Higher Fees Could Offset Care Benefits of Physician Mergers

Diana Swift

June 10, 2015

As mergers make for larger and fewer physician groups, the resulting increased market share may drive up costs as groups gain bargaining power with insurers, according to a study published in the June issue of Health Affairs.

Whereas the resulting collaboration and efficiencies of scale could reduce costs and improve care, concentration could also drive up costs by raising the payments made by public and private insurers, note authors Eric Sun, MD, an instructor in anesthesiology, pain, and perioperative medicine at the Stanford University School of Medicine, California, and Laurence C. Baker, PhD, a professor in health research and policy at Stanford University and a research associate at the National Bureau of Economic Research in Cambridge, Massachusetts.

"When physician groups and health systems merge, a key justification is that patients will benefit from better coordination between physicians and expanded access to specialists," Dr Sun said in a university news release. "Even if these benefits materialize, a potential side effect is that the larger group gains stronger footing when negotiating prices."

The potential advantages of concentration are the underlying rationale for the accountable care organizations supported by incentives in the Affordable Care Act.

"A large body of work suggests that concentration in hospital markets is associated with higher private insurer payments to hospitals. Less is known about how concentration affects physician fees," the authors write. However, recent research has found an association between market concentration and increased physician fees for outpatient office visits.

Understanding the effects of market concentration on surgeons' fees is particularly important because surgical spending accounts for roughly a third of overall healthcare costs.

The authors used data on total knee arthroplasty from Truven Health Analytics' Marketscan, a database of administrative claims filed in private insurance plans through a participating employer, health plan, or government organization. Dr Sun and Dr Baker examined the fees orthopedic surgeons billed for these procedures between 2001 and 2010. They correlated these fees with the concentration of physician groups by means of the Herfindahl-Hirschman Index, an instrument commonly used by regulators to measure market share and competition and enforce antitrust legislation.

Even though the overall number of orthopedic markets considered "moderately" or "highly" concentrated remained about the same during the study period, the nationwide average cost of knee replacements fell $261 (95% confidence interval, $70.52 - $452). In the most concentrated markets, however, physician fees for arthroscopy rose by almost 7% per procedure compared with fees in the least concentrated markets, prompting the authors to say that "antitrust authorities should closely evaluate any proposed mergers between physician groups."

The average physician fee for a total knee arthroplasty during this period was $2537 per procedure. After adjusting for confounders, the researchers found that moving from the bottom quartile of the Herfindahl-Hirschman Index to the third quartile was associated with a $98 (3.86%) increase in physician fees for total knee arthroplasty. Moving from the bottom quartile to the top was associated with a $168 (6.63%) increase. "Therefore, our findings suggest that the increase in physician fees associated with concentration was nearly as large as the more general decline in physician fees for total knee arthroplasty during this period," they write.

The effect of concentration on physician bargaining power could have cost implications for the Affordable Care Act, which encourages doctors to coordinate care to improve patient health. "The point is not to say that consolidation is a bad thing," Dr Sun said in the news release. "But as we think about encouraging these kinds of mergers, we really want to weigh the costs against the benefits."

Although acknowledging that their results refer to one procedure in one specialty, and may not apply to others, the authors say the findings warrant "both caution in implementing policies that could encourage further concentration in physician markets and closer scrutiny of proposed mergers."

Dr Sun and Dr Baker plan to investigate whether a higher concentration of physician groups actually improves patient outcomes.

The study was funded by the National Institute of Health Care Management and the Foundation for Anesthesia Education and Research. The authors have disclosed no relevant financial relationships.

Health Aff. 2015;34:916-921. Abstract


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