• The relationship between consolidation and prices

    One of my biggest concerns about ACOs is that the push towards provider consolidation may lead to increased spending that might overwhelm the savings they’re supposed to generate. Austin has a nice piece on this here. A just-published paper in JAMA is on point. “Physician Practice Competition and Prices Paid by Private Insurers for Office Visits“:

    IMPORTANCE Physician practice consolidation could promote higher-quality care but may also create greater economic market power that could lead to higher prices for physician services.

    OBJECTIVE To assess the relationship between physician competition and prices paid by private preferred provider organizations (PPOs) for 10 types of office visits in 10 prominent specialties.

    DESIGN AND SETTING Retrospective study in 1058 US counties in urbanized areas, representing all 50 states, examining the relationship between measured physician competition and prices paid for office visits in 2010 and the relationship between changes in competition and prices between 2003 and 2010, using regression analysis to control for possible confounding factors.

    EXPOSURES Variation in the mean Hirschman-Herfindahl Index (HHI) of physician practices within a county by specialty (HHIs range from 0, representing maximally competitive markets, to 10 000 in markets served by a single [monopoly] practice).

    MAIN OUTCOMES AND MEASURES Mean price paid by county to physicians in each specialty by private PPOs for intermediate office visits with established patients (Current Procedural Terminology [CPT] code 99213) and a price index measuring the county-weighted mean price for 10 types of office visits with new and established patients (CPT codes 99201-99205, 99211-99215) relative to national mean prices.

    The authors looked at more than 1050 counties in the US to see if changes in physician competition were associated with prices between 2003 and 2010. They used the HHI (also well described on the blog) as a measure of competition. The main outcomes of interest were (1) the mean price paid to physicians in each specialty by PPOs and (2) a price index of the mean price for 10 types of office visits relative to national prices.

    Variation existed in competition by counties. The 90th percentile HHIs were 3-4 times higher than in the 10th percentile. They also found that prices were $5.85 – $11.67 higher in the counties with the highest decile of HHI versus the lowest decile. Price indexes in the same deciles were 8%-16% higher as well. Over seven years of the study, prices went up more in areas of less competition than in areas of more competition.

    I’ve been generally concerned about ACOs and consolidation based on theory. After all, more market power means better negotiating power means higher prices. But this adds evidence and data to my worries.

    @aaronecarroll

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