A steep rise in U.S. hospitals buying up private physician practices has triggered a substantial increase in prices for medical care with no discernible effect on quality, according to a new study co-authored by Yale economists. And this trend is posing a challenge to federal regulators, who lack the resources to review the thousands of mergers occurring annually, the authors find.
Using novel data and machine-learning techniques, a research team featuring Yale’s Zack Cooper and Fiona Scott Morton show that hospital ownership of physician practices spiked 71.5% from 2008 to 2016, nearly doubling the share of physicians working for hospitals. By 2016, hospitals owned 47.2% of private practices.
The results are published in a National Bureau of Economic Research working paper.
Focusing their analysis on childbirths, the researchers found that two years after a hospital acquires an OB-GYN practice, hospital prices for labor and delivery grew by an average of $475, an increase of 3.3%. Physicians’ prices for the same services rose by $502, or 15.1%. The study found that reduced competition caused the price increases.
The researchers estimate that 99.9% of the acquisitions they analyzed fell below federal reporting thresholds for business mergers, meaning a massive transformation of the health-care industry occurred with virtually no antitrust scrutiny.
“The sharp increase in hospital-physician mergers has reshaped the $1 trillion-dollar physician industry, significantly raising prices for patients and insurers without improving the quality of care,” said Cooper, an associate professor of health policy at the Yale School of Public Health and of economics in Yale’s Faculty of Arts and Sciences. “Unfortunately, there is no reason to believe that the pace of acquisitions has or will slow down.
“There are hundreds of thousands of small physician practices and federal regulators are not in a position to keep up with the rapid pace of transactions.”
In addition to the Yale co-authors, the study included leading economists from the University of Wisconsin-Madison, Harvard University, the University of California, San Francisco, and Emory University.
It’s a project that simply would not have been possible if we didn’t have machine learning and had to use humans to analyze each physician record.
Prior research has shown that so-called “horizontal” mergers of both hospitals and physician practices — when one hospital buys another or two physician practices merge — raise the price of care and lead to job losses. For this study, the researchers looked at vertical mergers — in which the companies that merge are not competitors but complementary, such as hospitals and physician practices.
To do so, they developed a new approach that combines a rich collection of datasets — including Medicare billing records, hospital surveys, physician directories, and filings with the U.S. Securities and Exchange Commission — with machine learning methods. This allowed them to accurately identify acquisitions and the ownership structure for virtually all physicians across specialties between 2008 and 2016.
“This study demonstrates the value of machine-learning techniques in facilitating scholarly work,” said Cooper, who is also director of health policy at Yale’s Tobin Center for Economic Policy. “In this case, the technology enabled us to analyze a truly massive amount of data and gain valuable insights into a sector of the U.S. economy that accounts for about 6% of GDP. It’s a project that simply would not have been possible if we didn’t have machine learning and had to use humans to analyze each physician record.”
According to their findings, mergers increased across all physician specialties but at different rates. For example, hospital acquisitions of cardiologists increased by 38.4 percentage points over the period studied while acquisitions of primary care doctors rose by 18.1 percentage points. Acquisitions of OB-GYN practices grew by 20.4 percentage points to 48% by 2016.
Prices for physicians who were already integrated at a hospital increased by 9% after their hospital acquired additional physicians within their specialty, which suggests that reduced competition drives post-merger price increases.
To study the effects of these acquisitions on health care prices, the researchers combined acquisition data with claims data from large national insurer covering tens of millions of individuals with employer-sponsored health insurance. Specifically, they focused on the cost of childbirths, the most common reason for hospital admissions among the privately insured.
The researchers found that prices for physicians who were already integrated at a hospital increased by 9% after their hospital acquired additional physicians within their specialty, which suggests that reduced competition drives post-merger price increases.
“It’s unlikely that these practices had a sudden change in quality or bargaining ability just before their hospitals merged with a new practice,” said study co-author Scott Morton, the Theodore Nierenberg Professor of Economics at the Yale School of Management.
“We found that hospital price increases are larger in cases where the acquired physicians practiced at close rival hospitals prior to the merger and could shift their referrals, which also indicates that price increases result from reduced competition, not improved quality of care.”
The study provides policymakers guidance in identifying which hospital-physician mergers tend to lead to the largest price increases, Cooper said. States could also play an important role, he added, by requiring hospitals and physicians to provide evidence on the benefits of their transaction before approval of mergers.
The study was co-authored by Stuart V. Craig and Ashley T. Swanson of the University of Wisconsin-Madison; Aristotelis Epanomeritakis of Harvard University; Matthew Grennan of Emory University; and Joseph R. Martinez of the University of California, San Francisco. The Commonwealth Fund and Arnold Ventures supported the research.
