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

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Hospitals are taking over physicians’ practices and that integration is driving an increase in patient prices, according to findings of a new study.

The paper’s title asks: “Are Hospital Acquisitions of Physician Practices Anticompetitive?” The answer is yes, according to the researchers published by the National Bureau of Economic Research. The study relies on data from 2008 to 2016, but “there’s little reason to believe this trend has or will reverse” as of 2025, the authors said in an accompanying policy brief.

The authors quantified the integration of physicians into hospitals, noting substantial variation across geography, specialty and time. But the trend for all is more integration, with hospital ownership of physician practices rising from 27.5% in 2008 to 47.2% in 2016. Integration was most rapid for cardiologists and general surgeons; in that time, ownership of primary care physician practices rose 18.1 percentage points to a total of 50.6% hospital ownership in 2016.

OB-GYN data

Hospital ownership of obstetrician-gynecology practices grew 20.4 percentage points to a total of 48% by 2016. The authors focused on OB-GYN because labor and delivery admissions constituted 28% of all inpatient admissions in the data.

On average, mergers of hospitals and OB-GYN practices led to price hikes for hospitals and doctors. Two years after integrating, hospital prices for labor and delivery rose 3.3%, or $475, and physician prices increased by 15.1%, or $502, the authors said.

Less competition

More generally, prices grew by 9% for physicians who were already integrated within a hospital system, when the hospital acquired practices with the same specialty.

“Given that these physicians’ integration status did not change, it is unlikely that a sudden change in their quality or bargaining ability precipitated the price increase we observed,” the paper said. “This suggests that the price increases were the result of a lessening of competition.”

Where is the oversight?

There has been increasing public attention to mergers and consolidation within the health care sector in recent years, and concerns about loss of competition. Enforcement agencies have examined deals between the largest head-to-head competitors, the study said.

But many of the hospital-physician integrations are not large enough to trigger review by the Federal Trade Commission or state regulators. Yet, the level of consumer harm in aggregate has risen to the level of horizontal hospital mergers that have been of great interest to regulators, the study said.

“Unfortunately, antitrust enforcement against vertical mergers of physician practices is extremely challenging for regulators to address because the physician industry is composed of hundreds of thousands of small practices,” the policy brief said. “Regulators simply don’t have the resources to block the thousands of the deals that occur annually.”

Along with more oversight, lawmakers could change or end financial incentives that encourage hospitals to take on physicians’ practices. “For example, Medicare should pay physicians the same rates whether or not they are employed by a hospital (e.g., site neutral billings),” the policy brief said.

Improving accuracy of data

The authors noted “a significant challenge” in existing studies about hospital-physician acquisitions incomplete data. Past research has compiled data from 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 insurance giant UnitedHealth. Using trained machine learning programs, the method increased accuracy to more than 97%.

The study was written by economists Zack Cooper, 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.