Integration, negotiation, patient costs — What happens when hospitals integrate independent physician practices?

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Patient costs have increased as hospitals have integrated more and more of the nation’s independent physician practices, according to the findings of a paper published this summer.

“Are Hospital Acquisitions of Physician Practices Anticompetitive?” quantified how hospital systems have been adding physician practices from 2008 to 2016. Although the data may reach back years, the authors found “little reason to believe this trend has or will reverse,” without changes to policies affecting U.S. health care.

Co-author Zack Cooper, PhD, spoke with Medical Economics about the findings. He is associate professor of public health (health policy) and economics in Yale University’s Institution for Social and Policy Studies.

Zack Cooper, PhD
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The study is based on sources such as the American Hospital Association or surveys of SK&A, now Iqvia OneKey. The researchers used those sources combined with Medicare Data on Provider Practice and Specialty with taxpayer identification numbers, physician national provider identifier numbers, and claims from insurer UnitedHealth.

Co-authors are Stuart Craig, Aristotle Epanomeritakis, Matthew Grennan, Joseph Martinez, Fiona Scott Morton and Ashley Swanson, coordinated with NBER and the Yale University Tobin Center for Economic Policy. They published an accompanying policy brief, “Hospitals are gobbling up physician practices — and health care prices are rising as a result.”

This transcript has been edited for length and clarity.

Medical Economics: How did this study come about?

Zack Cooper, PhD: There's really been a reshaping of the physician industry in the U.S., and there's really three trends driving it, or three trends that we're seeing emerge. The first trend is vertical integration, so, hospitals buying physician practices. The second is a different form of vertical integration, which is insurance companies buying physician practices. The third are really physician staffing companies, and so we’re doing work in each of the three. We had some work a couple years ago looking at physician staffing companies in emergency medicine, and doing some work right now, thinking about what happens when insurance companies buy physicians and this was really the other pillar that we were looking at. And what you've seen is really like over the last two decades, more than a doubling in the share of physicians working for hospitals. And the question is, what impact that's having?

Related coverage: Patient prices go up as hospitals take over physician practices, reduce competition

Medical Economics: What was the most surprising finding among the results?

Zack Cooper, PhD: I think probably the scale of the price increases we see from physicians. I think a 15% price increase is really, really big, and that makes care more expensive at the end of the day for consumers. And we know from some of my other work that that has a drag on the rest of the economy. I think first is really the scale of the effects, and the second is just how clear the evidence was that this was a function of a lessening of competition. And we saw that in three ways. The first is we looked at physicians who were already vertically integrated, and we saw what happened to their prices after the system that they were in bought more physicians and their prices went up. And that's a pretty good test, because those who are already owned by hospital, they're not going to be doing anything differently, the quality is not going to change. And so that we see their prices go up, I think provides very, very clear evidence that the mechanism here, what we're seeing, is really a function of a lessening of competition. I think that's really, really important to show and really, really important to know.

Medical Economics: Why does that happen?

Zack Cooper, PhD: When the hospitals buy physician practices, a couple things are happening. The first is often, it’s the hospitals doing the negotiating, and hospitals are just pretty good at negotiating. They have negotiating skill, and so it might be that they're just better at knowing what the market will bear and better engaging with the insurance themselves. That's first. Second, often they'll switch physicians over to a new tax identification number, a new TIN, and those TINs just have different reimbursement rates, sort of mechanically, it raises their reimbursements. And then the third is really the story we explored in this paper, which is about a lessening of competition. And so you want to think about physicians and insurance companies engaging in negotiations, right, sort of bilateral negotiations over what they're going to get paid. And when one side gets more bargaining power, that side can usually negotiate for a better outcome than they could in the past. And that's exactly what we see happening here.