The Impact of Integration on Outpatient Chemotherapy Use and Spending in Medicare

Hospital-physician integration has substantially grown in the US for the past decade, particularly in certain medical specialties, such as oncology. Yet evidence is scarce on the relation between integration and outpatient specialty care use and spending in Medicare. We analyzed the impact of oncologist integration on outpatient provider-administered chemotherapy use and spending in Medicare, where prices are fixed and do not depend on providers’ negotiating power. However, Medicare payments for outpatient services differ by location of care. Medicare pays more when the service is offered in hospital outpatient departments (HOPDs) than when the service is given in physician offices (Offices). In addition, Medicare allows practices acquired by a hospital to be re-classified as HOPDs. Thus, services offered by acquired physicians can be billed as HOPD care even when they are performed in Offices. This creates incentives for integrated providers to choose a higher-paid site, which in turn increases Medicare spending on outpatient care. We investigate how integration changes utilization and spending on chemotherapy services. Analyzing utilization is important because it assess whether spending impacts of integration are driven by utilization changes versus payment effects, and thus helps identify mechanisms by which integration affects spending.

The study population is a random sample of Medicare beneficiaries who had cancer between 2009 and 2013 and who received provider-administered outpatient chemotherapy. We used Medicare claims data and obtained information on provider integration from SK&A data by Quantile/IMS. We addressed oncologists’ selective integration and patients’ non-random choice of oncologists using a difference-in-differences (DD) approach and an instrumental variables (IV) analysis. In all analyses, we used oncologist fixed effects and clustered standard errors within oncologists.

We measured five outcomes of chemotherapy services at the patient-year level: frequency of chemotherapy drug claims; frequency of chemotherapy administration claims; chemotherapy drug spending; and chemotherapy administration spending. We also created a “treatment mix” variable – spending per chemotherapy drug claim – to examine whether integrated providers used more expensive drugs.

We found that integrated oncologists reduced the quantity of outpatient chemotherapy drugs but used more expensive treatments. This led to an increase in chemotherapy drug spending after integration. These findings suggest that changes in treatment patterns – treatment mix and quantity – may be an important mechanism by which integration increases spending. We explored the implication of high treatment mix for patient care and found that integration did not improve patient outcomes. We also found that integration increased spending on chemotherapy administration. This is because integration shifted billing of chemotherapy to hospital outpatient departments, where Medicare payments for chemotherapy administration are higher than those in physician offices.

As integration increases, efforts should continue to assess how integration influences patient care and explore policy options to ensure desirable outcomes from integration.