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The Effect of Hospital Acquisitions of Physician Practices on Prices and Spending
Abstract
During the past decade, U.S. hospitals have acquired a large number of physician practices. For example, from 2007 to 2013, hospitals acquired nearly 10% of the practices in our sample. We find that the prices for the services provided by acquired physicians increase by an average of 14.1% post-acquisition. Nearly half of this increase is attributable to the exploitation of payment rules. Price increases are larger when the acquiring hospital has a larger share of its inpatient market. We find that integration of primary care physicians increases enrollee spending by 4.9%.
... [23][24][25] Similarly, VBC was encouraged through incentivization of efficiency, waste reduction, and care coordination. 20,26,27 These factors make revenue less predictable for providers. Simultaneously, health systems have seen tightening budgets as reimbursements fall and inflation rises, only accelerated by the pandemic. ...
... 22 One study between 2007 and 2013 found that prices increased by 14.1% once systems acquired physician practices. 26 Nearly half of this increase was attributable to abuse of reimbursement regulations that allow ''facility fees'' for procedures performed by hospital-owned physician practices. 26 In turn, studies support the idea that providers, especially academic institutions, prioritize patients with commercial insurance, and commercial insurers subsequently transfer price increases to their members via higher premiums. ...
... 26 Nearly half of this increase was attributable to abuse of reimbursement regulations that allow ''facility fees'' for procedures performed by hospital-owned physician practices. 26 In turn, studies support the idea that providers, especially academic institutions, prioritize patients with commercial insurance, and commercial insurers subsequently transfer price increases to their members via higher premiums. 22,27 In terms of quality improvement, there has not been consistent evidence demonstrating improvement in cases of integration. ...
The US health care system has significant room for growth to achieve the Quintuple Aim. Reforming the relationship between payers and providers is pivotal to enhancing value-based care (VBC). The Payvider model, a joint approach to care and coverage rooted in vertical integration, is a potential solution. The authors aimed to investigate academic medical institutions adopting this model, termed Academic Payviders. All Association of American Medical Colleges (AAMC)-member allopathic medical schools were evaluated to identify programs meeting the inclusion criteria of offering both medical care and insurance coverage to patients via partnership with a payer or ownership of, or by, a payer. Twenty-five Academic Payvider systems were identified from 171 total AAMC-member programs. Most programs were founded after 2009 (n = 20), utilized a provider-dominant structural model (n = 17), and offered health plans to patients via Medicare Advantage (n = 23). Passage of the Affordable Care Act, recent trends in health care consolidation, and increased political and financial prioritization of social determinants of health (SDOH) may help to explain the rise of this care and coverage model. The Academic Payvider movement could advance academic medicine toward greater acceptance of VBC via innovations in medical education, resource stewardship in residency, and the establishment of innovative leadership positions at the administrative level.
... In theory, there are potential benefits of vertical integration, such as greater efficiency through economies of scale and better quality through achieving care coordination and information sharing (Kocher and Sahni 2011, Baicker and Levy 2013, Burns et al. 2013, Carlin et al. 2015, Baker et al. 2018). However, there are also concerns around its anticompetitive effect, which could increase prices and spending and lower quality (Baker et al. 2014, Neprash et al. 2015, Capps et al. 2018. A growing number of studies examine the impact of integration on care delivery, but the evidence quantifying these effects on quality is still mixed (Carlin et al. 2015, Scott et al. 2017, Post et al. 2018. ...
... Existing studies take at least two different approaches to measure vertical integration: survey-based and claimsbased. Many survey-based studies use data such as the American Hospital Association annual survey or the SK&A physician survey, both of which include questions on the hospital's or the physician's relationship with the other (Madison 2004, Cuellar and Gertler 2006, Baker et al. 2014, Wagner 2016, Koch et al. 2017, Scott et al. 2017, Capps et al. 2018. Although survey data can provide a direct source of information on integration, they may miss small integrations, be subject to misclassification, or fail to capture physician-level changes. ...
... The claims-based approaches infer the providers' integration status from their billing patterns (Neprash et al. 2015, Clough et al. 2017, Capps et al. 2018, Desai and McWilliams 2018, Konetzka et al. 2018. Their rationale is that (a) hospital-based providers have a strong financial incentive to report services that occurred at the hospital-owned practices because of the payment differential between the HOPDs and physician offices, and (b) only the practices that are 100% owned by a hospital can bill at the higher HOPD rate. ...
The U.S. healthcare system is undergoing a period of substantial change with hospitals purchasing many physician practices (“vertical integration”). In theory, this vertical integration could improve quality by promoting care coordination but could also worsen it by impacting the care delivery patterns. The evidence quantifying these effects is limited because of the lack of understanding of how physicians’ behaviors alter in response to the changes in financial ownership and incentive structures of the integrated organizations. We study the impact of vertical integration by examining Medicare patients treated by gastroenterologists, a specialty with a large outpatient volume and a recent increase in vertical integration. Using a causal model and large-scale patient-level national panel data that includes 2.6 million patient visits across 5,488 physicians, we examine changes in various measures of care delivery. We find that physicians significantly alter their care process (e.g., in using anesthesia with deep sedation) after they vertically integrate, and there is a substantial increase in patients’ postprocedure complications. We further provide evidence that the financial incentive structure of the integrated practices is the main reason for the changes in physician behavior because it discourages the integrated practices from allocating expensive resources to relatively unprofitable procedures. We also find that, although integration improves operational efficiency (e.g., measured by physicians’ throughput), it negatively affects quality and overall spending. Finally, to shed light on potential mechanisms through which policymakers can mitigate the negative consequences of vertical integration, we perform both mediation and cost-effectiveness analyses and highlight some useful policy levers.
This paper was accepted by Stefan Scholtes, healthcare management.
Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2023.4886 .
... In theory, there are potential benefits of vertical integration such as greater efficiency through economies of scale and better quality through achieving care coordination and information sharing (Kocher and Sahni 2011, Burns et al. 2014, Carlin et al. 2015, Baker et al. 2018, Baicker and Levy 2013. However, there are also concerns around its anticompetitive effect, which could increase the price and spending and lower quality (Neprash et al. 2015, Capps et al. 2018, Baker et al. 2014. A growing number of studies have examined the impact of integration on care delivery, but the evidence quantifying these effects on quality is still mixed (Post et al. 2018, Scott et al. 2017, Carlin et al. 2015. ...
... Existing studies have taken at least two different approaches to measure vertical integration, surveybased and claims-based. Many survey-based studies have used data such as the American Hospital Association (AHA) Annual Survey or the SK&A physician survey, both of which include questions on the hospital's or the physician's relationship with the other (Madison 2004, Cuellar and Gertler 2006, Scott et al. 2017, Baker et al. 2014, Wagner 2016, Capps et al. 2018, Koch et al. 2017. ...
... The claims-based approaches infer the providers' integration status from their billing patterns (Neprash et al. 2015, Konetzka et al. 2018, Desai and McWilliams 2018, Capps et al. 2018, Clough et al. 2017. Their rationale is that (a) hospital-based providers have a strong financial incentive to report services that occurred at the hospital-owned practices due to the payment differential between the HOPDs and physician offices, and (b) only the practices that are 100% owned by a hospital can bill at the higher HOPD rate. ...
The U.S. healthcare system is undergoing a period of substantial change, with hospitals purchasing many physician practices ("vertical integration"). In theory, this vertical integration could improve quality by promoting care coordination, but could also worsen it by impacting the care delivery patterns. The evidence quantifying these effects is limited, because of the lack of understanding of how physicians' behaviors alter in response to the changes in financial ownership and incentive structures of the integrated organizations. We study the impact of vertical integration by examining Medicare patients treated by gastroenterologists, a specialty with a large outpatient volume, and a recent increase in vertical integration. Using a causal model and large-scale patient-level national panel data that includes 2.6 million patient visits across 5,488 physicians , we examine changes in various measures of care delivery. We find that physicians significantly alter their care process (e.g., in using anesthesia with deep sedation) after they vertically integrate, and there is a substantial increase in patients' post-procedure complications. We further provide evidence that the financial incentive structure of the integrated practices is the main reason for the changes in physician behavior, since it discourages the integrated practices from allocating expensive resources to relatively unprofitable procedures. We also find that although integration improves operational efficiency (e.g., measured by physicians' throughput), it negatively affects quality and overall spending. Finally, to shed light on potential mechanisms through which policymakers can mitigate the negative consequences of vertical integration, we perform both mediation and cost-effectiveness analyses, and highlight some useful policy levers.*
... Conversely, disrupting referral patterns could be associated with interrupted patientphysician relationships and lower quality. 18 Moreover, as physician-hospital integration is known to be a factor in higher prices, [19][20][21][22][23][24][25] it could also play a role in increased use of higher-cost physicians and facilities without gains in quality. ...
... While we did not measure the comparative quality of downstream care aside from readmission rates, its potential cost-lowering benefits are unsupported by our findings on medical spending and other evidence that the price of physician visits in vertically integrated systems is higher than that in independent practices. 23,40 While we reported mean associations across Massachusetts, these associations likely vary by system and market characteristics. Health care organizations that attempt to clinically integrate physicians into their systems using organizational strategies may have differential associations with care utilization (including steering) and quality measures. ...
Importance:
Vertical relationships (eg, ownership or affiliations, including joint contracting) between physicians and health systems are increasing in the US.
Objective:
To analyze how vertical relationships between primary care physicians (PCPs) and large health systems are associated with changes in ambulatory and acute care utilization, referral patterns, readmissions, and total medical spending for commercially insured individuals.
Design, setting, and participants:
This case-control study with a repeated cross-section, stacked event design analyzed outcomes of patients whose attributed PCP entered a vertical relationship with a large health care system in 2015 or 2017 compared with patients whose attributed PCP was either never or always in a vertical relationship with a large health system from 2013 to 2017 in the state of Massachusetts. The sample consisted of commercially insured patients who met enrollment criteria and who were attributed to PCPs who were included in the Massachusetts Provider Database in 2013, 2015, and 2017 and for whom vertical relationships were measured. Enrollee and claims data were obtained from the 2013 to 2017 Massachusetts All-Payer Claims Database. Statistical analyses were conducted between January 5, 2021, and June 5, 2023.
Exposure:
Evaluation-and-management visit with attributed PCP in 2015 to 2017.
Main outcomes and measures:
Outcomes (which were measured per patient-year [ie, per patient per year from January to December] in this sample) were utilization (count of specialist physician visits, emergency department [ED] visits, and hospitalizations overall and within attributed PCP's health system), spending (total medical expenditures and use of high-price hospitals), and readmissions (readmission rate and use of hospitals with a low readmission rate).
Results:
The sample of 4 030 224 observations included 2 147 303 females (53.3%) and 1 881 921 males (46.7%) with a mean (SD) age of 35.07 (19.95) years. Vertical relationships between PCPs and large health systems were associated with an increase of 0.69 (95% CI, 0.34-1.04; P < .001) in specialist visits per patient-year, a 22.64% increase vs the comparison group mean of 3.06 visits, and a 77.16-5700.07. Within the health care system of the attributed PCPs, the number of specialist visits changed by 0.80 (95% CI, 0.56-1.05) per patient year (P < .001), a 29.38% increase vs the comparison group mean of 2.73 specialist visits per patient-year. The number of ED visits changed by 0.02 (95% CI, 0.01-0.03) per patient year (P = .001), a 14.19% increase over the comparison group mean of 0.15 ED visits per patient-year. The number of hospitalizations changed by 0.01 (95% CI, 0.00-0.01) per patient-year (P < .001), a 22.36% increase over the comparison group mean of 0.03 hospitalizations per patient-year. There were no differences in readmission outcomes.
Conclusions:
Results of this case-control study suggest that vertical relationships between PCPs and large health systems were associated with steering of patients into health systems and increased spending on patient care, but no difference in readmissions was found.
... Further, we include a facility-level measure of non-340B drug margins as an indicator of pricing power in the negotiation of reimbursement amounts for non-340B drugs, as consolidation and market power have been linked to increasing prices for provideradministered drugs. 38 Finally, we include facility type, categorized as HOPD or free-standing offices (including hospital-affiliated physician offices and independent, 340B eligible clinics), [39][40][41] as well as facility size 42 based on the total number of included drug administrations during 2021. ...
The 340B Drug Pricing Program aims to help facilities serving low-income and uninsured patients to stretch scarce resources by allowing covered entities to purchase outpatient drugs at federally mandated discounted rates while often receiving reimbursement for them at higher rates by commercial payers and Medicare. Despite increasing focus on the expansion and impact of the program, profit margins under 340B have not been fully explored. We aimed to examine drug-, facility-, and geographic-level factors that influence drug margins among 340B covered entities. We conducted a cross-sectional analysis of predictors of facility-level 340B margins for 5 drug classes in a multivariable regression model using 2021 data linked across multiple proprietary and public datasets. Regression results show that drug, facility characteristics, and geographic healthcare market-level characteristics influence drug margins under the 340B program. Adjusted 340B margins were higher in hospital outpatient departments than free-standing offices (ie, hospital-affiliated physician offices and independent, 340B eligible clinics) and among covered entities in more concentrated (ie, less competitive) markets. Covered entity market power, quantified by a facility-level measure of non-340B drug margins indicating pricing power, and area wealth were both associated with higher 340B drug margins. Margins on 340B drugs were higher among facilities in stronger bargaining positions and those serving wealthier areas. These findings add to the growing body of literature on expansions of the 340B program into more affluent communities, informing calls for reforms to ensure the 340B program serves low-income and uninsured patients.
... Moreover, unlike integration motivated by efficiency and strategic reasons, the VI in the construction of CIHOs in China is predominantly driven by administrative directives. Theoretically, VI can affect medical prices, treatment intensity and healthcare costs through mechanisms such as bargaining power, double marginalisation, market concentration and vertical monopolies [14,[27][28][29][30][31]. ...
Objective
To assess the impact of vertical integration (VI) within County-Level Integrated Health Organisations (CIHOs) on the costs of primary care inpatients.
Methods
This study assessed Xishui, a national pilot county for CIHOs, using inpatient claims data. The treatment group comprised 10,118 inpatients from 5 vertically integrated township health centres (THCs), while the control group consisted of 21,165 inpatients from 19 non-vertically integrated THCs. The periods from July 2020 to December 2021 and January 2022 to December 2022 were defined as pre- and post-policy intervention, respectively. The primary outcome variables were total health expenditures (THS), out-of-pocket (OOP) expenditures, and the proportion of OOP expenditures. Propensity score matching was employed to align inpatient demographics and disease characteristics between the groups, followed by a difference-in-differences analysis to evaluate the outcomes.
Findings
VI significantly increased THS (β = 0.1337, p < 0.01) and OOP expenditures per case (β = 0.1661, p < 0.001), but the increase in the proportion of OOP expenditures per case was not significant (β = 0.0029, p > 0.05). For the basic medical insurance for urban and rural residents, THS per case (β = 0.1343, p < 0.01) and OOP expenditures (β = 0.1714, p < 0.001) significantly increased. For the basic medical insurance system for employees, THS per case also increased significantly (β = 0.1238, p < 0.01), but the change in OOP expenditure proportion per case was not significant (β = 0.1020, p > 0.05). The THS per case led by Xishui County People’s Hospital, the leading county medical sub-centre (CMSC), significantly increased (β = 0.1753, p < 0.01), whereas the increase led by Xishui County Traditional Chinese Medicine Hospital was not significant (β = 0.0742, p > 0.05). Increases in OOP expenditures per case were significant in CMSCs led by the People’s Hospital and the Traditional Chinese Medicine Hospital (β = 0.1782, p < 0.01 and β = 0.0757, p < 0.05, respectively).
Conclusion
VI significantly increased THS and OOP expenditures for primary care inpatients. However, VI could exacerbate economic disparities in disease burden across different insurance categories.
Supplementary Information
The online version contains supplementary material available at 10.1186/s13690-024-01378-2.
... We build upon the literature on horizontal mergers of hospitals (Dafny, 2009;Gowrisankaran et al., 2015;Craig et al., 2021) and insurers (Dafny et al., 2012;Ho and Lee, 2017;Chorniy et al., 2020). While there is recent work on physician-hospital integration (Baker et al., 2016;Capps et al., 2018;Cutler et al., 2020;Koch et al., 2021) and insurer-pharmacy benefit manager integration (Brot-Goldberg et al., 2022;Gray et al., 2023), our research fills a gap in the literature on the growing role of insurer-provider integration. ...
... While physician owners may not necessarily view accepting PE capital as a deal with the devil, as some allege (Pearl 2023), they should be appropriately concerned before closing a deal about what future management practices will be and whether those practices will match their personal hospitals also find acquisition to be associated with significant increases in price and output (Capps et al. 2018). ...
There have been two waves of equity-based investment in physician practices. Both used a combination of public and private sources, but in different mixes. The first investment wave in the 1990s was led by public equity and physician practice management companies (PPMCs), with less involvement by private equity (PE). The second investment wave followed the Affordable Care Act (ACA 2010) and led by PE firms. It has generated concerns of wasteful spending, less cost-effective care, and initiatives harmful to patient welfare. This paper compares the two waves and asks if they are parallel in important ways. We describe the similarity in the players, driving forces, acquisition dynamics, spurs to consolidation, types of equity involved, models to organize physicians, and levels of market penetration achieved. The paper then tackles three unresolved issues. Does PE investment differ from other investment vehicles in concerning ways? Does PE possess capabilities that other investment vehicles lack and confer competitive advantage? Does physician practice investment offer opportunities for super-normal profits? The paper then discusses ongoing trends that may disrupt PE and curtail its practice investment. We conclude past may be prologue: what happened during the 1990s may well repeat, suggesting the PE threat is overblown.
... It is understandable that achieving functional integration may provide greater challenges compared to structural integration, as the latter is primarily concerned with organisational factors [38][39][40]. The evidence for this assertion lies in the vertical integration process that was first introduced in Portugal in 1999 as a pilot experience in Matosinhos. ...
The performances of public corporate hospital units are being influenced by user behaviour, delayed service responses, and sustainability risks. Consequently, there is a need for these units to adopt a different approach to user care in order to attain overall success and mitigate discontent arising from delays and waiting lists. The faults within the public system are becoming increasingly apparent as a result of the growing emphasis on the transparency and authenticity of information. The reform of the Portuguese health system aims to enhance coordination among public, private, and social services. Additionally, it prioritises the integration of various levels of care within the Portuguese National Health Service, specifically by promoting the amalgamation of hospital business entities with primary care under single organisations known as Local Health Units. The objective of this study was to utilise the SWOT framework to examine the reform from the standpoint of citizens, as they are the focal point of the system and its long-term sustainability. The study revealed several benefits associated with the reform. However, it is crucial to address potential risks and opportunities in order to achieve the intended outcomes. If health managers and policy-makers effectively utilise the available opportunities, it can be inferred that there exists a favourable circumstance to implement a Local Health Unit model that seeks to integrate comprehensive care. This approach, by addressing the health issues of citizens, will create a larger scope for improvement and enhance citizen contentment. Moreover, it will ensure the long-term viability, ethical conduct, transparency, and genuineness of health outcomes.
... 5,6 These concerns have been validated by empirical work that has associated hospital-physician integration with increases in prices and spending. [7][8][9][10][11][12][13][14] Yet hospital-physician integration, of which hospital employment of physicians is an important form, 15 may cause ripple effects that go beyond prices and spending. The literature has just begun to reckon with an array of additional potential consequences, including consequences for physicians and care teams. ...
Objective:
To test the effect of hospital-physician integration on primary care physicians' (PCP) clinical volume in traditional Medicare.
Data sources and study setting:
Nationwide retrospective longitudinal study using Medicare claims and other data sources from 2010 to 2016.
Study design:
We identified 70,000 PCPs, some of whom remained non-integrated and some who became hospital-integrated during this study period. We used an event study design to identify the effect of integration on key measures of physicians' clinical volume, including the number of claims, work-relative value units (RVUs), professional revenue generated, number of patients treated, and facility fee revenue generated.
Principal findings:
Per-physician clinical volume declined by statistically and economically significant margins. Relative to the comparison group who remained non-integrated, work RVUs fell by 7% (95% confidence interval [CI]: -8.6% to -5.5%); the number of patients treated fell by 4% (95% CI: -5.8% to -2.6%); and claims volume among PCPs who became hospital-integrated fell by over 15% (95% CI: -16.8% to -13.5%). Though professional revenue declined by 32,286 to -28,556 (95% CI: 26,909 to 30,203).
Conclusions:
Hospital-physician integration may affect the quantity of clinical services delivered by PCPs to traditional Medicare beneficiaries. Reductions in clinical volume associated with integration may have long-term consequences for the supply of physician services and patient access to primary care. Future research on physician time use and patient access following hospital integration would further add to the evidence base.
The Chinese government implemented a nationwide family doctor policy in 2016 as a component of the Healthy China 2030 plan. Previous studies on the role of family doctors in reducing medical expenditures in China have produced inconsistent results. This study employed large‐sample microsurvey data from across China to analyze the effects of family doctor contracts on actual medical and hospitalization expenditures. Utilizing both ordinary least squares (OLS) regression and instrumental variable (IV) regression, we analyzed data from 11,221 participants in the 2021 National China Livelihood Survey. The OLS and IV regression results suggested that engaging with a family doctor enhanced actual medical and hospitalization costs. This study conducted two additional analyses to delve deeper into this finding. The mechanistic analysis indicated that the association between contracting with a family doctor and increased medical spending was mediated by improved medical accessibility, prompt medication adherence, and regular hospital visits. Furthermore, a heterogeneity analysis showed that this increase in medical expenditures was particularly pronounced among residents with an educational level of high school and below, those suffering from chronic diseases, and individuals residing in regions with superior infrastructure and health resource availability. Consequently, our study indicates that contracting with a family doctor, although it raises medical costs for Chinese residents, is also associated with enhancements in health status.
Treatment intensity varies remarkably across physicians, and physicians are increasingly working in groups. This paper tests whether group affiliation impacts physicians’ treatment intensity and patient health. Using Medicare inpatient claims data, we focus on internists who switch groups within the same hospital. Event studies show that internists who join more-intensive groups immediately increase their own intensity, with an elasticity of 0.27. This change is reflected in higher Medicare spending due to higher-priced services. We do not detect a change in health outcomes, suggesting that treatment intensity induced by group affiliation may not be productive.(JEL H51, I11, I13, I18, J44)
Consolidation of physician practices, largely driven by health systems, has motivated policy efforts to move care toward lower-price, non-health system settings. At the same time, however, private equity (PE) firms are increasingly acquiring those non-health system practices, potentially negating the prior price advantages of those practices. We used novel ownership data on gastroenterology practices linked to commercial claims for the period 2015-20 to study how PE acquisitions affect the prices and volume of care relative to both health system-affiliated practices and independent practices. We examined both professional fees and facility fees. After PE acquisition, prices increased by $92 per claim, or 28.4 percent, driven by a 78.1 percent increase in professional fees. Facility fees did not exhibit a statistically significant change. Meanwhile, utilization also increased. These findings suggest that PE firms have multiple avenues for raising prices-in this case, primarily via professional fees. For policy makers, although moving care out of higher-price health system settings remains a key strategy to lower spending, unchecked growth in professional fees in PE-acquired outpatient settings may nullify some of the intended effects.
Importance
Consolidation of physician practices by hospitals and private equity (PE) firms has increased rapidly. This trend is of particular importance within primary care. Despite its significance, there is no systematic evidence on the emerging trends in ownership affiliation of primary care physicians (PCPs) and its association with prices paid for physician services.
Objective
To describe trends in hospital affiliation and PE affiliation in primary care and examine variation in negotiated prices paid by commercial insurers to hospital-affiliated, PE-affiliated, and independent PCPs.
Design, Setting, and Participants
Data from PitchBook and IQVIA were used to examine hospital and PE affiliation PCPs. PCPs and their affiliations were linked to novel cross-sectional Transparency in Coverage data. A total of 226.6 million negotiated prices were analyzed for evaluation and management office visits ( Current Procedural Terminology codes 99202 to 99205 and 99212 to 99215) across 4 national insurers (Aetna, Blue Cross Blue Shield, Cigna, and United Healthcare). Linear regressions were used to examine the association between hospital-affiliated, PE-affiliated, and independent PCPs and cross-sectional prices paid for physician services, with fixed effects for service, state, and insurers. Data were collected from January to June 2024, and data were analyzed from July to October 2024.
Main Outcomes and Measures
The proportion of PCPs that are affiliated with hospitals and PE from 2009 to 2022. Using cross-sectional data from 2022, negotiated prices paid to physicians (physician professional fee) for office visits.
Results
A total of 198 097 PCPs were analyzed. PCPs affiliated with hospitals increased from 25.2% (28 216 of 111 793) in 2009 to 47.9% in 2022 (82 890 of 172 964). Over the same period, 1.5% (2483 of 172 964) of PCPs became affiliated with PE firms. Relative to independent PCPs, negotiated prices for office visits were 9.56 (95% CI, 2.24-14.55) or 7.8% (95% CI, 4.7-10.8) higher for PE-affiliated PCPs ( P < .001).
Conclusions and Relevance
In this cross-sectional study, nearly one-half of all PCPs were affiliated with hospitals, while PE-affiliated PCPs were growing and concentrated in certain regional markets. Relative to PCPs in independent settings, hospital-affiliated PCPs and PE-affiliated PCPs had higher prices for the same services.
Consolidation of health care providers, and vertical integration of physicians with hospitals and/or payers has accelerated over the past 15 years. Although there is potential for consolidation to improve patient care, efficiencies and reduce overhead costs, participants in our conference identified that almost all research on consolidation has shown increased cost without improvement in outcomes or the experience of care. To provide a framework for considering the impact of consolidation, future research and analysis we offer 4 themes: (1) to move forward, we need to look back at historical drivers, value creation, and unintended consequences; (2) not all consolidation is created equally; (3) real-time, continuous evaluation is critical for improvement; and (4) a policy blueprint is desperately needed. We offer several specific ideas for policy changes.
Background
In the last 30 years, consolidation of healthcare systems in the United States has accelerated through mergers and acquisitions. We completed a systematic literature review on integration to determine if its reputation for enhancing the value of healthcare by reducing price and cost/spending and improving overall quality of care is justified.
Methods
A systematic review of the literature was completed for articles published in the United States from 1990-2024. Primary inclusion criteria were horizontal integration (joining two or more hospitals) (HI) and vertical integration (merging of physicians and hospitals) (VI) and reporting on at least one measure of value (price, cost/spending, or quality)
Results
Neither HI nor VI has resulted in consistent and significant improvements in price, cost/spending, or quality associated with healthcare delivery. We screened 1297 articles and identified 37 that met inclusion criteria. Results from any form of integration were mixed. Thirteen of 14 studies (93%) about price reported price increases. Thirteen of 16 studies (81%) about cost/spending showed cost increases or no change. Twenty of 26 studies (77%) about quality showed reductions or no change from integration (HI, VI or both).
Conclusions
Our review suggests that evidence is lacking to support the theory that integration is an effective strategy for improving the value of healthcare delivery. This finding represents an opportunity for healthcare leaders, including surgeons, to better define value in their efforts to improve quality while balancing the financial stability of the healthcare industry with a focus on benefiting the patient.
Importance
Vertical relationships (ownership, affiliations, joint contracting) between physicians and health systems are increasing in the US. Many proponents of vertical relationships argue that increased spending associated with consolidation is accompanied by improvements in quality of care.
Objective
To assess the association of vertical relationships between primary care physicians (PCPs) and large health systems and quality of care.
Design, Setting, and Participants
This stacked difference-in-differences study compared outcomes for patients whose attributed PCP entered a vertical relationship with a large system in 2015 or 2017 to patients whose PCP was either never or always in a vertical relationship with a large system from 2013 to 2017. Models account for differences between PCPs, patient characteristics, market concentration, and secular trends. Data were derived from the 2013 to 2017 Massachusetts All-Payer Claims Database. The study population included commercially insured individuals attributed to a PCP in the Massachusetts Health Quality Partners’ Massachusetts Provider Database in 2013, 2015, or 2017. Analyses were conducted between January 2021 and January 2024.
Exposure
PCPs attributed to patients in the study entering a vertical relationship with a large health system in 2015 or 2017.
Main Outcomes and Measures
Low-value care utilization, posthospitalization follow-up, utilization among patients with ambulatory care–sensitive conditions, practice site visit fragmentation, and timeliness of specialty care.
Results
The study population included 4 603 172 patient-year observations from 2013 to 2017. Among all patients in the study, 53.5% were female, 35.3% had any chronic condition, and the mean (SD) age was 38.9 (20.3) years. There was no association between vertical relationships and low-value care or ambulatory care–sensitive conditions utilization. A patient’s PCP entering a vertical relationship had no association with the probability of follow-up within 90 days of cancer diagnosis with any oncologist but was associated with a 7.34–percentage point (pp) (95% CI, 2.28-12.40; P = .01) increase in the probability of follow-up with an oncologist in the health system. Vertical relationships were associated with increased posthospitalization follow-up with a physician in the health system by 7.51 pp (95% CI, 2.96-12.06: P = .001) in the 2015 subgroup. PCP–health system vertical relationships were associated with a significant decrease in fragmentation of practice site visits of −1.05 pp (95% CI, −2.05 to 0.05; P = .04).
Conclusions and Relevance
In this study, vertical relationships between PCPs and large health systems were associated with patient steering and changes in care delivery processes, but not necessarily improvements in patient outcomes.
Vertical integration of health systems—the common ownership of different aspects of the health care system—continues to occur at increasing rates in the United States. This systematic review synthesizes recent evidence examining the association between two types of vertical integration—hospital-physician ( n = 43 studies) and hospital-post-acute care (PAC; n = 10 studies)—and cost, quality, and health services utilization. Hospital-physician integration is associated with higher health care costs, but the effect on quality and health services utilization remains unclear. The effect of hospital-PAC integration on these three outcomes is ambiguous, particularly when focusing on hospital-SNF integration. These findings should raise some concern among policymakers about the trajectory of affordable, high-quality health care in the presence of increasing hospital-physician vertical integration but perhaps not hospital-PAC integration.
Importance
Increasing integration across medical services may have important implications for health care quality and spending. One major but poorly understood dimension of integration is between physician organizations and pharmacies for self-administered drugs or in-house pharmacies.
Objective
To describe trends in the use of in-house pharmacies, associated physician organization characteristics, and associated drug prices.
Design, Setting, and Participants
A cross-sectional study was conducted from calendar years 2011 to 2019. Participants included 20% of beneficiaries enrolled in fee-for-service Medicare Parts A, B, and D. Data analysis was performed from September 15, 2020, to December 20, 2023.
Exposures
Prescriptions filled by in-house pharmacies.
Main Outcomes and Measures
The share of Medicare Part D spending filled by in-house pharmacies by drug class, costliness, and specialty was evaluated. Growth in the number of physician organizations and physicians in organizations with in-house pharmacies was measured in 5 specialties: medical oncology, urology, infectious disease, gastroenterology, and rheumatology. Characteristics of physician organizations with in-house pharmacies and drug prices at in-house vs other pharmacies are described.
Results
Among 8 020 652 patients (median age, 72 [IQR, 66-81] years; 4 570 114 [57.0%] women), there was substantial growth in the share of Medicare Part D spending on high-cost drugs filled at in-house pharmacies from 2011 to 2019, including oral anticancer treatments (from 10% to 34%), antivirals (from 12% to 20%), and immunosuppressants (from 2% to 9%). By 2019, 63% of medical oncologists, 20% of urologists, 29% of infectious disease specialists, 21% of gastroenterologists, and 22% of rheumatologists were in organizations with specialty-relevant in-house pharmacies. Larger organizations had a greater likelihood of having an in-house pharmacy (0.75 percentage point increase [95% CI, 0.56-0.94] per each additional physician), as did organizations owning hospitals enrolled in the 340B Drug Discount Program (10.91 percentage point increased likelihood [95% CI, 6.33-15.48]). Point-of-sale prices for high-cost drugs were 1.76% [95% CI, 1.66%-1.87%] lower at in-house vs other pharmacies.
Conclusions and Relevance
In this cross-sectional study of physician organization–operated pharmacies, in-house pharmacies were increasingly used from 2011 to 2019, especially for high-cost drugs, potentially associated with organizations’ financial incentives. In-house pharmacies offered high-cost drugs at lower prices, in contrast to findings of integration in other contexts, but their growth highlights a need to understand implications for patient care.
Objective:
To test the reliability of Medicare claims in measuring vertical integration. We assess the accuracy of a commonly used measure of integration, primary care physician (PCP) practices billing Medicare as a hospital outpatient department (HOPD) in claims.
Data sources and study setting:
Medicare fee-for-service claims, IQVIA, and CPC+ practice surveys for this study.
Study design:
We compare measures of integration from Medicare claims to self-reported indicators of integration from IQVIA and a survey of CPC+ participating practice sites.
Data collection/extraction methods:
We measure integration by using site-of-service billing in the 100% sample of Medicare Carrier claims from 2017-2020. In the IQVIA SK&A (2017-2018), OneKey (2019-2020), and practice survey data (2017-2019), we use self-reported responses to measure integration.
Principal findings:
We find that currently most PCP practices sites that report themselves as being integrated with a health system do not bill as an HOPD. In 2017, 11% of CPC+ practices were identified as being vertically integrated in claims, while the equivalent numbers in SK&A and surveys were 52% and 54% integration, respectively. A t-test found that both datasets significantly differed from claims (Survey: 41.3%-45.1%; SK&A: 45.3%-51.1%); this gap persists in 2018-2019.
Conclusion:
Measuring physician-hospital vertical integration accurately is integral to determining consolidation. The overwhelming majority of PCP practice sites not billing as an HOPD may reflect Medicare regulatory changes that have reduced the financial incentives for doing so. These findings have implications for researchers that study the growth in PCP-hospital integration in health care markets.
Objective
The aim was to quantify changes in the market structure of primary care physicians and examine its relationship with access to care.
Data Sources and Study Setting
We created measures of market structure from a 5% sample of Medicare fee‐for‐service claims and examined access to care using nationally representative data from the Medical Expenditure Panel Survey (MEPS). Our study spanned from 2008 to 2019.
Study Design
We used a linear probability model to estimate the relationship between access to care and two measures of market structure: concentration, measured by the Herfindahl–Hirschman Index (HHI), and vertical integration, measured by the market share of multispecialty firms. Our model controlled for year and ZIP code fixed effects, respondents' demographics and health status, and other measures of market structure.
Data Collection/Extraction Methods
All adult respondents in the MEPS were included.
Principal Findings
The percentage of people living in concentrated ZIP codes (HHI above 1500) increased from 37% in 2008 to 53% in 2019. During the same period, the median market share of multispecialty firms rose from 30% to 48%. Respondents in highly concentrated ZIP codes (HHI over 2500) were 5.9 percentage points (95% CI: −1.4 to −10.4) less likely to report having access to immediate care than respondents in unconcentrated ZIP codes. The association was largest among Medicaid beneficiaries, a 17.3 percentage point reduction (95% CI: −5.1 to −29.4). When we applied a model that was robust to biases from treatments with staggered timing, the estimated association remained negative but was not statistically significant. We found no association between HHI and indicators for having a usual source of care and annual checkups. The multispecialty market share was negatively associated with checkups, but not other measures of access.
Conclusions
Increases in concentration may reduce some types of access to healthcare. These effects appear most pronounced among Medicaid beneficiaries.
Much interest exists in physicians’ ability and willingness to adapt their practice styles, as research demonstrates that many physicians practice in ways that are not aligned with the best available scientific evidence. We exploit migration patterns of primary care physicians in Massachusetts over a span of eight years by tracking physician migrations to practice sites comprised of new peers who shared actual physical working space. We examined whether a patient's likelihood of receiving an inappropriate referral for diagnostic imaging, specifically an MRI, was associated with a change in the work environment of the referring physician. Study results indicate that migrating physicians changed their practice style for imaging relatively soon after migration in conformance with the average practice style of their new peer group regardless of whether or not the practice style was aligned with evidence‐based standards for diagnostic imaging. To place our results in context, a 1 percentage point difference in average inappropriate MRI referral rates between a migrating physician's new and previous work environment was associated with approximately a 14 percent change in the probability that a patient received an inappropriate MRI referral. The effect diminished with greater variability in inappropriate MRI referral rates within the new peer group. The results show that physician practice style may deviate from evidence‐based standards and vary markedly among physicians within a work environment. At the same time, physician practice style is also malleable in either direction – more or less likely to deviate from evidence‐based standards in conformance with the average practice style of their new peer group. These results imply that healthcare managers can employ various institutional level interventions to influence physician behavior in the direction of evidence‐based practice by including strategies directed towards developing strong peer influence in physicians’ work environments.
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We develop a mixed duopoly model with quality‐differentiated products. The public firm offers its product for free to eligible individuals, while the private firm chooses its product quality and price to maximize profit. We calibrate the model to health insurance for the U.S. working‐age population, with Medicaid being the public firm. We examine distributional implications of policies that expand Medicaid to various degrees. Despite potentially significant inefficiency of Medicaid, its expansion is welfare improving. Central to these findings is the significant market power of the private firm when left unchecked, which is increasingly disciplined as more individuals become Medicaid eligible.
We measure organizational concentration—the distribution of a patient’s health care across organizations—to examine how firm boundaries affect health care efficiency. First, when patients move to regions where outpatient visits are typically concentrated within a small set of firms, their health care utilization falls. Second, for patients whose primary care providers (PCPs) exit the market, switching to a PCP with 1 standard deviation higher organizational concentration reduces utilization by 21 percent. This finding is robust to controlling for the spread of health care across providers. Increases in organizational concentration predict improvements in diabetes care and are not associated with greater use of emergency department or inpatient care. (JEL D22, D23, D24, I11, J14, R32)
Starting around 2006, the Centers for Medicare and Medicaid Services (CMS) progressively reduced Medicare Fee‐for‐Service (M‐FFS) payments for the principal noninvasive cardiac tests, when performed in a cardiologist office (Office), yet kept payments flat to increasing for the same tests, performed in the hospital‐based outpatient (HBO) setting. This produced a growing gap between HBO and Office payments for the same tests, and thus an incentive for hospitals to acquire cardiology practices in order to move cardiac tests to the HBO location and capture the HBO/Office payment differential. We use difference‐in‐differences analysis, in which we compare national M‐FFS trends in cardiac test location to those for a control group of several large, integrated Medicare Advantage (M‐Adv) health systems over 2005–2015, which were not affected by these reimbursement changes, and provide evidence that these reimbursement changes led to a large shift in testing from Office to HBO. This shift was concurrent with a sharp rise in hospital‐cardiologist integration. The rise in integration and the proportion of testing in HBO varied greatly across states. Independent practice remains viable in very large states, but is endangered in many states, and is all but extinct in a growing number of states.
Purpose of review:
Private equity's momentum in eye care remains controversial, even as investment continues to hasten the consolidation of ophthalmology and optometry practices. In this review, we discuss the growing implications of private equity activity in ophthalmology, drawing on updated empirical findings from the literature. We also examine recent legal and policy efforts to address private equity investment in healthcare, with implications for ophthalmologists considering sales to private equity.
Recent findings:
Concerns about private equity centres around evidence that some investment entities are not just valuable sources of capital or business expertise, but that they take outright ownership and control of acquired practices in order to drive high returns on investment. Although practices may receive considerable benefits from private equity investment, empirical evidence suggests that private equity's most consistent effect on acquired practices is to increase spending and utilization without commensurate benefits on patient health. Although data on workforce effects are limited, an early study on workforce composition changes in private equity-acquired practices demonstrates that physicians were more likely to enter and exit a given practice than their counterparts in nonacquired practices, suggesting some degree of workforce flux. State and federal oversight of private equity's impact on healthcare may be ramping up in response to these demonstrated changes.
Summary:
Private equity will continue to broaden their footprint in eye care, necessitating ophthalmologists to take the long view of private equity's net effects. For practices considering a private equity sale, recent policy developments highlight the importance of identifying and vetting a well aligned investment partner, with safeguards to preserve clinical decision-making and physician autonomy.
In the US in recent years, hospital-physician integration has become a dominant form of consolidation in health care. This transition away from independent practice has raised questions about whether hospital-employed physicians may be more likely than independent physicians to refer patients to high-intensity, hospital-based services. We used Medicare claims data from the period 2013-20 to identify patients who received a new diagnosis of stable angina, a common cardiovascular condition that entails clinical discretion in treatment choice. Using linear probability models and an instrumental variables model, we found that patients whose care was managed by a hospital-integrated cardiologist were no more likely to receive stress tests (an office-based procedure) than those whose care was managed by an independent cardiologist. However, these patients were much more likely to receive high-intensity, hospital-based coronary interventions. These results suggest that hospital-physician integration is an important factor in the intensity of treatment received by patients with stable angina. Policy makers may see these findings as additional impetus for more aggressive antitrust enforcement of integrated arrangements between hospitals and physicians and for other regulatory or payment mechanisms that might deter hospitals from using such arrangements to promote high-intensity treatment unnecessarily.
Importance:
Health systems play a central role in the delivery of health care, but relatively little is known about these organizations and their performance.
Objective:
To (1) identify and describe health systems in the United States; (2) assess differences between physicians and hospitals in and outside of health systems; and (3) compare quality and cost of care delivered by physicians and hospitals in and outside of health systems.
Evidence review:
Health systems were defined as groups of commonly owned or managed entities that included at least 1 general acute care hospital, 10 primary care physicians, and 50 total physicians located within a single hospital referral region. They were identified using Centers for Medicare & Medicaid Services administrative data, Internal Revenue Service filings, Medicare and commercial claims, and other data. Health systems were categorized as academic, public, large for-profit, large nonprofit, or other private systems. Quality of preventive care, chronic disease management, patient experience, low-value care, mortality, hospital readmissions, and spending were assessed for Medicare beneficiaries attributed to system and nonsystem physicians. Prices for physician and hospital services and total spending were assessed in 2018 commercial claims data. Outcomes were adjusted for patient characteristics and geographic area.
Findings:
A total of 580 health systems were identified and varied greatly in size. Systems accounted for 40% of physicians and 84% of general acute care hospital beds and delivered primary care to 41% of traditional Medicare beneficiaries. Academic and large nonprofit systems accounted for a majority of system physicians (80%) and system hospital beds (64%). System hospitals were larger than nonsystem hospitals (67% vs 23% with >100 beds), as were system physician practices (74% vs 12% with >100 physicians). Performance on measures of preventive care, clinical quality, and patient experience was modestly higher for health system physicians and hospitals than for nonsystem physicians and hospitals. Prices paid to health system physicians and hospitals were significantly higher than prices paid to nonsystem physicians and hospitals (12%-26% higher for physician services, 31% for hospital services). Adjusting for practice size attenuated health systems differences on quality measures, but price differences for small and medium practices remained large.
Conclusions and relevance:
In 2018, health system physicians and hospitals delivered a large portion of medical services. Performance on clinical quality and patient experience measures was marginally better in systems but spending and prices were substantially higher. This was especially true for small practices. Small quality differentials combined with large price differentials suggests that health systems have not, on average, realized their potential for better care at equal or lower cost.
Background
The share of oncology practices owned by hospitals (ie, vertically integrated) nearly doubled from 2007-2017. We examined how integration between hospitals and oncologists affected care quality, outcomes, and spending among metastatic castration-resistant prostate cancer (mCRPC) patients.
Methods
Using Surveillance, Epidemiology, and End Results (SEER)-Medicare linked data and the Medicare Data on Provider Practice and Specialty, we identified Medicare beneficiaries who initiated systemic therapy for mCRPC between 2008-2017 (n = 9,172). Primary outcomes included: 1) bone-modifying agents (BMA) use, 2) time on systemic therapy, 3) survival, and 4) Medicare spending for the first 3 months following therapy initiation. We used a differences-in-differences approach to estimate the impact of vertical integration on outcomes, adjusted for patient and provider characteristics.
Results
The proportion of patients treated by integrated oncologists increased from 28% to 55% from 2008-2017. Vertical integration was associated with an 11.7 percentage point (95%CI = 4.2 to 19.1) increased likelihood of BMA use. There were no significant changes in time on systemic therapy, survival, or total per-patient Medicare spending. Further decomposition showed an increase in outpatient payment (1,451 to 4,757, 95%CI=-1,870), but no significant changes for other service types (eg, inpatient and prescription drugs).
Conclusions
Vertical integration was associated with increased BMA use but not with cancer outcomes among mCRPC patients. For oncologists who switched service billing from physician offices to outpatient departments, there was no significant change in overall Medicare spending. Future studies should extend the investigation to other cancer types and patient outcomes.
Mergers and acquisitions in healthcare are increasingly leading to changes in firm management. This paper studies how a change in firm management impacts clinical performance using data on an understudied phenomenon: medical practice acquisitions by physician practice management companies (PPMCs). PPMCs market themselves as offloading the administrative burden of running a medical practice without compromising physician autonomy over clinical decisions. However, a PPMC’s management strategy and practices, such as performance monitoring and financial incentives, could influence physician behavior. For example, some PPMCs advertise increasing revenue through better financial management, whereas others also advertise improving quality through better clinical management. In this paper, I collect data on three large PPMCs that manage the practices of more than 40% of obstetricians and gynecologists (Ob-Gyns) in Florida between 2006 and 2014. An Ob-Gyn’s main clinical decision in childbirth involves a tradeoff between financial and clinical outcomes: cesarean sections (C-sections) are often more highly reimbursed than vaginal births but pose risks to maternal and infant health when not medically necessary. Using difference-in-differences methods, I find heterogeneous effects on C-sections depending on a PPMC’s publicized management strategy. Physicians acquired by PPMCs that focus on financial management increase the use of C-sections, resulting in less clinically appropriate care and worse patient outcomes. The opposite result is found when PPMCs focus on clinical management. I provide qualitative and quantitative evidence that differences in firm management are the most likely driver of changes in C-sections. This paper informs how the corporatization of medicine can alter clinical performance outcomes.
This paper was accepted by Stefan Scholtes, healthcare management.
Funding: This project was supported by grants from the Agency for Healthcare Research (AHRQ), the National Science Foundation (NSF), and Wharton’s Mack Institute for Innovation [Mack Institute Research Fellowship]. The analysis was conducted using data from the State of Florida’s Agency for Healthcare Administration (AHCA). The content is solely the responsibility of the author and does not necessarily represent the official views of AHRQ, NSF, Mack Institute, or AHCA.
Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2022.4571 .
Neither vertical mergers nor mergers of complementary input suppliers alter the structure of either the upstream or downstream market. As a result, assessing their competitive significance is more complicated and more subtle than assessing the competitive significance of a horizontal merger. In this chapter, we will tease out the competitive concerns that have shaped vertical merger policy. We discuss vertical mergers in the biotechnology industry, in managed care, and between physician groups and hospitals to illustrate the difficult evaluation task assigned to the Agencies.
Health care costs in the United States are much higher than in other countries. These cost differences can be explained in part by a lack of competition in the United States. Some markets, such as pharmaceuticals and medical equipment, have elements of monopoly. Other markets, such as health insurance, have elements of monopsony. Many other markets may be subject to collusion on prices, such as generic drugs, or wages, such as the nurse labor market. Lawful monopoly and monopsony are beyond the reach of antitrust laws, but collusion is not. When appropriate, vigorous antitrust enforcement challenging anticompetitive conduct can aid in reducing health care costs. This book addresses monopoly, monopsony, cartels of sellers and buyers, horizontal and vertical merger policy, and antitrust enforcement through private suits as well as the efforts of the antitrust Agencies. The authors demonstrate how enforcing antitrust laws can ultimately promote competition and reduce health care costs.
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