A new working paper by the National Bureau of Economic Research (NBER) adds to the body of research showing that hospitals’ ownership of physician practices has increased substantially and indicates the ongoing integration of providers is driving up prices due to diminished competition.
The authors found that the share of physicians integrated with a hospital increased 71.5% between 2008 and 2016 (from 27.5% to 47.2%). By 2016, nearly half — 47.2% — of private physician practices were owned by a hospital.
For the cost analyses, they looked specifically at how hospital/OB-GYN physician integration affected costs associated with childbirth admissions, the most common hospital admission for privately insured patients. On average, they noted, both hospital and physician prices increased.
Two years after a hospital integration event — defined as a large, one-year increase in the share of physicians practicing at the hospital who are integrated with the hospital — hospital prices for labor and delivery increased by 3.3% ($475) and physician prices increased by 15.1% ($502).
The authors attributed the price increases to reduced competition and provided evidence to support this.
For instance, they found that prices increased by 9% for physician practices that had already been acquired by a hospital when a new acquisition occurred. They said it was unlikely that the already-merged practices had a sudden change in quality or bargaining ability immediately preceding the acquisition of the new practice.
The researchers also noted that the increase in hospital prices were larger for: acquisitions that limited rival hospitals’ access to physicians; acquisitions in which the hospital or physician practice already commanded significant market power and could use it to negotiate higher prices with insurers; and acquisitions that increased concentration in the physician market.
The authors concluded that many of the acquisitions they observed were “likely anticompetitive” and harmed both patients and payers “by increasing the cost of care without generating commensurate increases in quality.”
In a policy brief published by the Tobin Center for Economic Policy at Yale, the same authors who conducted the analysis noted that “there has been virtually no antitrust enforcement against [mergers between hospitals and physician practices] in the health sector at either the federal or state level.”
One reason is that nearly all of acquisitions have a valuation that falls below Hart-Scott-Rodino merger reporting thresholds.
The authors also remarked that antitrust enforcement against vertical mergers such as these is “extremely challenging” because the physician industry consists of hundreds of thousands of small practices and regulators do not have the resources to block the thousands of acquisitions that occur each year.
They suggested policy changes that might limit the anticompetitive effects of such acquisitions and potentially eliminate the financial incentives that encourage them. One would be for Medicare to pay physicians the same rate whether they are independent or employed by a hospital. Another would be for states to require hospitals and physician practices to provide evidence that their merger would be beneficial.
(A summary of the working paper is available here.)
The American Hospital Association criticized the research, stating that it relied on old data provided in part by UnitedHealthcare, whose parent company is “one of the most aggressive acquirers of physician practices,” Healthcare Dive reported.
The news outlet pointed out that while “UnitedHealth is the largest payer operator of physician practices, hospital ownership of physicians well outpaces that of insurers overall.”
OUR TAKE: An April 2024 report compiled by Avalere Health in partnership with the Physicians Advocacy Institute (PAI) supports the findings of the NBER analysis in terms of physician practice ownership, though it did not examine the effects on costs.
According to the PAI report, the percentage of physicians employed by hospitals or health systems grew from 25.8% in 2012 to 44% at the beginning of 2018.
The pandemic put more financial pressure on independent physicians, causing even more of them to sell their practices. By the start of 2022, 73.9% of physicians in the U.S. were employed — 52.1% by hospitals and health systems, and 21.8% by other corporate entities such as private equity firms, insurers, and other businesses (Amazon and CVS, for example).
During 2022 and 2023, an additional 19,100 physicians became employees of hospitals or other corporate entities (a 5.1% increase from the start of 2022), and hospitals and other corporate entities acquired 8,100 additional physician practices (a 6% increase).
Of those totals, hospitals made 2,800 of the acquisitions (a 7.3% increase in the percentage of hospital-owned practices) and hospitals hired 16,300 of the newly employed physicians (a 5.9% increase in the percentage of hospital-employed physicians).
As of the end of 2023, according to the report, nearly 80% of physicians were employed by hospitals and corporate entities.
Survey results released by the American Medical Association in May indicated that 42.2% of physicians were working in private practices in 2024, down from 60.1% in 2012.
By comparison, the share of physicians working in hospital-owned practices was 42.2% in 2024, up from 23.4% in 2012.
The reason most often cited for selling a practice was inadequate payment rates, followed by the need for better access to costly resources and the need to better manage payers’ regulatory and administrative requirements.
