Hospital Ownership of Physicians Drives Up Costs
New research published in the JAMA Internal Medicine journal supports, with rigorous data analysis, that hospital ownership of medical practices drives up costs:
Among the 240 Metropolitan Statistical Areas, physician-hospital integration increased from 2008 to 2012 by a mean of 3.3 percentage points, with considerable variation in increases across MSAs. For our study sample of 7,391,335 nonelderly enrollees, an increase in physician-hospital integration equivalent to the 75th percentile of changes experienced by MSAs was associated with a mean increase of $75 per enrollee in annual outpatient spending from 2008 to 2012, a 3.1% increase relative to mean outpatient spending in 2012). This increase in outpatient spending was driven almost entirely by price increases because associated changes in utilization were minimal (corresponding change in price-standardized spending, $14). Changes in physician-hospital integration were not associated with significant changes in inpatient spending ($22 per enrollee) or utilization ($10 per enrollee).
(Note: I have edited out the measures of statistical significance from the abstract, for ease of reading.)
$75 per enrollee is not a huge increase, but it certainly supports the thesis that hospital acquisition of physician practices does not lead to reduced total cost of care, even if the hospital does not influence the physicians to fill the hospital’s beds. This is an important topic, because providers are re-organizing themselves to take advantage of new forms of reimbursement, in which they bear financial risk.
What is also interesting is that this research studied the non-elderly population, suggesting that private insurers struggle to prevent hospitals from arbitraging fee schedules like Medicare permits. (Congress and President Obama have taken a small step to prevent hospitals overcharging Medicare for outpatient procedures but much more can be done.)
Overall, we at NCPA are skeptical of developments such as Accountable Care Organizations (ACOs) and other government-driven alternatives to Fee-For-Service, although we agree that any provider who can reduce Medicare’s costs should be rewarded. Nevertheless, my expectation is that physician-led ACOs are – perhaps – more likely to succeed than hospital-led ACOs. They can bear financial risk with fewer conflicts of interests than hospitals, which have an overwhelming desire to fill beds at high prices.
Five years into the Affordable Care Act, prices for hospital inpatient and outpatient services have been rising significantly versus inflation for other prices, including health prices, and we are not seeing this turn around.
While I agree that physician led ACO’s have fewer conflicts of interest than hospital owned ACO’s, I wonder if the physician led ACO’s would have the necessary management infrastructure to fairly carve up bundled payments among all providers including hospitals and will they have adequate capital to absorb the financial risk that comes with shared risk contracts?
They can get the capital. There has been quite an influx of private equity into ACO-type deals in the last few years.
“increase in outpatient spending was driven almost entirely by price increases”
I suspect the main reason that is driving physicians and hospitals into one another’s arms is economic in the first place.
So is it surprising that, once partnered up, they raise prices?
Hospital-employed physicians are under production pressure from their employers. If your production is sub-Prather cut your pay.
I don’t see why ACOs should any more successful than capitated HMOs were. Even if they manage to survive I guarantee that if you don’t like paying doctors to do things wait until you pay doctors to not do things.
ACOs are the ultimate conflict of interest. Right now if the insurer denies your MRI, I’m the guy on your side who does the appeal and argues with the peer reviewer (a service provided without compensation on your behalf). If I have to pay for your MRI how enthusiastic about that do you expect me to be and how do you plan to appeal my decision?
Does that mean I can get paid not to see patients?
🙂
In a sense, yes. As Einstein showed, time equals money. Ss the first second you spend providing any services such as seeing a patient you start losing money.
Geez, how does android get “prather” From “par”?
Happens with iOS, too. Irritating. At least it rewards proofreading.
A “per enrollee” measurement is deceptive. This is an allocated price increase of “just” $75 per enrollee that obfuscates hospitals’ huge price increases for outpatient diagnostics and procedures that are administered to only a subset of those enrollees.
I’ve experienced this in the Atlanta area. I have an orthopedic hip issue and had an MRI hip arthrogram in 2013 which I paid out of pocket roughly $800 based upon my HSA insurance negotiated rate (having not met my deductible yet). This year I required another MRI hip arthrogram and contacted the same facility I used in 2013 and find out they had been bought by a local hospital. I was quoted a price of $2800 with my current PPO health insurance. I started calling around different MRI facilities and found they had all been bought by the same hospital. I had to go 80 miles outside of Atlanta to find an independent facility with a price of $650 using the same insurance plan.
How is it these insurance companies are wiling to pay hospitals so much more for these ICD codes and yet, at the same time, claim profitability hardship?
“How is it these insurance companies are wiling to pay hospitals so much more for these ICD codes”
They aren’t willing to. They pay more because the large hospital systems have more local and regional market power than the insurers do. That’s the main reason insurers are consolidating as well — to create sufficient countervailing market power to make the negotiations a fairer fight.
hoads, are we sure that the insurance company is paying what you are paying with the discounted rate? Maybe these blood suckers, the insurance companies, let you pay $2,800 for the MRI but when you hit your deductible and they take over payment they may be paying the $650 you ended up paying after driving 80 miles. It would not surprise me if the insurance company was even getting a kick-back from the hospital of $650 when you pay the over-priced $2,800 for the MRI. These insurance companies will do anything to make a buck.
John, when we started selling tax-free MSAs everybody was saying that when they did an internet search all they could find was Muslim Student Association. We used to do radio spots that said: If you R in a Union you can’t go tax free – but if you R self-employed you can start today, go tax free with an MSA at http://www.CRUZforVP.com
Yes perhaps the hospital is collecting my deductible since I haven’t met it yet but who knows since everything is so opaque but, why shouldn’t my insurer’s negotiated rates apply to my first dollar health spending? Health insurers and hospitals divvy up our premium spoils for mutual benefit.
“why shouldn’t my insurer’s negotiated rates apply to my first dollar health spending?”
It should. Your EOB should list the charges, the charges after contractual write-offs, anything the insurer paid, and then what’s left as your liability.
For example:
Charges $1,000
Charges after contractual write-off $750
Paid by insurance $250
Your balance $500
Correction for 2015 and going forward:
Charges $1,000
Charges after contractual write-off $750
Paid by insurance $0
Your balance $750
Michael, my hospital bill was:
Charges $57,000
Charges after contractual write-off $7,000
Paid by insurance $1,000
Your balance $6,000 (My deductible)
It really is up to the IPA’s and its contracted physicians in affiliation with the Health Plans to educate and direct their members to the local facilities which are NOT associated with the hospitals. Physicians must ultimately become more engaged with their patients for this hospital ownership travesty to stop. The At-Risk IPA is a proven vehicle for getting more cost conscious and effective healthcare purchasing from patients.
I should emphasize the period covered in the study was just before we had any experience of ACOs.