Provider Consolidation Substantial, Particularly Among Physicians

August 14, 2020 - Provider consolidation into vertically integrated health systems increased substantially from 2016 to 2018, according to a recent Datawatch study published in Health Affairs.

More than half of physicians and 72 percent of hospitals were affiliated with one of 637 health systems operating in 2018, reported researchers from the Agency for Healthcare Research and Quality (AHRQ) and Massachusetts-based Mathematica.

Both the number of physicians and number of hospitals affiliated with a health system increased in the two-year period, but the increase in the share of physicians moving to a health system was “substantial” while the share of hospitals “grew modestly,” researchers said.

The share of physicians affiliated with a health system increased by 11 percentage points from 40 percent in 2016 to 51 percent in 2018.

This vertical integration of physicians into health systems was especially prevalent among primary care physicians, with the share of primary care physicians working for a health system increasing from 38 percent to nearly half (49 percent) in the study’s short period of time.

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In contrast, the share of hospitals affiliated with a health system increased by just two percentage points from 70 percent in 2016 to just 72 percent in 2018.

The share of hospital beds in health system-affiliated hospitals also increased modestly from 88 percent in 2016 to 91 percent in 2018.

But both vertical and horizontal integration present challenges, researchers pointed out.

“Substantial consolidation among health systems as a result of mergers or acquisitions at the system level also occurred from 2016 to 2018. Most of the deals for health systems involved larger multistate systems acquiring smaller metro-based systems. This pattern of consolidation could complicate local and national efforts to regulate provider organizations to ensure that community needs are met,” they wrote in the study.

As health systems continue to grow in size, that scale does not correlate to better care quality, a separate study also recently published in Health Affairs showed.

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The study led by researchers at the Geisel School of Medicine at Dartmouth found that larger, financially integrated health systems do not generally deliver better quality care, including care for complex, high-need patients; participation in quality-focused payment programs; screening for clinical conditions and social needs; and use of registries and evidence-based guidelines.

“We looked at a broad range of quality measures and compared independent hospitals and practices with those owned by different kinds of health systems,” said the study’s lead author Elliott Fisher, MD, MPH, professor of medicine and health policy at Dartmouth. “In no case did we find that ownership by larger, more complex health systems was associated with better quality.”

The finding indicates that anticompetitive effects of provider consolidation and larger health systems that contribute to higher healthcare prices are not generally counterbalanced by higher quality of care as some health system leaders allege.

Among health systems, a common impetus for provider consolidation is the ability to deliver higher quality care.

“In this era of rapid change within the health care sector, hospitals and health systems remain committed to meeting the needs of all patients,” Rick Pollack, president and CEO of the American Hospital Association (AHA), said last year. “Mergers have become one of the critical means through which hospitals can provide their communities with high-quality, convenient and cost-effective care. The benefits of mergers allow hospitals to create connected networks of care and keep the focus where it belongs: on improving care for the patient.”

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A report commissioned by the leading hospital group last year found that acquired hospitals improved outcomes measure of quality, including 30-day hospital readmission and mortality rates.

The hospitals also improved quality while reducing annual operating expenses and revenues per admission by an average of 2.3 percent and 3.5 percent, respectively.

But the rate at which health systems are growing warrants further research, according to Michael F. Furukawa, acting director of AHRQ’s Division of Healthcare Delivery and Systems Research in the Center for Evidence and Practice Improvement and lead author of the Datawatch study.

“Provider consolidation into integrated systems may lead to highly concentrated markets along both horizontal and vertical dimensions,” Furukawa et al. wrote in the study. “Future research should examine the drivers of consolidation and variation in performance by ownership type; geographic variation in the extent of health system penetration across local health care markets; and the ramifications of increased consolidation on cost, access, and quality of care.”

According to the study, health system size based on the median number of physicians increased by 29 percent, from 285 physicians in 2016 to 369 physicians in 2018. Health system size based on the median number of hospitals did not significantly change over the two-year period, remaining at a median of two.