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A Closer Look at Physician-Hospital Alignment

flying cadeuciiA study by Stanford researchers in the current issue of Health Affairs is likely to intensify growing tension between health insurers and hospitals.

At issue: the impact of physician-hospital consolidation, or vertical integration as some academics prefer to call the trend.

The researchers analyzed 2 million claims submitted to insurers by hospitals from 2001 to 2007, evaluating the impact on hospital prices, volumes (admissions), and spending for privately insured, non-elderly patients. Using data from Truven Analytics MarketScan.

They constructed county-level indices of prices, volumes, and spending and adjusted for enrollees’ age and sex. “We measured hospital-physician integration using information from the American Hospital Association on the types of relationships hospitals have with physicians.”

What they found is not surprising: vertical integration involving physician-hospital consolidation results in better care and higher costs. They found hospital prices increased 2%-3% each time physician-employing hospitals’ market share increased by one standard deviation. And overall spending on services at the hospitals that employed physicians increased while the utilization of services (volume) at those hospitals didn’t change.

They  concluded the following:

“We found that an increase in the market share of hospitals with the tightest vertically integrated relationship with physicians—ownership of physician practices—was associated with higher hospital prices and spending.

We found that an increase in contractual integration reduced the frequency of hospital admissions, but this effect was relatively small. Taken together, our results provide a mixed, although somewhat negative, picture of vertical integration from the perspective of the privately insured.”

What’s the significance of the study?

1-Hospitals and physicians will bolster their position that vertical integration is necessary to improved outcomes. The shift from volume to value via accountable care organizations, bundled payments, medical homes, and value based purchasing require closer collaboration between physicians and hospitals.

“Clinical integration” is central to each, and payers– Medicare and private insurers– are promoting these risk-based contracting efforts energetically while cutting reimbursement rates for services aggressively. So the provider position is this: ‘We get better results. We built what you said you wanted.

It’s costly to make the change, especially while since Medicare and Medicaid don’t cover our costs, demand is soaring and our bad debt from the uninsured increasing. You told us to build it, but you don’t want to cover our costs.’

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