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Spending per patient in hospital-owned versus physician-owned organizations [PODCAST]

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The Hospital Finance Podcast

In this episode, we are joined by Marah Short, Associate Director at the Center for Health and Biosciences at Rice University, to discuss the results of their study on the relationship between annual spending per patient and quality of care for patients receiving care from a hospital-owned physician practice versus an independent practice.       

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Highlights of this episode include:

  • Background on the study that used data from insurance claims from BlueCross BlueShield of Texas from 2014-2016.
  • Why patients spent 5.8% higher for treatment from hospital-owned doctors versus physician-owned practices.
  • How the results showed no difference in the quality of care from physician-owned practices and hospital-owned doctors.
  • Reasons why the future of healthcare will see less independent physician-owned practices and movement towards value-based payments such as ACOs.
  • And more…  

Mike Passanante: Hi, this is Mike Passanante and welcome back to the award-winning Hospital Finance Podcast®. A recent study published in the Journal of General Internal Medicine looked at the relationship between annual spending per patient and quality of care for patients receiving care from a hospital-owned physician practice versus an independent practice. The results may surprise you. Joining me today to talk about this research is Marah Short who is the Associate Director of the Center for Health and Biosciences at Rice University’s Baker Institute for Public Policy. Marah, welcome back to the show.

Marah: Thank you very much.

Mike: So won’t you start out by telling us a little bit about your initial hypothesis when you were going into this study?

Marah: Sure thing. When we first launched this study, we were hypothesizing that tighter integration of physician and the hospitals was going to improve the care coordination between them and would, for example, create less duplicate testing and things of that nature, which would in turn lower the cost of care. But as we’re going to discuss, that really didn’t play out when we looked at the data more closely.

Mike: Yeah, it’s an interesting hypothesis, particularly with all of the consolidation out there among physician practices and sort of them being scooped up by hospitals at large. So you would expect that efficiency, but I’m looking forward to hearing exactly what you found out here. So why don’t you tell us a little bit about the data that you looked at and your methods for conducting the study?

Marah: Yeah, so we looked at preferred provider organizations, somewhat better known as PPOs, and we used insurance claims from BlueCross BlueShield of Texas for 2014 through 2016, and we focused on Texas’s four largest metropolitan areas. Those are Dallas, Houston, San Antonio, and Austin. And I should mention here that the population in those areas totaled 18.9 million in 2017, which is greater than the population of 46 of United States states. Also, being able to use BlueCross BlueShield, they have a 48% market share here, making them the largest large-group insurer in the state. So this is a substantial number of people we were able to get through these insurance claims.

And we first used those claims to attribute patients who had a primary care physician to the PCP that they saw most frequently. And we had the advantage, by using the BlueCross BlueShield data, that a lot of other cities that have come out on this topic didn’t have. And we were able to use the actual contracts that were negotiated between the hospitals and physicians to determine which of these physicians were working in a physician-owned practice, which ones were in a hospital-owned practice, which means that we didn’t have to infer, through survey data, what their kind of contract setup was with their insurer. We then used that data to compare annual health spending and quality of care for patients treated by these doctors, whether they be hospital-owned versus physician-owned, and that the quality measures that we examined included readmissions within 30 days of discharge for patients that had been hospitalized. And we had multiple measures of appropriate care for diabetic patients and then we also looked at screening mammographies for women aged 50 to 64.

Mike: Excellent. And I think as we talked about in the introduction here what’s maybe unique about this study is it not only looks at the spending side of the equation but also the quality of care as well.

Marah: Right. So there has been a lot of literature looking at quality and the results are kind of all over the place or hasn’t been a consistent kind of showing that any type of integration results in better quality of care which could be surprising when you’re thinking about kind of the economic theory behind it. You would expect to see this but we’re not.

Mike: So Marah, why don’t you go ahead and talk to us about the results of your research?

Marah: So we found that the patients with insurance coverage under PPOs has spending that is 5.8 percentage points higher when they’re treated by hospital-owned doctors rather than physician-owned practices. And we took this a step forward to look at adjusted spending based on medium prices and that differential only decreased by one percentage point which suggests that most of the higher observed spending for hospital-owned practices versus the physician-owned is actually resulting from greater service utilization rather than from higher prices. And we’re actually able to back up that assertion a bit by examining the claims per patient. So for four out of five common diagnostic tests which we examined– these are X-rays, MRIs, chemistry lab tests, and CT scans we found that the claims per patient were equal to or higher in hospital versus physician-owned practices. We also found that there was no consistent difference in quality of care for hospital-owned versus physician-owned based on the measures that we examined. Therefore, our overall conclusion is that tighter integration of physicians with hospitals appears to be contributing to the increase in cost of healthcare with no evidence of better quality.

Mike: And I find that surprising. Did you find that surprising as well?

Marah: So although we initially hypothesized that we were going to have better care coordination and lower costs and this kind of, what, economic theory suggested to us we weren’t completely shocked by our results and that’s because this paper is part– one part of a multi-year study we’ve been working on integration and since we first wrote our grant proposal and outlined our research plans several years ago a lot of other studies on vertical integration have been published and while those data sources and methods have varied a bit they suggest similarly that integration of physician hospitals is resulting in higher spending.

Mike: So as we look out at the future of healthcare it’s very unlikely that we’re going to go back to a model where there are many new independent physician practices. It’s more likely that they’re going to be integrated in some ways so what do you think this means for healthcare providers at large moving forward?

Marah: Yeah. So if healthcare providers are truly integrating with the goal of controlling cost or improving quality of care then they might need to reevaluate their methods of doing so because the current model is not working to do either of those things. A movement toward value-based payments such as accountable care organizations where a physician group is sharing in the financial cost savings while they’re delivering care and maintaining quality might be a better option to reach these goals but in all likelihood many providers particularly the small independent practices are integrating to help ease the burden that they’re bearing for the reporting required by regulators so we’ve proposed that the administrative and regulatory requirements should be simplified. So, for example, we know that reporting measures of quality is important, but it should be standard across all health plans to help out with that burden. And basically, given our results, it seems that these reporting requirements may be unintentionally raising the cost of healthcare by inadvertently encouraging integration.

Mike: Well, thanks for looking at this very important area of healthcare, Marah. If someone wanted to read more about this study or other work that you’re doing at Rice where can they go?

Marah: So the Journal of General Internal Medicine you can search them. They are a Springer Journal. We’ve paid the fees to make this research open, free to the public. You can also find it on the Baker Institute website. There will be a link to the article there as well.

Mike: Great. We’ll have those links up on our blog post related to this episode for anyone that wants to go there and then go right out to the research. Marah Short, thanks so much for joining us again on The Hospital Finance Podcast.

Marah: Yeah. Thanks for having me.

The Hospital Finance Podcast

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