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Reform Update: Doc employment won't lead to lower healthcare spending, research shows

Market share and prices tend to climb among hospitals that employ doctors but not for hospitals with looser contracts with independent physicians, according to newly published research. The findings, the authors say, suggest that integration itself does not produce the savings that many health system executives and policymakers promise from closer coordination between hospitals and doctors.

Lower healthcare spending won't be an “easy or automatic” result of physician employment, said Laurence Baker, an economist and health policy and research professor at Stanford University and an author of the study published in the journal Health Affairs. The results, he said, suggest hospitals must to do more to achieve the potential benefits of tight integration,

Hospital prices, according to the study, increased 2% to 3% each time physician-employing hospitals' market share increased by one standard-deviation. The results were drawn from an analysis of roughly 2 million hospital bills submitted to private insurers between 2001 and 2007. Overall spending on services at the hospitals that employed physicians grew, while the utilization of services at those hospitals didn't change.

“This is really a question of how we get the best for patients and for the country as a whole,” Baker said. “Can we get those benefits without putting ourselves in a difficult situation in regard to pricing?”

It's a question troubled antitrust regulators, who in February scored a court victory when a judge ordered St. Luke's Health System to divest the Saltzer Medical Group on a decision that the deal would raise prices. In March, St. Luke's filed for a stay, pending an appeal.

The price hikes for hospitals with employed doctors were smaller than price increases seen in one standard-deviation change in a measure of market clout used by antitrust regulators, but not by much. Each standard-deviation change to the Herfindahl-Hirschman index, which measures market share in a defined geographic area, is associated with price increases of 4% to 6%.

Hospitals and large U.S. health systems across the country—for example, Catholic Health Initiatives, Englewood, Colo.; UnityPoint Health, West Des Moines, Iowa; and Bon Secours Health System, Mariottsville, Md.—have moved aggressively in recent years to hire doctors. Employed doctors share information technology with hospitals, and systems can use employment contracts to promote more efficient and higher quality care, executives say. And increasingly, health systems are paid incentives by public and private insurers that are tied to quality and savings targets, such as accountable care agreements.

The Patient Protection and Affordable Care Act, which includes a fast-growing Medicare program encouraging the creating of accountable care organizations, will accelerate that trend, Baker said. “Every time you turn around, there are stories about integration,” he said. “This is a potentially very important evolution in the way we provide healthcare.”

Baker said the accountable care model may see more success in controlling spending with use of mechanisms such as shared savings incentives, which were not widely used in the market between 2000 and 2007.

Indeed, the findings have more historical value than relevance given the industry's rapid transformation, said Bruce Sokler, an antitrust attorney with Mintz Levin in Washington. “Seven years in these markets is more than a blink of an eye,” he said. “It's nearly a lifetime with the rate of change that's going.”

During the study period, fully integrated health systems significantly eroded the market share of hospitals with any of three less-formal physician agreements: closed physician-hospital organizations, open physician-hospital organizations and independent practice associations.

The fully integrated systems had 36% of the market by 2007, up from 23% in 2001. Meanwhile, hospitals with the trio of looser agreements saw market share decline to 23% from 36% during the same period.

Less-formal agreements were “more benign and potentially socially beneficial,” Baker and his co-authors M. Kate Bundorf and Daniel Kessler wrote. “Increases in these forms of integration did not appear to increase prices or spending significantly and may even decrease hospital admission rates.”

In other vertical integration news …

Catholic Health Initiatives closed on a deal Arkansas health insurance company QualChoice Holdings, a potential platform for the health system's national expansion into insurance. The deal was first announced a month ago, when QualChoice CEO Mike Stock described the acquisition as a vehicle for the 89-hosiptal system's formal push into insurance. The insurance acquisition is Catholic Health Initiatives' second. The QualChoice deal follows CHI's 2013 $24 million deal for Soundpath Health in Federal Way, Washington.

Accountable, to a point

Medicare's entry into accountable care since 2012 has delivered millions in savings as hospitals and physicians seek to slow the rate of Medicare spending. The accountable care effort also requires hospitals and doctors to report quality scores and later meet quality performance targets, but two years into the Medicare ACO effort, little has been publicly reported on ACOs results. What data has been published shows sharp variations in scores.

Follow Melanie Evans on Twitter: @MHmevans

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