Greater healthcare costs associated with increased physician—hospital integration

In a new metanalysis, researchers have 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.

Sep 12, 2019

Physician—hospital integration occurs when physicians are directly employed by hospitals, or when physicians and hospitals jointly contract with a health insurance provider. In a new study, Rice University (TX, USA) researchers have analyzed insurance claims and contracting data to determine the annual healthcare spending totals for patients treated at physician-owned practices compared with integrated, hospital-owned institutions. Researchers observed that as physicians increasingly integrate with hospitals, they offer a greater volume of services to patients, with higher healthcare costs, but a lack of improved healthcare quality. 

In the USA, the proportion of physicians employed by hospitals rose from 29% in 2003, to 42% in 2012. Similarly, the share of hospital-owned physician practices increased from 14% in 2012, to 29% in 2016.

Principal study author Vivian Ho, Health Economics Chair at the James A. Baker III Institute and Director of the Center for Health and Biosciences at Rice's Baker Institute for Public Policy (all TX, USA), commented: “When we launched this study, we hypothesized that tighter integration of physicians with hospitals would improve care co-ordination. For example, less duplicate testing might occur, which would lower costs.”

In the study, researchers analyzed preferred provider organization insurance claims data – with the exception of prescription medicines claims – processed for care through the Blue Cross and Blue Shield of Texas (BCBSTX; TX, USA), between 2014 and 2016.

By ascribing patients to primary care physicians and utilizing BCBSTX contracting data to determine whether these physicians worked in physician- or hospital-owned practices, researchers were able to compare annual spending totals for patients treated by providers in physician-owned practices, compared with hospital-owned clinics.

Frequently asked questions:

Patients with preferred provider organization insurance, treated at hospital-owned practices, incurred healthcare costs 5.8% greater than patients treated at physician-owned clinics.

Additionally, the number of claims submitted, per patient, for four, routine diagnostic tests – including MRIs – at hospital-owned practices, was equal to or greater than claims submitted at physician-owned clinics. This indicates that the greater spending by hospital-owned practices results from greater procedure performance rather than higher costs per procedure.

However, there was no significant difference in healthcare quality delivered – assessed by patients’ hospital re-administration data 30 days after discharge, provision of diabetic care and other factors – at physician- or hospital-owned institutions.

Ho stated: “Healthcare costs continue to rise faster than the growth rate of the overall economy. Tighter integration of physicians with hospitals appears to be contributing to that cost growth, with no evidence of better [healthcare] quality."

Leanne Metcalfe, study co-author and BCBSTX Executive Director of Research and Strategy, concluded: “Higher spending ultimately translates into higher insurance premiums for customers. Centers for Medicare and Medicaid Services [CMS; MD, USA] regulators should be wary of the burden that increasing reporting requirements place on physicians in small, independent practices. In the long run, these requirements may have the unintended consequence of raising health care costs.”


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 StudyJ. Gen. Intern. Med. (Epub ahead of print) (2019); 

What is vertical physician–hospital integration?

Vertical integration is a term used by economists to describe the increasing control hospitals are exerting over physicians in a bid to improve inpatient care. The greatest level of physician—hospital integration occurs when physicians are directly employed by hospitals.

Why are physicians integrating with hospitals?

Increasing integration may result from a desire to improve efficiency and lower costs associated with transactions. Alternatively, some experts put increased physician–hospital integration down to desires by both parties to earn greater revenues by using their combined bargaining power to negotiate higher prices for offered services from insurers.

Ilana Landau

Assistant Editor, Future Science Group

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