There's little disagreement that health care providers are consolidating. I do not detect a similar degree of agreement about the consequences.
Hospitals and other providers tend to justify consolidation on the grounds that it will improve quality and reduce costs. For years, health policy experts viewed such claims skeptically.
Last summer, Thomas Tsai and Ashish Jha reminded us that there is little evidence that consolidated hospitals improve quality. Quality improvement comes not from size, but from leadership, they wrote. Indeed, work by Jha, and other work by K. John McConnell and others suggests that hospitals boards, CEOs, and other levels of management can play key roles in quality improvement. Moreover, hospitals facing greater competitive pressure have better management practices. In a broad review of the evidence, Martin Gaynor and Robert Town found that, in general, when hospitals consolidate prices go up and quality suffers.
More recent work, published in JAMA, suggests that when they consolidate, "health care organizations and perhaps physicians benefit, in the form of higher prices," David Cutler wrote in an accompanying editorial. Notice that he did not mention patients. Robinson and Miller examined the effects of California hospitals' and hospital systems' acquisition of physician groups between 2009 and 2012 to see if their prices were higher than those of groups owned by participating physicians.
After adjusting for patient severity and other factors over the period, local hospital–owned physician organizations incurred expenditures per patient 10.3% (95% CI, 1.7% to 19.7%) higher than did physician-owned organizations (adjusted difference, $435 [95% CI, $105 to $766], P?=?.02). Organizations owned by multihospital systems incurred expenditures 19.8% (95% CI, 13.9% to 26.0%) higher (adjusted difference, $704 [95% CI,$512 to $895], P?<?.001) than physician-owned organizations. The largest physician organizations incurred expenditures per patient 9.2% (95% CI, 3.8% to 15.0%, P?=?.001) higher than the smallest organizations (adjusted difference, $130 [95% CI, $?32 to $292]).
The analysis did not consider quality. So, at best, one might be able to say that the increase in costs were worth it because of higher quality. But, again, prior work does not suggest that consolidation would result in such an outcome.
A different study by Baker et al. examined the relationship between competition among physician practices to prices paid by PPOs for office visits in urban areas. They found that the prices paid in the most highly concentrated areas for orthopedics and internal medicine visits were $5.85 and $11.67 higher, respectively, than those in the least concentrated areas. Prices rose more between 2002 and 2010 in less competitive areas as compared to more competitive ones.
As Cutler wrote, it very well may be that "consolidating institutions are more efficient" but "they pocket the difference between higher prices and lower underlying costs." Clearly this is of great benefit to those institutions. But what about patients?
Naturally, the hope is that new payment structures encouraged by the ACA will promote lower prices — which would benefit patients if insurers pass them along in lower premiums — even as they promote consolidation. For example, analysis by Zirui Song and colleagues of Blue Cross Blue Shield of Massachusetts' "Alternative Quality Contract" — an ACO-like initiative — found that it was associated with spending reductions and improvements in quality after four years. Recent evidence on Medicare A.C.O.'s is also encouraging, though more rigorous analysis is still needed to draw firm conclusions.
Some, like David Cutler and Peter Orszag, are optimistic that changes like these and others will offset the cost- (or price-) increasing effects of consolidation and improve quality. Others are less certain. Who is right? I will withhold judgement and wait for evidence.
Austin B. Frakt, PhD, is a health economist with the Department of Veterans Affairs and an associate professor at Boston University’s School of Medicine and School of Public Health. He blogs about health economics and policy at The Incidental Economist and tweets at @afrakt. The views expressed in this post are that of the author and do not necessarily reflect the position of the Department of Veterans Affairs or Boston University.