The Effect of Hospital Acquisitions of Physician Practices on Prices and Spending

One of the most important recent trends in the U.S. healthcare industry is hospital acquisition of physician practices.  From 2007 to 2013, nearly ten percent of physicians in our sample were acquired by a hospital, increasing the share of physicians that are hospital owned by over fifty percent.  Supporters of hospital-physician integration argue that it offers the promise of significant cost savings while opponents raise concerns that integration will result in higher prices.  Despite the heightened interest in hospital/physician integration, the research evidence is mixed and of questionable quality.  Prior studies suffer from significant data problems that we overcome by using administrative claims data provided by one or more anonymous insurer(s) operating in a number of states.  With our data, we are able to (a) identify physician integration at the level of the individual practice, (b) study provider transaction prices before and after integration, and (c) examine broader medical spending.   We find that, on average, physician prices increase nearly fourteen percent post-integration, roughly a quarter of this increase is attributable to the exploitation of payment rules, and that price increases are larger when the acquiring hospital has a larger share of its inpatient market.   We find no evidence that integration leads to reductions in spending, even four years post-integration.