Study: Hospital-doctor hook-ups swell prices

When hospitals acquire physician practices, they end up gaining market share, and as they gain market share, they charge higher prices.

That’s what researchers at Stanford University reported in an article in the latest issue of the Health Affairs journal.

I found the article, which does not specifically focus on Indiana or Indianapolis, relevant to the local health care scene. That’s because there has been a wave of physician employment by hospitals, which has contributed to some notably large pay packages for key physicians.

Among Indianapolis hospital systems, Franciscan St. Francis Health employs more than 200 doctors, Community Health Network employs more than 500 , St. Vicnent Health about 800 and Indiana University Health nearly 1,500.

The article found that hospitals with “fully integrated” or employed physicians, were able to raise hospital prices more than three times faster than those that merely had contracts with independent physicians.

The study was based on private health insurance claims data from 2001 to 2007, a period that roughly coincided with a doubling of physician employment by hospitals. And that employment trend has only picked up more steam since then.

Obamacare is likely to push hospital employment of physicians even further.

The study did find some evidence to support the usual rationale for hospital-doctor hookups: that they will allow for greater coordination of patient care, which will keep patients healthier and out of the hospital. The Stanford researchers found that fully integrated hospital systems did reduce patient volumes at the hospital—but not significantly more than other kinds of hospital systems.

“The message from the study confirms that when doctors and hospitals merge, it may not be in consumers’ best interest,” Daniel Kessler, a law and health policy professor at Stanford, who was one of the co-authors of the study, told Kaiser Health News.

It’s worth pointing out that from 2001 to 2007, hospitals were not trying—to the extent they are now—to use physician integration as a way to reduce spending. So it’s possible the results of the recent wave of hospital-physician integration will lead to different results this time.

There is a bit of evidence here in Indianapolis that hospital systems are using employment of physicians to achieve savings for Medicare and private health insurers under so-called “accountable care" contracts.

Other hospital systems are pushing bundled payments—especially for joint replacement surgeries—and say employing physicians is the only way to do so without running afoul of federal anti-kickback statutes that limit physician referrals to health care entities in which they have a financial interest, unless the physicians are employed by that entity.

"Federal statutes have historically outlawed the level of collaboration necessary to establish an effective bundled payment program," IU Health spokesman Gene Ford told me in March.

But it’s also worth reminding ourselves of the millions of dollars in extra money that has been coming to hospitals merely because they declared their employed physicians’ offices to be part of the hospital.

And not only that. There are millions of dollars in downstream referrals that hospitals can capture by pressuring their employed physicians—verbally and, in some cases, with financial incentives—to limit their “leakage” of patients outside the hospital system.

The Stanford study shows that when hospitals have the market power to do so, they use it to increase prices. As large-scale business enterprises, they would be expected to do no less.