Higher prices associated with hospital ownership of practices, study finds

Hospitals across the country have been purchasing practices at a rapid pace, but a new study shows that increased hospital ownership may lead to higher prices for patients.

The study, called “Vertical Integration: Hospital Ownership Of Physician Practices Is Associated With Higher Prices And Spending,” was published in the May issue of Health Affairs. Researchers from Stanford University analyzed about 2.1 million hospital claims from patients in private, fee-for-service health plans between 2001 and 2007.

“Taken together, our results provide a mixed, although somewhat negative picture of vertical integration from the perspective of the privately insured,” the authors wrote. “Our most definitive finding is that hospital ownership of physician practices leads to higher prices and higher levels of hospital spending.”

Provisions of the Affordable Care Act incentivize hospitals and practices to form Accountable Care Organizations (ACOs) by offering bonus Medicare payments, and the authors acknowledge that in some ways, vertical integration may be beneficial to patients. “There is almost universal agreement that greater coordination of care, especially between physicians and hospitals, would be in patients’ best interests,” the authors wrote.

But the authors also raised another concern.

“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,” the authors wrote.

Caroline Steinberg, the American Hospital Association’s vice president of trends analysis, told Kaiser Health News that the goal is not to boost prices. “Hospital are integrating with physicians because it is a necessary way to engage physicians in innovative payment methods such as bundling payments for one service such as hip replacements and ACOs,” she said.

The study did not examine impact of hospital consolidation on the quality of care or patient health outcomes, which the authors say is “an important topic for future research.”