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Another study finds vertical integration among healthcare providers is not all it's cracked up to be

by John R. Fischer, Senior Reporter | September 11, 2023
Business Affairs
Financial incentives in vertical integration may lead to increased overall spending per procedure and poorer patient outcomes, say studies.
Tighter margins and the need for more resources are driving independent physician practices under the ownership of hospitals and health systems, a trend known as vertical integration. Proponents say these bigger organizations allow smaller providers to compete more in highly concentrated markets and improve care coordination and quality. But studies from the past few years say the opposite, that vertical integration increases pricing without improving quality and harms competition.

Recently, researchers at Harvard University and University College London took a stance on this debate, saying in their own study that vertical integration leads to higher costs and worse health outcomes primarily because of improperly aligned financial incentives.

Entitled The Impact of Vertical Integration on Physician Behavior and Healthcare Delivery: Evidence from Gastroenterology Practices, the study was published in August and based on data from Medicare patients treated by gastroenterologists.

While vertically-integrated providers made adjustments to their care practices that increased throughput, they also raised reimbursement per procedure. The authors say this is because, under the current system, Medicare reimburses the same procedure at different rates depending on the setting. For example, for colonoscopies, these physicians saw $127 more per procedure compared to independent ones, a 48% difference in overall spending per procedure.

Additionally, post-op complications in patients rose substantially, including bleeding, cardiac, and nonserious GI symptoms. This was at least partially due to a reduction in the use of deep sedation because hospitals generally do not deploy expensive anesthesiologists in these low-reimbursable exams, said Soroush Saghafian, an associate professor of public policy at the Harvard Kennedy School.

“We provide evidence that the financial incentive structure of the integrated practices is the main reason for the changes in physician behavior since it discourages the integrated practices from allocating expensive resources to relatively unprofitable procedures,” she said in a statement.

Other studies have recorded similar spikes in average physician prices in these situations. In 2017, scientists at the Medica Research Institute reported that vertical integration led to prices at acquired clinic systems increasing 32% to 47% higher than what would be expected if they were not acquired.

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