Increased physician–hospital integration: is this delivering what it’s costing?

In this exclusive editorial, study co-author Marah Short (Associate Director of the Center for Health and Biosciences at Rice University’s Baker Institute for Public Policy; TX, USA) discusses some of her work evaluating the promises and challenges of increased physician–hospital integration.

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In 2019, we reported on a new meta-analysis in which researchers observed that as physicians increasingly integrate with hospitals, they may be pressured into offering a greater volume of services to patients. These are associated with higher healthcare costs but not greater healthcare quality. 

In this exclusive editorial, study co-author Marah Short (Associate Director of the Center for Health and Biosciences at Rice University’s Baker Institute for Public Policy; TX, USA) discusses the importance of this work and the promises and challenges of increased physician–hospital integration.

It has been well documented in recent years that hospitals and physicians have been tightening their relationships through vertical integration, meaning that both more hospitals are employing physicians and more physician practices are owned by hospitals. This integration has been touted as a means for healthcare providers to increase efficiency by managing and coordinating care of patients. For example, if primary care physicians, specialists and attending hospital physicians for a patient are all under one umbrella, it is less likely that duplicate testing will be performed; this could result in lower costs of care. Based on these and similar arguments, we hypothesized that vertical integration would improve care coordination, however, the data revealed otherwise.

In our study, published in the Journal of General Internal Medicine, we examined preferred provider organization insurance claims, processed through Blue Cross and Blue Shield of Texas (BCBSTX; TX, USA) between 2014 and 2016, for Texas’ four largest metropolitan areas – Dallas, Houston, San Antonio and Austin. The population in these areas totaled 18.9 million in 2017. Patients were attributed to the primary care physicians they saw most frequently and BCBSTX contracting data were used to determine whether each of these physicians worked in a physician-owned or hospital-owned practice.

We found that preferred provider organization patients had associated healthcare spending costs 5.8 percentage points higher when treated by doctors in hospital-owned versus physician-owned practices – equivalent to extra costs totaling US$280. Yet, there was no consistent difference in the quality of care delivered – for example, 30-day hospital readmission rates, diabetic care or screening mammography – at hospital- versus physician-owned practices. Under further investigation, the difference in spending appears attributable to higher utilization of services rather than higher prices. For four out of five common diagnostic tests (x-rays, CT scans, MRIs, and ultrasounds), the claims per patient in hospital-owned practices were equal to or higher than those in physician-owned practices.

Several studies agree that vertical integration of physicians and hospitals results in increased healthcare spending; our research adds to this existing literature by measuring physician–hospital integration effects whilst simultaneously considering healthcare quality.

However, there are some important limitations to our study, which may impact on the range of applications of the results. First, due to the nature of the data sources we employed, we only knew the network contract status of each physician as of 2016. There were likely some physicians that changed between physician- and hospital-owned practices during the study, but we could not identify them. Further, we did not have data on prescription drug claims available, which may be associated with changes in spending or utilization of outpatient and inpatient care.

So, is increased physician–hospital integration delivering what it is costing? Simply: no. Structural integration through physician employment – for example, human resource and management – does not necessarily lead to clinical integration, coordinated patient services among providers or site monitoring of ‘best practices’. Instead, the data suggest that as hospitals gain more control over physicians, they incentivize delivery of more services, but not necessarily higher quality care. The provision of more services equates with higher healthcare spending, which contributes to our ever-growing healthcare costs in the USA. Higher spending will ultimately increase health insurance premiums for consumers.

There are several methods which could be used to preserve a competitive, market-based healthcare system. One such method includes accelerating the adoption of value-based payments – for example, accountable care organizations where physicians get a part of the cost savings if they are able to maintain standards for quality of care.

Another way is for state and federal regulators to ensure that insurer contracts with health systems do not hinder price transparency.

Finally, administrative and regulatory requirements for physicians are complex and could be pushing physicians to integrate. For example, a recent report by the US Government Accountability Office (GAO; DC, USA) highlights the fact that the Centers for Medicare and Medicaid Services (CMS; MD, USA) does not currently systematically assess quality measures under consideration based on their quality measurement strategic objectives. Therefore, while CMS’s goal may be to encourage greater value in care through payment adjustments based on quality without creating undue burden on providers, it isn’t clear that the quality measures required for reporting are meeting those criteria. In their report, the GAO set forth three recommendations to the CMS, among which was one to implement procedures for assessment of any quality measures it intends to develop, use or remove. To take this recommendation a step further, quality reporting requirements could be standardized across all health plans. The burden of increasing reporting requirements may unintentionally increase healthcare costs, particularly for small, independent practices.

Read the full research article here>>

Ho V, Metcalfe L, Vu L, Short M, Morrow R. Annual spending per patient and quality in hospital-owned versus physician-owned organizations: an observational study. J. Gen. Intern. Med. doi:10.1007/s11606-019-05312-z (2019) (Epub ahead of print).


Vivian Ho and Marah Short were financially supported by AHRQ Grant No. R01HS024727.

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