Has the Massive Consolidation of Physicians Produced Cost-Savings? A National Snapshot From the MEPS’ Medical Organizations Survey.

While it is well known that medical groups have rapidly consolidated, no one has yet examined this from a national perspective. Using IQVIA OneKey data of all US physicians, we find a major shift in the concentration of owners by 2018. In 2010 29% of primary care physicians were owned by 1% of the owners of primary care, and 46% owned by 5%, while in 2018 46% of primary care was owned by 1%, with 62% owned by 5%.

To evaluate the impact of this on the patient, we examine the 2015 AHRQ Medical Organization Survey (MOS), a nationally representative survey of all patients visiting their usual source of care, linked to the Medical Expenditure Panel Survey (MEPS) and IQVIA OneKey. We use the FTC’s recommended measure of consolidation, or market power (MP): the consumers’ willingness-to-pay to keep the medical group in their choice set. This is preferred since this MP represents the group’s bargaining power vis-a-vis the insurer. We use a structural model with MP estimated from a random utility model of consumer choice of physician and with expenditures estimated from two-part consumer spending models. As expected, we find that an interdecile increase in MP leads to 25% higher expenditures per primary care office visit, with no change in number of visits, among the privately insured. However, this is offset by reductions in outpatient hospital visits and reductions in inpatient length of stay. Overall, an interdecile increase in MP is associated with 17% lower annual medical expenditures per privately insured patient. This may be due to the quality and effort of clinical integration increasing with MP, or due to medical groups with low cost populations being selected for purchase by large systems. However, if such a selection effect occurred, we would expect expenditures for public-pay patients in these groups to also decline with MP. But, we find no association between MP and expenditures among public-pay patients, suggesting that consolidation does perhaps lead to more private payer cost containment. This is similar to Franzini et al (2010) who found that private costs are often contained locally without a similar effect on Medicare costs.

We find that these overall cost-savings are “protected” by a significant level of medical group competition among owners/systems. Keeping MP fixed, if medical group competition is eroded, we find that the cost-savings are diminished by higher hospital utilization. An interdecile increase in the medical group Herfindahl-Hirschman Index (HHI, derived from random utility models) is associated with 11% higher medical spending per privately insured patient.

In conclusion, while MP may be capturing some element of clinical integration tied to offering the network a cost-saving medical group (in exchange for a higher physician price) in insurer bargaining, market HHI still performs as the best measure that captures the anticompetitive effects of consolidation on utilization (beyond the effects of higher prices).