Public Release: 

Study examines differences between types of physician practice ownership and expenditures

The JAMA Network Journals

From the perspective of the insurers and patients, between 2009 and 2012, hospital-owned physician organizations in California incurred higher expenditures for commercial health maintenance organization enrollees for professional, hospital, laboratory, pharmaceutical and ancillary services than did physician-owned organizations, according to a study in the October 22/29 issue of JAMA.

Hospitals and multihospital systems are acquiring medical groups and physician practices as part of a strategy to build integrated delivery systems capable of providing the full range of professional, facility, laboratory, and pharmaceutical services to affiliated patients. This consolidation may foster cooperation and thereby reduce expenditures, but also may lead to higher expenditures through greater use of hospital-based ambulatory services and through greater hospital pricing leverage against health insurers. The policy debate about consolidation has gained new policy attention due to the financial incentives provided by the Affordable Care Act for physicians to join hospital-affiliated accountable care organizations, according to background information in the article.

James C. Robinson, Ph.D., M.P.H., of the University of California, School of Public Health, Berkeley, and Kelly Miller, B.A., of the Integrated Healthcare Association, Oakland, conducted a study to determine whether total expenditures per patient were higher in physician organizations owned by local hospitals or multihospital systems compared with physician organizations owned by participating physicians. Data were obtained on total expenditures for the care provided to 4.5 million patients treated by integrated medical groups and independent practice associations in California between 2009 and 2012.The patients were covered by commercial health maintenance organization (HMO) insurance and the data did not include patients covered by commercial preferred provider organization (PPO) insurance, Medicare, or Medicaid.

Of the 158 organizations, 118 physician organizations (75 percent) were physician-owned and provided care for 3,065,551 patients, 19 organizations (12 percent) were owned by local hospitals and provided care for 728,608 patients and 21organizations (13 percent) were owned by multihospital systems and provided care for 693,254 patients. The researchers found that the average expenditure per patient across all physician organizations increased by 16.5 percent between 2009 and 2012, from $2,954 to $3,443. By 2012, expenditures per patient had increased to an average of $3,066 in physician-owned organizations, $4,312 in local hospital-owned organizations, and $4,776 in multihospital system-owned organizations. These represent a 40.6 percent relative difference in expenditures per patient associated with hospital ownership and 55.8 percent relative difference associated with ownership by a multihospital system compared with ownership by member physicians.

After adjusting for patient severity and other factors over the period, local hospital-owned physician organizations incurred expenditures per patient 10.3 percent higher than did physician-owned organizations. Organizations owned by multihospital systems incurred expenditures 19.8 percent higher than physician-owned organizations. The largest physician organizations incurred expenditures per patient 9.2 percent higher than the smallest organizations.

"These findings are in contrast to the hope and expectation that organizational consolidation of physicians with hospitals would result in greater coordination, and hence lower expenditures. Policymakers must strive to ensure that hospital acquisition of medical groups and physician practices does not lead to higher expenditures. Antitrust law and policy need to find the appropriate balance between permitting hospital acquisitions that improve efficiency, on the one hand, and preventing acquisitions that increase expenditures, on the other. Reform of payment methods by Medicare and private insurers should focus on the total expenditures made on behalf of patients by the physicians and facilities involved in their care to promote coordination but also to create incentives for efficiency and price reductions," the authors write.

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(doi:10.1001/jama.2014.14072; Available pre-embargo to the media at http://media.jamanetwork.com)

Editor's Note: Support for this research was obtained from the Robert Wood Johnson Foundation. Please see the article for additional information, including other authors, author contributions and affiliations, financial disclosures, etc.

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