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Blog: Hospitals hire more doctors, outpatient prices increase

Hospitals that acquire doctors may be able to better coordinate patient care to curb waste, according to an argument heard frequently in recent years as hospitals steadily buy up physicians. But that did not happen across nearly two-thirds of the nation's metropolitan areas, a new analysis shows.

Instead, prices increased.

The study, published in JAMA Internal Medicine, found outpatient physician prices increased between 2008 and 2012, as did consolidation of hospitals and doctors. Researchers looked at health insurance spending and use of services for about 7.4 million adults with commercial health plans across 240 metropolitan areas. Outpatient spending increased but the use of services remained unchanged. That means higher prices are to blame for higher spending.

Rapid consolidation among hospitals and doctors has sounded alarms among antitrust experts, including those at the Federal Trade Commission, who said in a September blog post that “the evidence does not support reliance on cooperation, rather than competition, to improve the performance of healthcare markets.”

Consolidation has accelerated under the Affordable Care Act, which created new rules for health insurers and introduced new ways for Medicare to reimburse hospitals and doctors. Dealmaking has extended across the industry, and major players (such as big hospital operators) have grown larger or have announced merger deals, including some of the largest health insurers. But the activity has also erased lines between historical competitors. That vertical integration has not been well-studied, said Hannah Neprash, the lead author for the study and a doctoral student in health policy at Harvard University.

The study likely presents some of the first evidence of rising prices and spending as a result of hospital and physician consolidation, she said.

In markets where there was a 5 percentage point increase in physicians employed by hospitals, spending per person increased $75 per year, she said.

The higher prices are likely market clout, she and her co-authors wrote.

Hospitals can charge more for employed doctors—whose prices now factor in the overhead of acute care—than community doctors can charge, but rising prices “likely also resulted from the enhanced market power of the provider organizations,” wrote Neprash and her Harvard co-authors Michael Chernew, Andrew Hicks, Teresa Gibson and Dr. J. Michael McWilliams, in the journal.

That's because Medicare paid $68 more, on average, for an office visit with hospital-employed doctors compared with independent doctors who practice in the community. Medicare sets the price for hospitals, but adjusts those prices to account for the cost of living across the United States and other reasons. But the average difference across commercially insured adults was $108.

Hospitals can negotiate with commercial insurance companies, unlike Medicare, Neprash said. The bigger average gap between hospital-employed and independent doctors is likely bargaining power, she said.

For policymakers, the results suggest a more active role to influence future deals to achieve the efficiency that many hope for, wrote Mathematica Policy Research experts James Reschovsky and Dr. Eugene Rich in the journal. A shift into payment models that put hospitals and doctors at risk for rising spending will prevent them from hiking up prices, they said.

“They will instead need to work with their acquired physicians' groups to use fewer services and lower prices while achieving higher quality care, a skill evidently not widely demonstrated during the 2008-2012 timeframe included in the new study,” the Mathematica experts said.


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