Practice consolidation, hospital ownership drives up the cost of care

October 24, 2014

Two recent JAMA studies show that the recent trend toward practice consolidation influences the cost of healthcare services.

Small, private practices are increasingly merging with larger healthcare organizations, but two new studies show that less competition and increased hospital ownership of practices may lead to higher healthcare costs.

The first study, conducted by researchers at the University of California, looked at the total expenditures of 4.5 million patients in California covered by a commercial health maintenance organization from 2009 to 2012. The costs included professional, hospital, laboratory, pharmaceutical, and ancillary services.

It found that the average total expenditures per patient were 10.3% higher for hospital-owned practices and 19.8% higher for health system-owned practices than those at physician-owned practices.

The second study examined the costs of 10 types of office visits in 1,058 counties across the United States. Researchers at Stanford University used the Hirschman Herfindahl Index to determine the level of competition within the counties. They found that in the least-competitive markets, private provider organizations paid 8.3% to 16.1% more for the same service.

The authors of the Stanford study acknowledged the benefits associated with hospitals acquiring practices, including access to more resources and the ability to better coordinate care. Their findings suggest negative consequences for consumers, however.

“An association between competition and prices may have important implications for health policy, as pressures to increase practice size persist or even increase in the future,” the authors wrote. “We saw substantial amounts of concentration in the markets we studied, which raises concerns about potentially harmful implications for consumers. Higher health care spending due to increased prices paid to physicians without accompanying improvements in quality, satisfaction, or outcomes would generate inefficiency in the health care system.”

Both studies were published in the Journal of the American Medical Association.