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Original Investigation |

Association of Financial Integration Between Physicians and Hospitals With Commercial Health Care Prices

Hannah T. Neprash, BA1; Michael E. Chernew, PhD1; Andrew L. Hicks, MS1; Teresa Gibson, PhD1; J. Michael McWilliams, MD, PhD1,2
[+] Author Affiliations
1Department of Health Care Policy, Harvard Medical School, Boston, Massachusetts
2Division of General Internal Medicine and Primary Care, Department of Medicine, Brigham and Women’s Hospital, Boston, Massachusetts
JAMA Intern Med. 2015;175(12):1932-1939. doi:10.1001/jamainternmed.2015.4610.
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Importance  Financial integration between physicians and hospitals may help health care provider organizations meet the challenges of new payment models but also may enhance the bargaining power of provider organizations, leading to higher prices and spending in commercial health care markets.

Objective  To assess the association between recent increases in physician-hospital integration and changes in spending and prices for outpatient and inpatient services.

Design, Setting, and Participants  Using regression analysis, we estimated the relationship between changes in physician-hospital integration from January 1, 2008, through December 31, 2012, in 240 metropolitan statistical areas (MSAs) and concurrent changes in spending. Adjustments were made for patient, plan, and market characteristics, including physician, hospital, and insurer market concentration. The study population included a cohort of 7 391 335 nonelderly enrollees in preferred-provider organizations or point-of-service plans included in the Truven Health MarketScan Commercial Database during the study period. Data were analyzed from December 1, 2013, through July 13, 2015.

Exposure  Physician-hospital integration, measured using Medicare claims data as the share of physicians in an MSA who bill for outpatient services with a place-of-service code indicating employment or practice ownership by a hospital.

Main Outcomes and Measures  Annual inpatient and outpatient spending per enrollee and associated use of health care services, with utilization measured by price-standardized spending (the sum of annual service counts multiplied by the national mean of allowed charges for the service).

Results  Among the 240 MSAs, physician-hospital integration increased from 2008 to 2012 by a mean of 3.3 percentage points, with considerable variation in increases across MSAs (interquartile range, 0.8-5.2 percentage points). For our study sample of 7 391 335 nonelderly enrollees, an increase in physician-hospital integration equivalent to the 75th percentile of changes experienced by MSAs was associated with a mean increase of $75 (95% CI, $38-$113) per enrollee in annual outpatient spending (P < .001) from 2008 to 2012, a 3.1% increase relative to mean outpatient spending in 2012 ($2407 [95% CI, $2400-$2414] per enrollee). This increase in outpatient spending was driven almost entirely by price increases because associated changes in utilization were minimal (corresponding change in price-standardized spending, $14 [95% CI, −$13 to $41] per enrollee; P = .32). Changes in physician-hospital integration were not associated with significant changes in inpatient spending ($22 [95% CI, −$1 to $46] per enrollee; P = .06) or utilization ($10 [95% CI, −$12 to $31] per enrollee; P = .37).

Conclusions and Relevance  Financial integration between physicians and hospitals has been associated with higher commercial prices and spending for outpatient care.

Figures in this Article


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Figure 1.
Adjusted Estimates of Change per Enrollee in Spending and Utilization

Adjusted estimates of change are associated with increases in physician-hospital integration and physician market concentration from 2008 to 2012. Bars represent the change in spending or utilization (calculated as price-standardized spending) associated with a change in physician-hospital integration or physician market concentration (expressed as Herfindahl-Hirschman index [HHI]) equal to the 75th percentile of changes experienced by metropolitan statistical areas from 2008 to 2012. Error bars denote 95% CIs. Full regression results are given in eTables 2 and 3 in the Supplement.

aP < .001, Wald test.

Graphic Jump Location
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Figure 2.
Difference in Mean Prices for Office Visits Between Independent and Hospital-Integrated Physicians, by MSA for Medicare and MarketScan Populations

The mean difference between prices for office visits with a hospital outpatient department (HOPD) setting code and those with an office setting code (mean HOPD setting price − mean office setting price) is plotted for each MSA in the Medicare and MarketScan populations (after trimming outliers above the 95th percentile of Medicare and MarketScan price differences in 2012). The MSAs are ordered based on the price differential in the MarketScan population.

Graphic Jump Location




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The American Medical Association is accredited by the Accreditation Council for Continuing Medical Education to provide continuing medical education for physicians. The AMA designates this journal-based CME activity for a maximum of 1 AMA PRA Category 1 CreditTM per course. Physicians should claim only the credit commensurate with the extent of their participation in the activity. Physicians who complete the CME course and score at least 80% correct on the quiz are eligible for AMA PRA Category 1 CreditTM.
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