Do hospital purchases of physician practices increase or decrease prices?

The effect of health care industry consolidation on prices is a question argued about by many including researchers, economists, anti-trust, lawyers, regulators and more.  There is evidence that health plan consolidation increases premiums, and hospital consolidation increases price.

For instance, Dafny et al. 2015 writes:

The harsh reality is that it’s difficult to find well-documented examples of mergers that have generated measurably better outcomes or lower overall costs — the greater value that is publicly touted as the motivation underlying these combinations.⁴ The most consistently documented result of provider mergers is higher prices, particularly when the merging hospitals are in close proximity.

What about consolidation across provider types?  Namely, what happens when hospitals acquire physician groups?  Hospitals have been increasingly buying physician practices in recent years.  In fact, over a 12 month period between 2015 and 2016, hospitals added 14,000 physicians to their employment rolls through acquisition.

A recent paper by Capps, Dranove and Ody 2018 investigates what happens after hospitals acquire physician practices.  They find:

…prices for the services provided by [hospital]-acquired physicians increase by an average of 14.1% post-acquisition. Nearly half of this increase is attributable to the exploitation of payment rules. Price increases are larger when the acquiring hospital has a larger share of its inpatient market…integration of primary care physicians increases enrollee spending by 4.9%.

Looks like more evidence that consolidation leads to higher prices.

Sources:

• Capps, Cory, David Stuart Dranove, and Christopher J. Ody. “The effect of hospital acquisitions of physician practices on prices and spending.” Journal of Health Economics. Volume 59, May (2018): Pages 139-152
• Dafny, Leemore, Mark Duggan, and Subramaniam Ramanarayanan. “Paying a premium on your premium? Consolidation in the US health insurance industry.” American Economic Review 102, no. 2 (2012): 1161-85.
• Dafny, Leemore. “Estimation and identification of merger effects: An application to hospital mergers.” The Journal of Law and Economics 52, no. 3 (2009): 523-550.
• Dafny, Leemore S., and Thomas H. Lee. “The good merger.” New England Journal of Medicine 372, no. 22 (2015): 2077-2079.