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Does vertical integration improve or imperil US healthcare?

November 19, 2021
Business Affairs
From the November 2021 issue of HealthCare Business News magazine

Most analyses of how consolidation impacts spending and patient outcomes have found no relationship – or a negative relationship – between “system” and performance. Our own preliminary findings show that being affiliated with a health system predicts neither quality nor efficiency. However, we found substantial variation within group, meaning that some physician organizations affiliated with health systems perform better than unaffiliated entities and some do not. The presence of “super users” of interoperable health information technology may explain some of the difference in performance; we’re still probing to isolate other predictive factors.

Based on both qualitative and quantitative analyses, we know that more physician organizations and more physicians are becoming integrated with health systems over time, increasing consolidation in the marketplace. Our analysis of Medicare claims data shows that vertical integration negatively affects physician referrals and spending for high-volume Medicare services. Over a three-year period of study, changes in referral patterns for just five common imaging and lab procedures triggered an increase in Medicare spending of $73.1 million. Escalations in Medicare spending could be a flashing caution sign to health system executives: what happens in Medicare matters to policymakers, patients, their families, and taxpayers; and changes in referral patterns and spending extend beyond Medicare.

It may well be that the signal of good performance in some health systems is being distorted or drowned out by the noise in others. In our interviews, health system executives told us that clinical integration and standardization — which are the building blocks of better performance — are the goal, but achieving clinical integration is a demanding task with a long trajectory, especially in the midst of mergers and acquisitions. Unfortunately, in the meantime, evidence is accumulating that health care consolidation is harming competition in the U.S. healthcare market, while neither reducing costs nor improving care.

M. Susan Ridgely
More attention could be paid by health system executives to shortening the trajectory for care redesign and clinical integration: paying attention not only to the mechanics of care delivery, but also to governance, culture, and staff empowerment. At the same time, policymakers could better enable change. Despite the rhetoric, the pace at which value-based payment arrangements are being implemented by public and commercial payers may be too slow to support the desired transformation of health care delivery.

About the author: M. Susan Ridgely is an adjunct senior health policy researcher at the nonprofit, nonpartisan RAND Corporation and co-director of the RAND Center of Excellence on Health System Performance.

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