Hospitals are buying up physician practices around the country, a practice that has the potential to lower healthcare spending. This financial consolidation should give doctors more clout when it comes to prices for drugs and supplies. It also could mean better and more efficient care when a patient leaves the hospital with which his or her doctor's practice is affiliated, since the systems would share records.
Unfortunately, none of these benefits seems to be happening. In fact, according to a recent Harvard study, the consolidation of medical practices and hospitals appears to be increasing costs to patients and insurers.
Instead of creating economies of scale and reducing costs, consolidation seems to have led to higher prices.
Instead of creating economies of scale and reducing costs, consolidation seems to have led to higher prices. There was no evidence that the higher costs reflected increased care. In other words, though the integration of physicians with hospitals strengthens their bargaining position with insurers, particularly for prices of outpatient care, it has not led to more efficient, cost-effective care.
“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, senior author of the study and a practicing internist at Brigham and Women's Hospital in Boston.
Another reason for the increase in costs, according to an invited commentary on the study, is that office visits cost 70% more when provided in a hospital outpatient department than in a physician’s office.
But consolidation also boosts market power, allowing hospitals and doctors to demand higher prices from insurers.
“At this moment of great change in health care systems, it is crucial to measure and manage the impact of consolidation on prices so we don't inadvertently end up spending more on health care at a time when we're trying to go in the other direction,” lead author Hannah Neprash said in a statement.
The $75 increase the study found in annual per-patient outpatient spending suggests that policymakers will need to grapple with how reforms affect provider market power and the costs of outpatient treatment in hospitals.
Savings can be achieved without hospital-owned physician practices, McWilliams noted. Accountable-care organizations are one way for this to happen. But “… the benefits of financial integration between physicians and hospitals have certainly not manifested yet,” he added.