The Effects of Hospital Consolidation on Labor Market Outcomes

Anecdotal evidence suggests that the market for physician services is undergoing substantial changes, leading to a greater concentration of supply. These changes are marked by mergers among physician groups, acquisition of physician groups by hospitals, and an increase in the number of individual physicians employed by hospitals.   

The economic implications of this consolidation are complex.  On the one hand, this consolidation could facilitate greater efficiency and improved quality.  It may foster the formation of accountable care organizations and entities that invest in care coordination, quality improvement processes, and information systems in preparation for significant financial risk-bearing.  On the other hand, this consolidation may also increase bargaining leverage and raise prices.  Such concerns led the Federal Trade Commission to challenge recent physician transactions, including the acquisition by a hospital system of a large primary care physician group practice in Idaho.

In contrast to the literature on hospital integration, relatively little empirical work has addressed the impact of physician reorganization.  This dearth of research is partly explained by the fact that these organizational changes are a relatively new phenomenon.  An equally important explanation is that there is a lack of data on the organizational characteristics of physician practice, including hospital acquisition and employment.

In its first phase this study develops a methodology for measuring different organizational arrangements, with the goal of documenting changes over time and across markets and selected physician specialties.  The study distinguishes among different types of organizational changes, such as group consolidation, hospital acquisition, or direct employment.  We rely on multiple data sources, including private health plan data from several states, to measure physician arrangements for two selected specialties that are often pointed to as prime examples of consolidation cardiology and orthopedics). We measure both horizontal and vertical changes in physician group structure and examine differences across data sources, including tax ID from claims, national datasets, and local input from health plan contractors.  In the second study phase, we investigate the extent to which increased consolidation has affected physician market outcomes.