The findings could spawn additional Medicare site-neutral payment cuts, according to one payment expert.


Oct. 22—Hospital and physician practice integration was associated with increases in outpatient prices, but not inpatient prices, according to the first national analysis of the effect of such deals over several years.

The analysis of prices charged by practices in 240 metropolitan statistical areas to 7 million enrollees in preferred provider organizations or point-of-service plans from 2008 through 2012 found that markets with greater increases in physician-hospital integration had greater increases in outpatient spending. And almost the entire difference in spending stemmed from price increases and not increased utilization, according to the study published this week in JAMA Internal Medicine.

In contrast, physician-hospital integration was not associated with higher inpatient prices.

“These findings are consistent, on average, with hospitals conferring their existing market power to newly employed physicians or acquired practices as the integrated organization negotiates prices for outpatient physician services but not with physician-hospital integration strengthening the organization’s bargaining power in negotiating prices for inpatient hospital services,” the authors wrote.

During the study period, the share of hospital-employed physicians increased in the studied areas by 3.3 percentage points to 21.3 percent, the researchers concluded.

The merger trend was credited with at least a $75 increase in average annual outpatient spending, raising the mean to $2,407.The study also found that price differences between office visits at independent physician offices and physicians integrated with hospitals were larger and more varied among commercially insured patients than among the Medicare population.

“These pricing patterns provide suggestive evidence that price increases associated with physician-hospital integration did not result solely from transmission of setting-related price differentials in the Medicare payment system but likely also resulted from the enhanced market power of the provider organizations,” the authors wrote.

The absence of reductions in utilization after hospitals purchased practices suggested to the authors that such provider integration has not produced efficiency gains through improved care coordination or management. Such efficiencies may not come from consolidation until alternative payment models emerge with incentives to limit utilization.

Limitations Identified

Among the factors limiting the study’s conclusions was that it did not assess whether any improvements occurred in the quality of care delivered by the integrated physicians.

“Improved quality would enhance value in the absence of changes in utilization,” the authors wrote.

Hospital advocates underscored additional limitations.

“The study relies on data as much as seven years old and is not reflective of the changes happening in today’s healthcare market,” Tom Nickels, executive vice president of the American Hospital Association, said in an emailed statement. “Alternative payment arrangements facilitated by hospital-physician integration have led to quality improvement and slower cost growth.”

Additionally, the study does not reflect recent drops in provider prices. For instance, physician prices fell by 1.2 percent for the 12-month period ending September 2015, according to the Bureau of Labor Statistics, while hospital price growth is at a historic low: Prices at hospitals increased by 1.4 percent in 2014, the slowest rate since 1998 and down from 2.2 percent in 2013.

Study Effects

The authors concluded that the changes in the structure of healthcare provider markets and in spending should be monitored, and may require additional regulatory measures to control.

Alternatively, if the Centers for Medicare & Medicaid Services forces hospitals into initiatives such as a new pilot program that requires hospitals in some areas to accept episode-based payment, “they will not be able to continue raising rates or diverting patients to costly hospital outpatient department services,” James Reschovsky, PhD, and Eugene Rich, MD, wrote in an accompanying commentary.

Instead, hospitals will need to work with their acquired physicians to reduce utilization and lower prices while improving quality.

“This skill is one that hospitals might postpone developing only at their own peril,” the commentators wrote.

Francois de Brantes, executive director for the Health Care Incentives Improvement Institute, wrote in an email that clinical integration is simply not occurring at the pace that it should, and that clinical integration for care-quality purposes does not require formal integration at the organizational level.

The new research is likely to fuel a further push to cut Medicare payment rates to hospitals, de Brantes said. He noted that states already have begun to enact laws that bar providers from charging different prices for the same service based on site of service or a change in ownership.

“The data across the country are very consistent that the first effect of the purchase of an independent practice by a hospital is to increase prices for certain common procedures or diagnostic tests,” de Brantes said.

The study was funded by the Robert Wood Johnson Foundation.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Thursday, October 22, 2015