Hospital Ownership of Physician Practices May Be Driving Up Prices

Dr. WrightThere is a current trend occurring across the country of hospitals buying doctors’ practices. Statistics show that the number of practices owned by hospitals has doubled from 2001 to 2008, meaning less physician owned practices. The results of this vertical integration means there are many more producers of services that are either commonly owned or related.

So why should hospitals and doctors integrate? The Affordable Care Act provides incentives in the form of Medicare payment bonuses for hospitals and practices to form what are known as Accountable Care Organizations.

On the surface, this integration may appear to be a positive aspect that should lead to higher levels of patient care with better efficiency and quality of care. However, some research and studies have suggested otherwise. One new study, in fact, shows that this vertical integration of practices and hospitals is actually leading to higher costs for consumers.

Published in Health Affairs magazine the study is titled “Vertical Integration: Hospital Ownership of Physician Practices is Associated with Higher Prices and Spending.” The research was conducted by researchers at Stanford University and studied 2.1 million hospital claims made between 2001 and 2007. These claims were for fee-for-service private health plans.

The study actually had mixed results. It did indicate that this vertical integration could prove negative for consumers who are privately insured. The study did find that practices owned by hospitals led to higher prices, as well as higher levels of hospital spending.

Additionally, the study acknowledges that in certain cases the integration is beneficial to patients in terms of higher levels of coordination of care between doctors and physicians.

There are, however, other concerns identified by the research. This integration can increase the market power of providers and can also encourage physicians to engage in unneeded or inappropriate treatment to obtain payments or kickbacks, which would be illegal if made formally.

Vice President of trend analysis at the American Hospital Association Caroline Steinberg said that the goal of this integration is not to raise prices. She indicated that hospitals and practices are integrating in order to engage doctors in new and innovative payment processes, such as bundling payments for single services.

Finally, the study did not examine the impact of vertical integration on the quality of care or patient health outcomes. Researchers who worked on the study do say that this topic is an important topic requiring additional research.