qotd: Physician concentration drives up prices

Health Affairs
October 2015
Less Physician Practice Competition Is Associated With Higher Prices
Paid For Common Procedures
By Daniel R. Austin and Laurence C. Baker

Abstract

Concentration among physician groups has been steadily increasing, which
may affect prices for physician services. We assessed the relationship
in 2010 between physician competition and prices paid by private
preferred provider organizations for fifteen common, high-cost
procedures to understand whether higher concentration of physician
practices and accompanying increased market power were associated with
higher prices for services. Using county-level measures of the
concentration of physician practices and county average prices, and
statistically controlling for a range of other regional characteristics,
we found that physician practice concentration and prices were
significantly associated for twelve of the fifteen procedures we
studied. For these procedures, counties with the highest average
physician concentrations had prices 8–26 percent higher than prices in
the lowest counties. We concluded that physician competition is
frequently associated with prices. Policies that would influence
physician practice organization should take this into consideration.

Conclusion

The existence of an association between concentration and prices should
underscore the importance of continued attention to the challenges posed
by provider consolidation, especially given that consolidation among
physician groups is likely to continue. Increased health care
expenditures attributable to higher prices without improved outcomes for
patients would generate inefficiency in the US health care system at a
time when the opposite is badly needed. Policies that balance any
benefits of larger organizations with the potential for problematic
price increases, possibly including appropriate antitrust oversight, are
needed as the country seeks to ensure efficient, high-quality patient care.

http://content.healthaffairs.org/content/34/10/1753.abstract

***


Comment by Don McCanne

Consolidation of physician practices has been promoted as a means of
improving efficiency and quality of care by means of integrating health
care services. But this has raised the concern that concentration is
anticompetitive and thus may result in higher health care prices. This
study looks at that possibility.

Although outrage is often expressed at some of the very high prices that
physicians charge for procedures, those prices are rarely paid since
Medicare and Medicaid dictate the actual amount they pay, and private
insurers contract for allowable charges for their network providers.
Only patients who are uninsured or who are using out-of-network
providers face the full charges, but, even then, lower prices are often
negotiated on an individual basis, or sometimes the patient simply
defaults on the bill. So in considering health care costs in general, it
is the authorized payments that count and not the list prices.

This study, in fact, confirmed that where physician practices are more
concentrated, prices insurers paid for health care are higher. So
physician concentration is anticompetitive and results in higher
payments. But are physicians the bad guys who are making us pay more for
health care than we should be?

Looking closer at this study, the prices analyzed were those paid to
in-network physicians in preferred provider organizations (PPOs)
representing larger employers. This is where insurers should be able to
deliver on their promises of lower prices. By representing larger
employers, the insurers contracting with the physicians who would be
included in the networks should be able to extract from them their most
competitive prices.

But that didn't happen. The insurers were not able to drive a better
bargain in markets with physician concentration. Physicians in less
concentrated markets were able to provide their services for lower
prices, so that means that insurers actually were paying excessive
prices in the concentrated markets.

Some say that the costs of large integrated systems are higher, so the
prices had to be higher. But this belies the claim that integration of
services increases efficiency, thereby reducing prices. What this
actually shows is that the PPOs were not as effective negotiators when
faced with provider concentration.

Compare that with the publicly-administered pricing that takes place in
a single payer national health program. The amount paid is based on
actual costs with fair margins, not on whatever the market will bear.
What we don't need are wimpish insurers who charge us outrageous
administrative fees for a job they don't even do well. Let's get rid of
them.