The Impact of ACO Physician-Hospital Integration on Healthcare Spending and Utilization

Rationale

Accountable care organizations (ACOs) are expected to bend the spending curve through better management and coordination of health services rendered by providers across settings. It is argued that vertical integration between physicians and hospitals better equip ACOs to achieve this goal. However, evidence on reduced medical expenditure from provider integration is limited.

Objective

To evaluate the association between physician-hospital integration and healthcare spending and utilization of ACO patients.

Methods

In 2009, a private carrier in Massachusetts launched an ACO-like contract with providers. The organizational structure of participating entities varies; some consist of physician groups alone, while others include both physicians and hospitals. These Massachusetts commercial ACOs are an ideal sample for studying the impact of integration on ACO performance because they are subject to similar contract terms and operate in the same state, significantly reducing heterogeneity. Sixteen organizations entered the contract between 2009 and 2013.

We selected nonelderly enrollees in health-maintenance-organization or point-of-service plans with the carrier and served by one of the sixteen ACOs. The study sample included 516,413 Massachusetts residents aged 18 to 64.

We defined integration level by the proportion of PCPs in an ACO who exclusively billed outpatient care services with a hospital outpatient department (HOPD) code, suggesting employment or practice ownership by a hospital. We used generalized linear models to compare outcomes of individuals served by low- versus high-integrated ACOs, adjusting for patient demographic and clinical characteristics, county and year fixed effects, ACO features, and zip-code socioeconomic status. Given that patients have a choice of providers, we adopted an instrumental variable (IV) approach to account for potential selection bias resulting from systematic unobserved differences in patient cohorts across providers by integration level.

Outcomes

Outcomes are annual spending on and utilization of inpatient and outpatient care services. Inpatient care includes admissions to a general acute-care hospital; outpatient care covers visits to a doctor’s office or HOPD. Spending measures comprise insurer reimbursement and patient out-of-pocket payments and are adjusted for inflation. Overall spending is the sum of inpatient and outpatient care spending. For utilization, we counted numbers of corresponding services for each enrollee in a given year.

Results

42% of the study sample were served by six high-integrated ACOs.

Physician-hospital integration is associated with increased overall healthcare spending. Annual medical spending among high-integrated ACO members was 6.9% (p<0.001) higher, compared to those served by low-integrated entities. The observed higher expenditure was mainly driven by spending on outpatient care. High-integrated ACO serving members had 8.9% (p<0.001) higher expenditures on ambulatory care, equivalent to an increase of $181 per person-year. However, there was no significant difference in inpatient spending.

Higher integration is associated with a reduction in utilization of inpatient and outpatient care by 20.4% (p<0.001) and 6.1% (p<0.001), respectively. The estimated decreases are equivalent to an annual reduction of approximately ten hospitalizations per 1,000 individuals and roughly half a visit per person.

Conclusions

Higher integration was associated with reduced utilization of ambulatory care services but higher outpatient spending, implying the observed higher expenditures might result from higher prices.