable variation in increases across MSAs. In the study sample of over 7 million nonelderly enrollees, an increase in physician-hospital integration equivalent to the 75th percentile of changes experienced by MSAs was associated with a mean increase of $75 per enrollee in annual outpatient spending (P < .001) from 2008 to 2012, a 3.1% increase relative to mean outpatient spending in 2012 ($2407 per enrollee).

This increase in outpatient spending was driven nearly completely by price increases, the authors concluded. The changes in physician-hospital integration were not associated with significant changes in inpatient spending per enrollee ($22) or utilization, the study found.

“Changes in the structure of health care provider markets and in spending should be monitored, particularly as payment systems shift away from fee-for-service, and may require additional regulatory measures to control,” the authors concluded.