As Hospitals Acquire Medical Practices, Cost of Patient Care Goes Up

Even as more hospitals seek to acquire medical groups and physician practices, this consolidation leads to higher expenditures through greater use of hospital-based ambulatory services, according to a recent study from the University of California, Berkeley School of Public Health. The findings also strengthen what oncology practices have been experiencing as more consolidation occurs.

The trend in consolidation is meant to “better coordinate care and to have a stronger bargaining position with insurance plans,” said lead author James Robinson, PhD, MPH, professor and head of health policy and management at the university. But the findings paint a different picture in which organizational consolidation may increase some forms of care coordination, but results in higher total expenditures. “The intent of consolidation is to reduce costs and improve quality, but the problem with all this is that hospitals are very expensive and complex organizations, and they are not known for their efficiency and low prices,” Robinson said in a news release.

Robinson said that public policy should not encourage mergers and acquisitions as a means of promoting collaboration. Instead, he said, policymakers should consider supporting the use of bundled payments for hospitals and physicians to improve coordination of care.

Researchers obtained data from 158 organizations and determined the total expenditures for the care provided to 4.5 million patients in California between 2009 and 2012. The patients were covered by commercial health maintenance organization (HMO) insurance. The data did not include, however, patients who were covered by commercial preferred provider organization (PPO) insurance, Medicare, or Medicaid.

Oncology practices concur.

"Avalere, Milliman, and Moran have studied cancer care costs of physician- versus hospital-based practices and have found the cost of care is 10% to 30% higher for Medicare and 50% to 80% higher for commercial plans when patients are treated by hospital-owned practices. I suspect this trend is also true for all hospital-owned specialties. Unfortunately, this higher cost of care increases the financial toxicity of a vulnerable population," said Bruce Gould, MD, medical director of Northwest Georgia Oncology Centers.

A breakdown of the organizations indicated that 118 (75%) were physician-owned and provided care to 3,065,551 patients, 19 (12%) were owned by local hospitals and provided care to 728,608 patients, and 21 (13%) were owned by multihospital systems and provided care to 693,254 patients.

In 2012, physician-owned physician organizations had mean expenditures of $3066 per patient (95% CI, $2892 to $3240), hospital-owned physician organizations had mean expenditures of $4312 per patient (95% CI, $3768 to $4857), and physician organizations owned by multihospital systems had mean expenditures of $4776 (95% CI, $4349 to $5202) per patient.

Costs were based on physician visits, inpatient hospital admissions, outpatient surgery, and diagnostic procedures, drugs, and all other forms of medical care except for mental health services.

After adjusting for patient severity and other factors, the researchers found that per patient expenditures were 19.8 percent higher for physician groups in multihospital systems compared with physician-owned organizations. Groups owned by local hospitals were better, but per patient costs still ran 10.3 percent higher compared with physician-owned groups.

Robinson suggested that once a medical group has been acquired, physicians in those groups are expected to admit their patients to the high-priced hospital. He said that “physician-led organizations based in ambulatory and community settings are likely to be more efficient and provide cheaper care.”

Findings were published in the October 21 issue of the Journal of the American Medical Association.