Quote-of-the-day mailing list
Quote-of-the-day@mccanne.org
http://two.pairlist.net/mailman/listinfo/quote-of-the-day
-------- Original Message --------
Subject: qotd: Hospital Ownership Of Physician Practices Is Associated
With Higher Prices And Spending
Date: Mon, 12 May 2014 12:55:18 -0700
From: Don McCanne <don@mccanne.org>
To: Quote-of-the-Day <quote-of-the-day@mccanne.org>
Health Affairs
May 2014
Vertical Integration: Hospital Ownership Of Physician Practices Is
Associated With Higher Prices And Spending
By Laurence C. Baker, M. Kate Bundorf and Daniel P. Kessler
The share of US physician practices owned by hospitals more than doubled
from 2002 to 2008. This trend toward vertical integration between
hospitals and physicians means that more producers of complementary
services that were once independent are now either commonly owned or
related by contract.
Whether this trend has been good for consumers has been the subject of
considerable debate. On the one hand, vertical integration has the
potential to improve the quality and efficiency of care by reducing what
are broadly described by economists as "transaction costs." For example,
closer ties between physicians and hospitals can improve communication
across care settings and reduce wasteful duplication of diagnostic tests.
On the other hand, vertical integration may hurt consumers by allowing
hospitals and physicians to raise prices. By employing or contracting
with physicians, hospitals may increase their market power by amassing
control over a larger bundle of services or by depriving their rivals of
a source of or destination for referrals. In addition, vertical
integration may increase physicians' incentives to supply unnecessary
treatments if such treatments are used as a vehicle to pay what are
effectively kickbacks for inappropriate referrals.
Understanding how vertical integration of physicians and hospitals
affects spending and the quality of care has become especially important
in recent years. The Affordable Care Act creates incentives that are
likely to intensify the historical trend toward vertical integration.
The act rewards doctors and hospitals that join together in an
accountable care organization (ACO) by making them eligible for cash
bonuses from Medicare. In theory, ACOs affect only how providers relate
to Medicare. However, most health policy analysts believe that in
practice, these organizations will increase the extent to which doctors
and hospitals bargain with private purchasers jointly instead of
independently.
From the Discussion
Vertical integration can have both socially beneficial and socially
harmful effects. There is almost universal agreement that greater
coordination of care, especially between physicians and hospitals, would
be in patients' best interests. At the same time, health policy analysts
have expressed the concern that integration can have unintended harmful
consequences for consumers. According to economic theory, vertical
integration has the potential to increase the market power of providers,
especially hospitals, and to encourage physicians to supply
inappropriate treatments by facilitating hospitals' payments of
kickbacks that would be illegal if they were made formally.
Our study had two key findings. First, in its tightest form, vertical
integration appears to lead to statistically and economically
significant increases in hospital prices and spending. This is
consistent with the hypothesis that vertical integration increases
hospitals' market power. We found that a one-standard-deviation increase
in the market share of hospitals that own physician practices was
associated with significant increases in prices and spending of 2–3
percent. In comparison, a one-standard-deviation increase in the
hospital Hirschman-Herfindahl index increased prices and spending by 4–6
percent.
Second, the consequences of looser forms of vertical integration were
more benign and potentially socially beneficial. Increases in these
forms of integration did not appear to increase prices or spending
significantly and may even decrease hospital admission rates. This
finding is consistent with the hypothesis that vertical integration can
improve the coordination of care.
However, the effects on volume associated with these types of
integration were small — so small that they did not generate a
significant reduction in hospital spending. In addition, although our
estimates of the effect of contractual integration on price were
statistically indistinguishable from zero, the imprecision of our
estimates limited our ability to confidently assess their true impact.
http://content.healthaffairs.org/content/33/5/756.abstract
****
Comment by Don McCanne
An intent of the Affordable Care Act was to reduce health care spending
through the establishment of more efficient integrated health systems,
operating as accountable care organizations. The ultimate integration is
for hospitals to assume ownership of physician practices. This study
demonstrates that this form of vertical integration does not reduce
prices and spending but rather increases them, likely through the
anti-competitive effects of such consolidation. Looser forms of vertical
integration (contracts rather than ownership) also failed to achieve a
reduction in hospital spending.
One important aspect of this study that will likely escape the attention
of the policy community is that they used data from Truven Analytics
MarketScan - a data base of claims filed by privately insured people who
obtained insurance through a participating employer. Thus the
ineffectiveness in recovering through lower prices the efficiencies of
the consolidated systems represents a failure of the private insurance
industry, whether functioning as insurers or as administrators for
self-insured employers.
So maybe vertically integrated systems, in which the hospitals own
physician practices, have the market clout to prevent efficiency savings
from being passed on to the purchasers of health care, but if we had a
single payer financing system, our public stewards would ensure that we
paid the right amount through administered pricing rather than being
victim to unfairly leveraged market negotiations. We need to replace
marketplace oligopolies with our own public monopsony - an improved
Medicare for all.
No comments:
Post a Comment