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Hospital Consolidation Drives Up Medicare Costs, Study Finds

Hospital Consolidation Drives Up Medicare Costs, Study Finds

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Consolidation of hospitals and their increasing employment of physicians have combined to drive up Medicare costs, researchers found.

For four services — colonoscopy, arthrocentesis, echocardiogram, and diagnostic cardiac catheterization — Medicare paid $2.7 billion more from July 2012 through December 2015 because the services were performed in hospital outpatient settings rather than in independent physician offices, and beneficiary copays were a total of $411 million higher, the analysis found.

The analysis was conducted by Avalere, a healthcare consulting firm, and funded by the Physicians Advocacy Institute (PAI), a group whose mission is “to advance fair and transparent payment policies and contractual practices by payers and others in order to sustain the profession of medicine for the benefit of patients,” according to its website.

“Our previous study showed [an increasing] transition of physicians from an independent setting to a hospital setting, so as hospitals are getting bigger and employing more physicians, more of these procedures are getting done in the hospital, costing Medicare and patients more,” Matthew Katz, a member of the PAI board of directors, said in a phone interview. “We’re not seeing the economies of scale that one would expect.” He noted that the previous PAI analysis found a 49% increase between 2012 and 2015 in the number of physicians who were employed by hospitals.

Katz, who is also executive vice president and CEO of the Connecticut State Medical Society, stressed that his organization is not taking a position on hospital consolidation. “We represent physicians regardless of setting, specialty, or size of practice,” he said. “So we’re not suggesting that one mode or type of practice is better or worse than any other; we’re just looking at what’s happening in the marketplace … and how it’s impacting physicians.”

Indeed, he added, “We didn’t say whether [the hospital setting is] providing better or worse quality; we simply said that using the volume and reimbursement information from Medicare, we were able to show increased costs … Someone may need to look at whether, with increased cost, there are improvements in quality or not.” The shift could be beneficial if it leads to improved quality and decreased costs in the long term, he suggested.

The results do raise the issue of whether reimbursement policy needs to be changed, Katz said. “It begs the question of whether we’re too late or whether there is still time to make adjustments, or if there is a perverse incentive to employ physicians to steer patients to more costly care delivery.”

“In the most recent final [hospital payment] rule, Congress did make changes in reimbursement for services performed off-campus in hospital-owned facilities,” in order make the payments more “site-neutral,” he continued. “But is it too little, too late?”

There are several reasons that more physicians have become employed by hospitals, said Kelly Kenny, PAI’s executive vice president and CEO, in a phone interview. “Physicians are burning out; they are inundated with administrative burdens. Independent physicians also have less and less ability to negotiate on a level playing field with private insurers; that’s becoming a problem. Hospitals, who wield more bargaining power, are able to do more negotiating, especially with private payers, and physicians are finding the employment alternative attractive … They are able to focus on what they went into medicine for, which is providing good care to their patients.”

Claims data for the study came from a subset of the Medicare 5% Sample Limited Data Set Standard Analytic Files, which included all covered Part A and Part B services provided from July 1, 2012 through Dec. 31, 2015. Information on practice ownership came from an SK&A database extract of physician practice ownership information for seven time points from July 2012 through July 2015.

When asked to comment on the study’s findings, the American Hospital Association pointed to its own study, released earlier this year, which found that hospital mergers resulted in significant cost savings and quality improvements. “An empirical analysis showed a 2.5% reduction — equating to $5.8 million — in annual operating expenses at acquired hospitals,” the AHA said in a press release. “Mergers have the potential to drive quality improvements through standardization of clinical protocols and investments to upgrade facilities and services at acquired hospitals.”

In addition, “Revenue per patient admission also declines in a statistically significant manner (3.9%) following a merger, which runs counter to the findings of research linking higher hospital concentration with higher prices paid by insurance plans after some hospital mergers,” the study authors wrote.


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