The impact of provider consolidation on outpatient cancer care spending

This paper examines whether oncology practice consolidation increases per person spending on outpatient cancer treatment among commercially insured patients. Consolidation may lead to economies of scale, particularly in the identification and dissemination of best practices and reductions in unnecessary care, resulting in reduced spending. Alternatively, consolidation may allow outpatient practices and/or hospitals to gain bargaining power in negotiations with insurers, pushing up prices and spending. We focus on consolidation in the supply of outpatient cancer care since spending on outpatient cancer treatment (e.g. radiation therapy, day surgery, chemotherapy) appears to be outpacing spending on all other diseases. Use of these services is largely under the discretion of physicians. Prices of these services are also under physicians’ discretion since care covered under patients’ medical insurance benefits is largely paid under fee for service contracts. We take advantage of recent consolidation in outpatient oncology care to examine between and within market changes in spending and price. To estimate the causal effect of increasing concentrations of outpatient oncology providers on spending and price of care we employ fixed effects and instrumental variable estimation strategies. We use national data collected by 2003-2013 SK&A Office-based Physician and Hospital Database to measure outpatient oncology provider consolidation, and employ a U.S. Census Bureau defined geographical unit of analysis called a “Core Based Statistical Area”. We use 2008-2012 Health Care Cost Institute (HCCI) member enrollment and outpatient medical, inpatient medical and pharmacy claims to measure CBSA level prices and spending on outpatient cancer-specific chemotherapy.  We link HCCI claims to SK&A at the CBSA level. We use person-year level ICD-9 codes describing primary sites of cancer origin. Inflation adjusted prices and per person spending by year are identified for a set of specific CPT codes: (1) Office visits for evaluation and management; (2) Infused or injected chemotherapy and other highly complex drug or highly complex biologic agent administration; (3) Pharmacy dispensed drugs to treat cancer and/or symptoms. (4) Total (1-3 combined). Significant consolidation among outpatient oncology practices (horizontal integration) and between outpatient oncology practices and hospitals and/or health systems (vertical consolidation) has occurred in CBSAs between 2003 and 2014. A significant increase in vertical consolidation among outpatient oncology providers and health systems occurred between 2010 and 2011. Markets with more vertically consolidated providers charge higher prices compared to less vertically integrated markets. Markets with more horizontally and vertically consolidated providers spend more on drug-based treatment compared to less consolidation markets, due to differences in the intensity of treatment, including chemotherapy drug mix. Markets undergoing consolidation do not experience increases in prices charged to insurers, compared to markets without changes in provider consolidation. These results are robust to adjustments for population size, cancer type and commercial insurer market power (measured using Healthleader’s Interstudy data). Provider organization influences spending on cancer treatment; more concentrated provider markets spend more than less concentrated markets. However, antitrust fears related to increases in provider consolidation may be unfounded, since provider consolidation does not appear to increase the prices of outpatient cancer treatment.