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September 6, 2023
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David Burda
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Economics Outcomes System Dynamics
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The Primary Reason for Physician-Hospital Vertical Integration

Fool me once, shame on you. Fool me tens of thousands of times over decades, shame on me.

Hospitals and health systems don’t acquire primary care practices to improve access, quality or service. They buy them for economic reasons, i.e., to capture market share and generate more revenue. Physicians are the means of production in healthcare. That’s why everyone wants to own them, especially primary care physicians (PCPs) because primary care office visits are where most patient care journeys begin.

Where do those patient care journeys end? With PCP referrals to high-priced, hospital-affiliated medical specialists and to expensive diagnostic testing and medical care in hospital-owned facilities. At least per a new study in JAMA Health Forum.

Five researchers, all affiliated with Harvard, compared the utilization and spending outcomes of patients treated by independent PCPs with those treated by PCPs who were vertically integrated with their local health system. Vertically integrated means health systems owned or jointly contracted with PCP practices.

The study looked at about 4 million patients insured by one of eight commercial health insurers and seen by their PCP from 2013 through 2017.

Here’s how some of the utilization and spending outcomes broke down between PCPs who never were vertically integrated and PCPs who always were vertically integrated.

  • The average number of visits to any specialist per year was 3.52 for “always” PCPs compared with 2.79 for “never” PCPs, or 26.2 percent higher.
  • The average number of visits to system-affiliated specialists per year was 2.73 for “always” PCPs compared with 1.10 for “never” PCPs, or 148.2 percent higher.
  • The average total medical expenditures per patient per year was $6,558.62 for “always” PCPs compared with $5,204.23 for “never” PCPs, or 26 percent higher.

The researchers also found similar before and after increases in utilization and spending outcomes for newly vertically integrated PCPs during the study period.

“Vertical relationships between PCPs and large health systems were associated with steering patients to health systems and increased spending on patient care. These findings raised concern that the steering of care corresponded with insurers paying more for the same types of care visits and that this form of consolidation may be associated with overall higher costs,” the researchers concluded.

Further: “We found that vertical relationships were associated with increased specialist visits within large health systems, which warrants further study to ascertain whether these visits represent low-value care or improved access to specialists.”

To prevent these ill effects of physician-hospital vertical integration, the researchers suggested several countermeasures. They included tougher antitrust enforcement, use of transparency and navigation tools to help patients find care from lower-cost physicians and hospitals, and new payment models that reward use of lower-priced care.

Yeah, yeah, yeah. Great ideas in theory. In practice, they go nowhere because the Healthcare Industrial Complex® is too strong. We just sit in our PCP’s exam room getting fooled and fooled again.

Thanks for reading.

To learn more about this topic, please read, “Beware the Vertically Integrated Employed Physician,” on 4sighthealth.com.

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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