The Impact of Physician Competition and Market Power on Medical Group Quality and Costs

We first examine the rapid increase in the consolidation of physicians from 2010 to 2016. We find that almost all of it is due to systems purchasing medical groups via vertical integration, and not due to the horizontal consolidation of groups or of systems. Next, we examine what impact this has had on the quality and costs of medical groups, using 2013-2015 Medicare Value Modifier QRUR data (Quality & Resource Use Reports) and IQVIA SK&A physician data. Using a semi-structural equation approach with a random utility model, we estimate the impact of willingness-to-pay (WTP) measures of physician market power on quality and costs, including interactions with ACO affiliation. We compare WTP with other market measures, such as the Dunn-Shapiro and Kessler-McClellan Herfindahl-Hirschman Indices (HHI) and multi-market contact measures. More market power and multi-market contact lead to worse readmission rates for the medical group. Preventable hospitalizations become worse as the Kessler-McClellan HHI increases. However, medical group costs decline with market power and HHI.