Patients Face Higher Healthcare Spending, Prices at Health Systems

Commercial prices for outpatient visits were 26 percent higher for patients receiving care at a health system than those visiting non-system physicians and hospitals.

January 30, 2023 – Health systems delivered the majority of medical care in 2018, ranking high on clinical quality and patient experience measures. However, prices were steeper, and consumer spending was higher for those receiving care from physicians and hospitals attributed to health systems, according to research published in JAMA.

Vertical integration of hospitals and physician practices has shown the potential to improve care quality and efficiency but may also lead to increased market power and higher prices.

Researchers used 2018 claims data and Medicare Consumer Assessment of Healthcare Providers and Systems (CAHPS) survey data to assess the quality and cost of care delivered by physicians and hospitals attributed to health systems.

Per the Agency for Healthcare Research and Quality (AHRQ), a health system was defined as a group of healthcare organizations that are jointly owned or managed and have at least one general acute care hospital, 10 primary care physicians, and a total of 50 physicians located in a single hospital referral region (HRR).

The sample included 580 health systems, which accounted for 40 percent of active physicians, 40 percent of primary care physicians, 64 percent of acute care hospitals, and 84 percent of general acute care hospital beds.

Hospitals in health systems were generally larger, more likely to participate in a Medicare ACO, and less likely to participate in the 340B drug pricing program compared to non-system hospitals. Physicians in health systems were more likely to be located in a metropolitan area, be a part of a practice billing as hospital-based outpatient departments, and participate in Medicare ACOs than non-system physicians.

Large physician practices were more likely to be in a health system. Nearly 75 percent of practices with more than 100 physicians and 81 percent of Medicare beneficiaries attributed to large practices were part of a health system. Meanwhile, 97 percent of small practices and 98 percent of Medicare beneficiaries attributed to small practices were not in systems.

Most hospital admissions (94 percent) for Medicare beneficiaries attributed to system physicians occurred in health system hospitals, the study noted. Similarly, 84 percent of hospitalizations for Medicare beneficiaries attributed to non-system physicians occurred in system hospitals.

Care quality and patient experiences were similar for health system and non-system patients. However, preventive care rates were higher and 30-day hospital mortality rates were lower in health systems. Patients in health systems were also less likely to receive low-value services.

Commercial prices and patient spending differed among health systems and non-systems. For example, commercial prices in systems were 26 percent higher for outpatient physician visits, 13 percent higher for visits delivered during an inpatient hospital stay, and 12 percent to 19 percent higher for certain procedures performed by cardiologists, gastroenterologists, and surgeons.

Prices for admissions in 40 of the most common diagnosis-related group were 31 percent higher in health system hospitals compared to non-system hospitals.

Spending among commercial and Medicare beneficiaries attributed to system physicians was 4.7 percent and 5.2 percent higher, respectively, compared to spending among non-system patients. These differences are due to both system and non-system patients receiving a large share of their care from system physicians and hospitals, researchers indicated.

“These findings are consistent with previous research showing positive correlation between commercial prices and vertical integration of hospitals and physician practices and with studies finding higher prices in concentrated hospital and physician markets,” the study stated.

Despite little variation in care quality and patient experience, prices and spending at health systems were significantly higher than at non-systems. The growth of vertical consolidation and health systems raises concerns about market competition.

“It is not clear whether the failure to find quality differences between system and non-system hospitals and physicians results from systems needing more years to develop processes to improve care; from systems’ incentives for investing in improving quality being too weak; from measures of quality being too crude; from not including Medicare Advantage patients in analyses; or from some combination of these factors,” Lawrence P. Casalino, MD, PhD, wrote in response to the study.

“However, the assumption that systems will provide better quality care, sooner or later, should continue to be tested.”