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How Hospital-Physician Consolidation Is Driving Up Health Costs

posted by Courtney Jay

on January 12, 2016

More hospitals are acquiring physician practices or hiring physicians as hospital employees, according to a report recently released by the Government Accountability Office. The number of hospitals swallowing up physician practices almost doubled from 96,000 to 182,000 between 2007 and 2013, and the number of hospitals directly employing physicians grew from 1,400 to 1,700.

Why does this matter? Increasing hospital-physician consolidation allows more hospitals to receive higher Medicare reimbursement for performing the same service in hospital outpatient departments than a physician’s office. Higher costs for Medicare translate into higher costs for Medicare beneficiaries.

We’ve said time and again that provider consolidation drives up costs for patients. In addition to the latest GAO report, data from the Health Care Pricing Project also back up this warning. The data, published last month by the National Bureau of Economic Research, show the prices for health services at monopoly hospitals were 15 percent higher than services in health care markets with four or more hospital competitors.

The higher prices and limited competition that come with provider consolidation even led the Federal Trade Commission to block anticompetitive hospital mergers in West Virginia, Ohio, Pennsylvania, and Illinois.  At a time when health care costs are skyrocketing, this is yet another example of why spending is reaching new heights.