Hospital-Owned Physician Practices Raise Costs but Not Quality

Marcia Frellick

September 12, 2019

Patients in hospital-owned physician practices pay almost $300 more per year than those in independently owned practices, a study indicates, but researchers say patients are not getting higher-quality care with the bigger bill.

Hospital-affiliated practices scored higher on only 1 of 5 quality measures tested, write Vivian Ho, PhD, a health economist with the Department of Economics at Rice University in Houston, Texas, and colleagues.

"Therefore, the current debate over the health insurance coverage provisions of the Affordable Care Act has not included one of the main factors

driving up healthcare spending, making coverage unaffordable," the authors write.

Ho told Medscape Medical News, "This type of vertical integration is really what's driving higher costs. 'Medicare for all' is just not going to solve that issue."

Ho and colleagues published their findings online September 3 in the Journal of General Internal Medicine.

Patients with hospital-owned physician organizations spent 5.8% more, or $280 more per person per year (95% confidence interval [CI], 1.7 - 9.9; P = .006). That higher spending appears to come from higher use of services rather than higher prices.

The higher spending is especially concerning considering the share of US physician practices owned by hospitals more than doubled in 4 years from 14% in 2012 to 29% in 2016, the researchers write.

Whereas other studies have compared the costs of physician-owned with hospital-owned practices, this one also compares the costs with the quality measures.

The authors looked at insurance claims from 2014 through 2016 for Blue Cross Blue Shield of Texas (BCBSTX), which has 48% market share in the area, the authors report. Patients were aged 19 to 64 years and were continuously enrolled in a preferred provider organization (PPO) in the four largest metropolitan areas in the state.

"We ended up with a sample of 856,386 patients with BCBSTX PPO claims in at least one of the years between 2014 and 2016," Ho said.

Spending included all claims in a calendar year for each patient as well as deductibles and copayments. The researchers considered the amount allowed on each claim to be the price and adjusted for patient, physician, and geographic factors. The study excluded 3671 patients from the comparisons because they spent more than $100,000 in a year.

Hospitals, Ho said, will likely counter that they see sicker patients, but severity of illness is accounted for as well, she said.

The researchers measured quality using factors adapted from the Healthcare Effectiveness Data and Information Set (HEDIS): readmission within 30 days of hospital discharge; appropriate care for diabetic patients (screening for hemoglobin A1c and LDL cholesterol, and diabetic retinal examination); and whether women aged 50 to 64 years had appropriate screening mammograms. Ho said screening mammography was the only quality measure on which hospital-owned practices scored significantly higher.

The largest gaps where spending was higher for hospital-owned practices came from three areas: Spending on imaging was 13% higher (P < .0001); spending on durable medical equipment was 12.9% higher (P < .01); and spending on unclassified services (mostly operating and postoperative recovery room claims) was 21.4% higher (P < .0001).

Another problem driving up costs is the extra fees patients can incur when their doctor joins a hospital, she added.

"When a physician practice is acquired by a hospital — even though the patient is walking into the same physician's office — the provider can charge a much higher price and tack on a facilities fee associated with the hospital," Ho said.

Quantity vs Quality

Ho said affiliating with a hospital should logically provide economy of scale and reduce prices, but other factors are getting in the way.

"These are PPO claims — fee for service," she explained. "The providers are getting rewarded for quantity and not quality of care. Yet another reason why we should be moving toward value-based payment like accountable care organizations. You wouldn't have disincentives if most of the providers were ACOs. The majority of providers in Texas are not ACOs."

As for policy solutions, Ho said, easing reporting requirements and regulations may help solo practitioners or small practices keep from feeling they must join hospital systems to keep up.

"In the longer term," she said, "There need to be modifications in the current antitrust regulations to deal with this type of vertical integration."

One limitation of the study is that the authors did not have access to prescription drug claims, a factor that could affect results, the authors acknowledge.

Ho and coauthor Marah Short are supported by an AHRQ grant. Additionally, Ho reports she is a board member of Community Health Choice.

J Gen Intern Med. Published online September 3, 2019. Full text

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