Provider Consolidation Often Leads to Physician Price Increases

Charlie Plain | August 16, 2017

Across the U.S, large, hospital-based health systems frequently acquire smaller physician and clinic groups in order to offer new services, gain patients, and meet performance mandates of the Affordable Care Act. But a new study from the School of Public Health shows that the acquisitions often lead to higher prices for services in those newly acquired clinics and across the health system.

“When prices go up for a system-wide cause like provider consolidation, then insurance premiums will go up — and customers will ultimately pay the bill,” says study co-author Professor Bryan Dowd.

The study, conducted jointly with Professor Emeritus Roger Feldman and lead author Caroline Carlin of the Medica Research Institute, was published in the journal Health Economics.

Large health systems acquire smaller clinics because it allows them to “buy in” to geographic areas or medical specialties where they want to compete for business. The smaller medical groups often find the sale of their practice attractive for various reasons, including gaining access to expensive electronic medical record systems and other financial and infrastructure resources.

While health systems may suggest that such acquisitions lead to economies of scale and less expensive care, the researchers found that in recent examples of provider consolidation in the Minneapolis-St. Paul area, it’s just not the case.

In those examples, the study showed that prices in the acquired clinics went up 32-to-47 percent, and 14-to-20 percent in clinics that the health systems already owned.

According to Dowd, the reason why has to do with the payment deals health systems broker with insurance carriers.

The prices charged for medical services are negotiated between what the health system wants to charge and what the insurance company is willing to pay. When a health system buys a clinic group, it gains what economists call market pricing power due to the increased portion of the clinics and patients under its care in the market area. This means the health system often can raise its prices because the insurance carrier has fewer alternative places to send its enrollees for potentially cheaper treatment.

The increased payments to doctors and hospitals by health insurance companies are then passed on to consumers in the form of higher premiums.

Dowd said that among policymakers, state attorney general’s offices in particular should be aware of this dynamic. “They should be much more skeptical about proposed clinic acquisitions and weigh the benefits of provider consolidation much more carefully against the costs.”

Dowd and his colleagues have previously explored other effects of provider consolidation, including its influence on quality of care and changes to patient physician referral patterns.

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