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May 11, 2022
David Burda
Economics Policy System Dynamics

Hospital + Doctors = Higher Prices

I told you. Beware the vertically integrated employed physician. Maybe now you’ll believe me.

A new study in Health Affairs says vertical integration between hospitals and doctors in Massachusetts led to higher prices charged to patients and payers for medical care. If it’s happening in Massachusetts, you can bet it’s happening in other states that let hospitals and health systems employ or jointly contract with physicians. You can download the new study here.

For the study, three health services researchers from Harvard looked at how prices for a common set of services provided by primary-care physicians and specialists, which the researchers called the collective “implied price,” changed after the PCPs and specialists entered into clinically integrated networks with a health system. That could include employment arrangements, affiliations or any partnership that would allow them to jointly contract with payers for care.

The study pool included about 57,000 physicians and 10 health systems in the state. The researchers divided the health systems into small, medium and large segments based on the percentage of patient discharges they controlled in the respective markets. The study period was 2013 through 2017.

Here’s what they found:

  • The PCPs and specialists who joined small health systems raised their prices 2.1% and 0.7%, respectively.
  • The PCPs and specialists who joined medium-sized health systems raised their prices 7.7% and 2.4%, respectively.
  • And the PCPs and specialists who joined large health system raised their prices 12% and 6%, respectively.

“Vertical integration and joint contracting with health systems led to price increases that increased monotonically with the size of the system,” the researchers said.

That’s health services researchers-speak for the prices rose higher as the systems got bigger from 2013 through 2017. And they didn’t find any reason for the price hikes other than the fact the PCPs and specialists started jointly contracting with health systems, primarily through practice acquisitions and employment arrangements. They said add-on facility fees had little effect on prices.

Basically, they charged more because they could, and they could because they controlled more of the market by conspiring, I mean, partnering with a health system, not competing against it.

“Our findings suggest that policy makers may need to consider taking steps to mitigate price effects, with a particular focus on large health systems,” the researchers said. “Such steps could involve antitrust enforcement, increased oversight or regulation of commercial insurance contracts, and laws that promote competition.”

Competition. There’s that magic word again.

To learn more about this topic, please listen to the April 29 episode of our 4sight Friday Roundup podcast, “What Physician Employment Has to Do with Telemedicine,” on 4sighthealth.com.

Thanks for reading.

About the Author

David Burda

David Burda began covering healthcare in 1983 and hasn’t stopped since. Dave writes this monthly column “Burda on Healthcare,” contributes weekly blog posts, manages our weekly newsletter 4sight Friday, and hosts our weekly Roundup podcast. Dave believes that healthcare is a business like any other business, and customers — patients — are king. If you do what’s right for patients, good business results will follow.

Dave’s personnel experiences with the healthcare system both as a patient and family caregiver have shaped his point of view. It’s also been shaped by covering the industry for 40 years as a reporter and editor. He worked at Modern Healthcare for 25 years, the last 11 as editor.

Prior to Modern Healthcare, he did stints at the American Medical Record Association (now AHIMA) and the American Hospital Association. After Modern Healthcare, he wrote a monthly column for Twin Cities Business explaining healthcare trends to a business audience, and he developed and executed content marketing plans for leading healthcare corporations as the editorial director for healthcare strategies at MSP Communications.

When he’s not reading and writing about healthcare, Dave spends his time riding the trails of DuPage County, IL, on his bike, tending his vegetable garden and daydreaming about being a lobster fisherman in Maine. He lives in Wheaton, IL, with his lovely wife of 40 years and his three children, none of whom want to be journalists or lobster fishermen.

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