D Khullar et al. NEJM 2024; 390: 965-967. Vertical Integration and the Transformation of American Medicine

This article examines the growing trend of hospital acquisition of physician practices.

Some excerpts:

• “From July 2012 through January 2018, the share of practices owned by a hospital increased from 14% to 31%, according to data from the Physicians Advocacy Institute; from January 2019 to January 2022, hospitals acquired 4800 additional practices, and about 58,000 more physicians became hospital employees.”
• “In theory, vertical integration (the combining of organizations operating at different levels of production into a single entity) in health care can lead to improved patient outcomes — for example, by promoting care coordination, information exchange, and economies of scale. To date, however, the most consistent documented effect of such transactions has been an increase in prices.”
• Increased prices are due to multiple factors including strengthened negotiating position, “facility fees” that are added to services delivered by hospital-owned practices.¹, increased tests and procedures in hospital settings, higher payor rates, and in many cases discounted outpatient drug prices (for those qualified in 340B program)
• “The limited research in this area suggests that vertical integration doesn’t tend to result in meaningful improvements in quality of care, with some studies finding that it may lead to poorer quality, if health systems take resources away from unprofitable services and redistribute them to more lucrative ones.²“
• “Hospital acquisitions of physician practices have gone largely unreviewed by agencies such as the Federal Trade Commission (FTC) and the Department of Justice (DOJ)…In December 2023, the FTC and the DOJ issued new antitrust guidelines that could strengthen the agencies’ approach to vertical integration in health care “
• “Many clinicians may be satisfied after their practice is acquired; they may, for example, have an improved work–life balance, receive greater administrative support, and be relieved of managing the business-related aspects of medicine. Alternatively, they may work longer hours, have less autonomy and constrained job mobility, and experience more burnout or moral injury.”
• “The rapid acquisition of physician practices by hospitals highlights an important tension in health care — between the possibility that integration can promote efficiency and improved quality and the concern that it distorts markets and can worsen health and financial outcomes.”

My take: There are clear financial incentives for hospitals to acquire physician practices. This trend leaves patients facing higher costs and clinicians dealing with less autonomy. Regulatory efforts face a difficult task to limit this widespread anti-competitive practice which at this point is akin to extracting a large trichobezoar from the stomach.

Related blog posts:

• Consolidation and Competition in Health Care
• Changing Business of Medicine: Hospital Consolidation of Physcian Practices
• No One Would Design U.S. Healthcare System This Way
• Worse Outcomes After Hospital Mergers
• How Much of a Drug Markup is Reasonable (for hospitals)?
• My First Take: It is Hard to Save $$$ at a Rolls-Royce Dealership
• Healthcare: “Where the Frauds Are Legal”
• “Moral distress” or “Moral Injury” in Medicine
• Private Equity in Gastroenterology & More Broadly