Consolidation ≠ Efficiency

As the United States began implementing the Patient Protection and Affordable Care Act (aka “Obamacare”), many in the healthcare industry focused on the law’s initiatives which pushed for provider consolidation.  In fact, there are tenants in the law that actually incentivize hospitals to acquire physician practices.  Some of the primary stated intents of such measures were to increase efficiency, increase value, and decrease costs.  A recent study in the Journal of the American Medical Association (JAMA) shed light on these consolidations and the result is the government’s misaligned incentives have actually led to negative consequences.  The lead author of the study, Hannah Neprash of Harvard Medical School, demonstrated that indeed these negative consequences are happening in the outpatient setting.

The JAMA study reviewed the impact of physician-hospital integrations on 240 metropolitan statistical areas.  In looking at the concurrent changes in spending, the data proved that financial integration between physicians and hospitals has been associated with higher commercial prices and spending for outpatient care.  As physicians’ market power increases, so does outpatient spending.  To be clear, that spending is almost exclusively a result of price increases, and not a consequence in higher utilization.  In one of my prior posts on the price-quality link, we see some data pointing to the notion that most consumers do not see an association between price and quality.

Along the same lines, a recent Forbes article declared the hopes of these planned benefits of physician-hospital integrations as “probably wishful thinking.”  The author of the article is Peter Ubel, a physician and behavioral scientist at Duke University.  Dr. Ubel correctly notes that physicians feel pressured to align with hospitals in order to gain negotiating leverage with insurance companies.  With his experience of being trained at the Mayo Clinic, he expounded upon the increase in physician-hospital integrations:

“Joining forces with hospitals may or may not improve the quality or efficiency of medical care.  But it sure as heck gives doctors a fighting chance to negotiate better terms with insurers.”

President Obama’s sweeping healthcare legislation has had a profound impact on physicians in addition to increasing healthcare coverage for millions of Americans.  The data is in on the financial impact thus far as well as on some initiatives such as Accountable Care Organizations.  What we are beginning to shed more light on now is the efficacy of some of the law’s major pillars and the consequences those pillars have on the private practice segment of the physician community.


Contact ABISA for healthcare consultancy support or speaking engagements.

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