Total expenditures per patient in hospital-owned and physician-owned physician organizations in California

Area of Science:

• Health Economics
• Healthcare Management
• Health Services Research

Background:

• Hospitals are increasingly acquiring medical groups and physician practices, a trend known as consolidation.
• This consolidation presents a potential for both cost savings through cooperation and increased expenditures due to greater use of hospital-based services and enhanced hospital pricing power.

Purpose of the Study:

• To investigate whether total expenditures per patient differ between physician organizations owned by hospitals (local or multihospital systems) and those owned by physicians.

Main Methods:

• Analysis of total expenditures for 4.5 million patients covered by commercial Health Maintenance Organization (HMO) insurance in California from 2009 to 2012.
• Expenditures included payments for professional services, inpatient/outpatient procedures, laboratory tests, and pharmaceuticals.
• Adjustments were made for patient illness burden, geographic costs, and organizational characteristics.

Main Results:

• Hospital-owned physician organizations incurred significantly higher annual expenditures per patient compared to physician-owned organizations.
• Local hospital-owned groups showed 10.3% higher expenditures, while multihospital system-owned groups showed 19.8% higher expenditures.
• Larger physician organizations also exhibited higher per-patient expenditures than smaller ones.

Conclusions:

• Hospital ownership of physician organizations was associated with increased total healthcare expenditures for commercial HMO enrollees in California.
• Despite potential benefits of care coordination, organizational consolidation may lead to higher overall costs from an insurer and patient perspective.
• Findings highlight the financial implications of healthcare consolidation on overall healthcare spending.