Physician-Hospital Integration in California

An article in this week’s JAMA examines the effect vertical integration between hospitals and physician groups has on spending.

Provider consolidation throughout the 1990s and 2000s has been well documented and is largely believed to be a significant factor in the steady price increases experienced throughout both decades. A 2012 paper from Catalyst for Payment Reform does an excellent job of providing background, documenting the rise in market concentration of hospitals, and laying out potential solutions.

While a significant portion of the literature has focused on consolidation among hospitals, there has also been a dramatic increase in the number of physicians and physicians groups employed by hospitals — essentially vertical integration. The author’s analysis seeks to provide data on what effect this level of vertical integration is having on expenditures in California.

The article finds that in 2012 physician-owned physician groups had mean expenditures of $3,066 per patient per year, versus $4,312 per patient per year for hospital-owned physician groups. After patient heath, regional variation, and organizational characteristics were controlled for the differential dropped, but was still significant: an additional $435 for local hospital owned groups and $704 for multi-hospital groups.

While physician-hospital integration is frequently seen as being associated with better quality, these results show it also comes with significantly higher costs.