Expenditures may be higher in hospital-owned versus physician-owned organizations

Organizations owned by hospitals or multihospital systems had higher expenditures over a 3-year period than organizations owned by physicians, according to a new study.

Researchers used data on total expenditures for care of 4.5 million patients in California from 2009 to 2012 to compare costs of care at integrated medical groups and independent practice associations owned by hospitals or hospital systems versus those owned by participating physicians. All patients whose cost data were included in the study were covered by commercial HMOs; no patients covered by preferred provider organizations (PPOs), Medicare, or Medicaid were included.

The study's main outcome measures were total annual expenditures per patient, defined as fees paid by insurers to physician organizations for professional services, to hospitals for inpatient and outpatient procedures, to clinical laboratories for diagnostic tests, and to pharmaceutical manufacturers for biologics and drugs. The researchers compared these expenditures by ownership after adjustment for patient burden of illness, geographic cost variations, and organizational characteristics.

Results appeared in the October 22/29 Journal of the American Medical Association.

One hundred fifty-eight organizations were included in the study. Of these, 118 (75%) were owned by physicians, 19 (12%) were owned by local hospitals, and 21 (13%) were owned by multihospital systems. Physician-owned organizations cared for 3,065,551 patients, local hospital-owned organizations cared for 728,608 patients, and multihospital system-owned organizations cared for 693,254 patients. Expenditures in 2012 were $3,066 per patient for physician-owned organizations, $4,312 per patient for local hospital-owned organizations, and $4,776 per patient for multihospital system-owned organizations. In adjusted analyses, per patient expenditures from 2009 to 2012 were 10.3% higher for local hospital-owned organizations and 19.8% higher for multihospital system-owned organizations than for physician-owned organizations (adjusted difference, $435 [95% CI, $105 to $766; P=0.02] and $704 [95% CI, $512 to $895; P=0.001], respectively).

The authors noted that their cost data are from the perspective of insurers and consumers rather than physician organizations, hospitals, and other providers and that they include only organizations in California, among other limitations. However, they concluded that expenditures for patients enrolled in commercial HMOs in California from 2009 to 2012 were higher for hospital-owned organizations compared with those owned by physicians.

“These findings are in contrast to the hope and expectations that organizational consolidation of physicians with hospitals would result in greater coordination, and hence lower expenditures,” the authors wrote. “Policymakers must strive to ensure that hospital acquisition of medical groups and physician practices does not lead to higher expenditures.” They suggested that antitrust law and policy as well as payment reform might help address the issue.

The author of an accompanying editorial noted that the data used by the researchers reflected fee-for-service care and relatively low levels of patient cost-sharing and may not translate to the current environment, where value-based payments and patient cost-sharing play a larger role.

“The experience so far is that consolidation has been good for many health care organizations and entities and for many clinicians and practitioner groups, with little clarity on how it has affected patients,” the editorialist wrote. “Understanding how consolidation is related to resource use and quality of care, and how consolidated institutions will change in a changing health care system, will be fundamental in measuring the winners and losers in the new organization of care.”