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Hospital Acquisition of Physician Practices Drives up Cost 


Published Aug 20, 2021 • by AHIP

Hospitals continue to buy up and take over control of doctors’ practices, either by buying up their practices or hiring them directly. And hospitals are bringing prices along for the ride.

By the end of 2020, nearly half of American doctors were employed by hospitals/health systems (49.3%), according to an analysis from the Physicians Advocacy Institute. That’s not surprising, given 18,600 doctors left independent practice and became employees of hospitals in 2019 and 2020.

Meanwhile, hospitals acquired 3,200 physician practices during that 2-year period, for an 8% increase in hospital-owned practices.

When hospitals acquire doctors’ practices, prices go up.

Evidence shows that this type of consolidation—when more and more of a region’s doctors work for the same hospital or health system—leads to higher health care prices for Americans.When hospitals gain more market power by snapping up doctor practices, they can control referrals and demand higher prices, which in turn makes premiums and costs for everyone even higher.

Studies clearly link provider consolidation and higher health care costs.

  • Prices for services provided by acquired physicians increase by an average of 14.1%, concluded a study published by the Journal of Health Economics.
  • “Vertical relationships can be a way for physicians and hospitals to bundle their services together and charge insurers higher prices,” according to research published by Health Affairs.
  • “The average price for a given service was always higher when performed in an outpatient setting. Average prices also tended to grow faster for the same services when performed in outpatient settings compared to office settings,” the Health Care Cost Institute found.

Hospital acquisition of physicians doesn’t necessarily mean higher quality.

Many hospital acquisitions of doctor practices are accompanied by promises that the acquisition will allow the entities to work better on innovative models of care and more satisfied patients. Evidence has shown, however, that the lack of competition among providers creates more incentives to hike prices, and removes incentives to create more value for patients. In addition to no quality improvement, a study in Health Services Research showed provider consolidation leads to lower patient satisfaction.

As research published by Medical Care Research and Review explained: “Physician-hospital integration did not improve the quality of care for the overwhelming majority of these [quality] measures. If patient welfare doesn’t improve after integration, there may be other reasons why physicians and hospitals are forming closer relationships—perhaps to raise profits.”

Provider consolidation is not a new problem.

Hospitals consolidated tremendously over the past 30 years, and more recently they have expanded the scope of acquisitions from other hospitals to also include doctors. And this trend will likely continue even as the fight against COVID-19 endures—with hospitals scooping up struggling doctor practices, reducing competition and increasing prices, noted Harvard Business Review.

The growing trend of hospital acquisition of doctor practices threatens to cause new harm to Americans, and the government needs to address it now. Americans need increased enforcement by antitrust agencies, the removal of regulatory incentives for such acquisitions, and other legislative and enforcement solutions to address or mitigate the harm.

Health insurance providers, while operating in competitive markets, are working hard to ensure high-quality health care at affordable prices.

Click here to learn more about the dangers of hospital consolidation.