Hospital-Physician Integration Increases Outpatient Prices

Hospital-physician practice integration has been shown to increase outpatient prices in some metropolitan statistical areas (MSAs) according to a national analysis of the effect of such deals over several years. The results were published in JAMA Internal Medicine in mid October.


The study comprised practices in 240 MSAs with seven million enrollees in preferred provider organizations or point-of-service plans from 2008 to 2012. The published results include:


  • Markets with greater increases in hospital-physician integration had greater increases in outpatient spending stemming from price increases and not increased utilization.
  • Higher inpatient prices were not associated with hospital physician integration.
  • During the study period, hospital-employed physicians increased in the studied areas by 3.3 percentage points to 21.3 percent.
  • The integration resulted in at least a $75 increase in average annual outpatient spending.
  • 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.
  • Pricing patterns resulted from both market differentials in the Medicare payment system and enhanced market power of the provider organizations.


The authors of the study noted that utilization did not decrease after hospitals purchased practices, suggesting “provider integration has not produced efficiency gains through improved care coordination or management.” They theorized that efficiencies might depend on the emergence of alternative payment models with incentives to limit utilization rather than consolidation. (“Hospital-Physician Practice Mergers Drive Some Price Increases: Study,” HFMA Weekly News, October 23, 2015)


Hospitals will need to work with the physicians in the integrated practices to reduce utilization and lower cost. Authors of a commentary following the report noted that, “This skill is one that hospitals might postpone developing only at their own peril.” (“Association of Financial Integration Between Physicians and Hospitals With Commercial Health Care Prices, JAMA Internal Medicine, October 19, 2015)


Hospital advocates noted some of the limitations of the study:

  • The study did not assess whether quality of care improved when seen by the integrated physicians.
  • The data were collected several years ago and do not reflect changes in today’s healthcare marketplace.
  • The data do not reflect recent drops in provider prices; for example, physician prices fell by 1.2 percent for the 12-month period ending September 2015, according to the Bureau of Labor Statistics and hospital price growth is at an historic low.




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