The number of doctors employed by hospitals has grown in recent years. By one estimate, from 2002 to 2008, the share of physician practices owned by hospitals grew from 20% to 50%. The trend could be good for patients if hospital-physician integration improves coordination and care. But it could also lead to greater provider market power and higher prices.

Many studies suggest that it does so.

Across several papers, Laurence Baker, M. Kate Bundorf, and Daniel P. Kessler have been examining the issue. In one, published in 2014 in Health Affairs, they found that when hospitals that own physician practices have greater market share, the prices paid to them by private plans is higher, though there is also a small drop in the frequency of hospital admissions.

Another concern is that when physicians are closely aligned with certain hospitals, they are more likely to refer patients to those hospitals regardless of their quality or cost. This may benefit the employing hospitals, but not necessarily patients or payers. Ideally, patients would prefer their physicians recommend the highest quality hospital. And, ideally, payers would prefer they recommend lower cost ones. The hospital at which the patients physician is employed may be neither of those.

Recently, the three Stanford researchers examined the effects of physician employment by hospitals on patient choice of hospital. They used data from 2009, matching over 400,000 office-based physicians with their hospital employment status. Using Medicare claims data, they studied which hospital patients who did and did not see a hospital-employed physician chose within the set of hospitals they could have chosen for an admission. (The set of hospitals a patient could have chosen includes those within 35 miles of his or her residence or 100 miles for teaching hospitals.)

They found that patients are 1.1 percentage points more likely to choose a hospital that employs physicians than one that does not. If, in addition, the patient's own physician is employed by any hospital, the effect is three times larger. Patients are an additional 33.4 percentage points more likely to choose the particular hospital that employs their physician than another.

This would all be fine if it meant patients were steered to higher quality, lower cost hospitals. But they're not. According to the study, the hospital at which patients are more likely to end up is a higher cost and lower quality one when their physician is employed by it. The quality result is dependent on methodological details and is not as robust as the cost result.

It's important to note that none of this necessarily means that patients are worse off when their physician is employed by a hospital. Patients may pay very little of the additional cost incurred due to referral to higher cost hospitals. For Medicare, it's taxpayers who are on the hook, for example. If patients are referred to broadly lower quality hospitals, it's still possible that the quality for their particular conditions is not lower.

Still, what the results suggest is that higher cost and lower quality hospitals benefit from additional volume when they employ physicians. A well functioning market would do just the opposite.

Austin Frakt
Author, Committee Member, Member

Austin Frakt, Ph.D.

The Incidental Economist Chair, Translation and Dissemination Institute Advisory Committee

Austin is a health economist and researcher; the creator, co-manager, and a primary author of The Incidental E... Read Bio