Hospital-Physician Integration and Health Care Spending
The degree of hospital-physician integration has been increasing, through both direct hospital acquisition of practices and tight, often exclusive contracting relationships. The effect of integration on health care spending is not clear. On one hand, integration could lower spending by improving care coordination and efficiency. On the other, integration may facilitate the use of incentives to provide more services and allow higher payments when services are delivered in hospital outpatient departments rather than physician offices. We examine the relationship between hospital-physician integration and spending for the care of patients treated by cardiologists.
Data and Methods
We identified about 22,000 cardiologists who billed for outpatient care in a 20% random sample of traditional Medicare enrollees between 2008 and 2011. For each cardiologist, we identified hospital affiliations in several ways, including the presence of billing codes for office visits provided in hospital outpatient settings, the use of hospital tax ID numbers on claims, and an indicator for whether a practice was owned by a hospital in SK&A physician survey data. For each physician, we identified his or her patients presenting in an outpatient setting for a new episode of care (~2.1 million episodes). We followed each patient for 90 days and measured total spending on outpatient care (including physician services and related facility charges), inpatient care (including physician services and related facility charges), and other services.
We estimated patient-level regressions in which the dependent variables are measures of spending and the independent variables are an indicator of for the physician being in a hospital-integrated practice, patient characteristics (age, sex, Medicaid status, comorbidities), physician characteristics (sex, years of experience), fixed effects for patient county of residence, and fixed effects for year. Some models include physician fixed effects, so that identification is based on variation over time in integration status for each physician.
Results:
90-day spending for patients presenting in an outpatient cardiology setting averages $4,700. Without physician fixed effects, patients of cardiologists in integrated practices spend about 7% more within 90 days of the initial visit than patients of non-integrated cardiologists (p<.01). In models with physician fixed effects, patients of integrated physician spend about 4% more (p<.01). About 2/3 of this is due to increases in hospital admissions and associated spending; the remainder is due to higher outpatient spending. The major drivers of higher outpatient spending are evaluation and management spending (primarily due to higher payments per service) and procedures (primarily driven by the quantity of services consumed).
Conclusions:
Hospital-physician integration is associated with higher spending. This is unlikely to be due simply to selection of high spending physicians into integrated arrangements. Results suggest that integrated relationships allow providers to take advantage of higher payments when services are provided in outpatient departments as opposed to physician offices, and that integration may lead to increased use of outpatient procedures and inpatient services. Policies that would affect the amount of integration in the future should consider the effects on spending as well as other aspects of health care delivery.