Hospital ownership of physician practices appears to lead to statistically and economically significant increases in hospital prices and spending, according to a study published earlier this year in Health Affairs. But that doesn't mean providers should retreat from integration and tighter alignment.
The Health Affairs analysis suggests that the promise of lower hospital utilization as a result of better patient information flow and coordination of care is yet to be realized, said Laurence C. Baker, PhD, professor of Health Research and Policy and Health Policy Fellow at Stanford University
"Having more fully integrated organizations in an area doesn't really change the rate at which people go to the hospital, but the hospital is getting paid more per person who comes in," said Baker, one of the authors of the study, Vertical Integration: Hospital Ownership of Physician Practices Is Associated with Higher Prices and Spending, He said more investigation must be done and opportunities explored around how to balance the hoped-for benefits of a more integrated health system and the increased marketing power that may come with it.
"We thought if there were really important changes in the type of care being delivered, we might have seen changes in hospitalization rates that may be associated with quality of care," he noted. "There might be some benefits that come with full integration, but to the extent we can look at it – which is still fairly fuzzy – we don't see that yet."
Yet Baker said the study also found that increases in looser forms of vertical integration did not appear to increase prices or spending significantly, and may even decrease hospital admission rates. "This suggests to us that the details of how organizations are integrated matter. If we want to have our cake and eat it too, we need to find ways to get the benefits of integration but avoid the downside of pricing problems," he said.
As Baker points out, metrics such as inpatient hospitalizations may decline once gaps are better sealed between physician practices and the hospitals with whom they integrate. There is room for improvement in various areas, said Anthony Long, principal at Pinnacle Healthcare Consulting. Long referenced information technology as an example. "As an industry, we continue to be challenged with information technology and being able to capture and gather data in a format everyone can work with and understand, especially in the ambulatory environment," he said.
Hospitals and physicians, he added, have quickly become partners, "and that's more difficult to manage than if we were always partners. But that just hasn't been the historical approach." It's better to plan ahead for this new world than jump in, he advises, which means taking into account everything from aligning information across hospitals and practices, to aligning compensation plans for hospital executives and physicians to be more quality- and outcome-driven, and defining a clear strategy about goals and what success means.
Integration trend to continue
Consolidation and convergence is happening for many reasons, including participation in accountable care organizations (ACOs), bundled payment initiatives and other new reimbursement models. "You can't do that unless you are tightly aligned with physicians, and one way of doing that is by buying practices," said Mitch Morris, national leader for the healthcare provider sector at Deloitte. The firm's recent research, Physician-Hospital Employment: This Time It's Different, shows that medical group acquisition deals by hospitals and integrated delivery systems grew 139 percent from 2010 to 2011, and the Deloitte Center for Health Solutions' 2013 Survey of U.S. Physicians found that 66 percent of respondents expect physician-hospital integration to increase in the next one-to-three years.
While it's been said that higher profits are the prime consolidation driver, "the majority of health systems are nonprofit and many are under intense financial pressure, so achieving scale along with other capabilities allows them to avoid going broke, to remain viable for their patients and communities," Morris said. Healthcare leaders know there is a lot of work to be done to achieve the hoped-for benefits of integration in areas such as better coordination of care, as well as lowering the costs of care, he said.
"When I talk to hospital executives, on the agenda for them is how to lower the cost of care," said Morris. "They know it's too expensive and the system is broken, and they are trying to fix the system, not squeeze more out of it. They believe true consolidation and convergence is a major way to do that."
There's no doubt that striking a balance between increased pricing power and systems integration is a challenge, and not one that's being ignored. "I am sure," said Baker, "that hospitals and doctors are thinking a lot about how to work out healthcare delivery models."