Is Hospital Ownership of Practices Driving Up Prices?

Laser Vein Center

There has been a huge rise in the number of doctors’ practices being purchased by hospitals. In fact, the number has more than doubled between 2002 and 2008. This movement toward vertical integration between hospitals and practices means there are more service providers that at one time were independent, and now are related by contract or commonly owned.

There is some debate as to whether this is actually beneficial to patients. On one hand, the integration may provide improvements to efficiency and quality of care by reducing transaction costs. Also, the closer ties between physicians and doctors could improve communications that would lead to a reduction in test duplication.

On the other side, the integration could potentially hurt patients as it allows hospitals and physicians to raise overall prices. By employing or contracting physicians, hospitals can increase market share because they have greater control over a higher number of services. This integration also has the potential of increasing the incentivizing or providing kickbacks to doctors, who may then request unnecessary treatments or tests. Of course, this is illegal, should these incentives be presented formally.

It appears that this vertical integration has both beneficial and harmful effects. Across the board, there is agreement that it does provide better coordination between doctors and hospitals that in turn provides better patient care. On the other hand, health policy analysts are concerned that there are consequences to the integration. As we previously stated, there is the increase in marketing power, as well as the encouragement to provide inappropriate or unnecessary treatments to increase a doctor’s income.

The understanding of all the potential effects is becoming very important. For instance, the Affordable Care Act provides incentives to could lead to more vertical integration because it encourages hospitals and doctors to create accountable care organizations (ACOs). While ACOs are usually only affected by how Medicare payments are made, it is believed that ACOs will also increase how doctors and hospitals also negotiate with private purchasers of services.

There are social benefits, as studies have indicated that in addition to better coordination, there could be a decrease in hospital admissions. There are several studies currently being conducted to look at all of these benefits and concerns, as this is a very important topic for both consumers and healthcare providers.