Vertical Integration in Healthcare Doesn’t Boost Care Quality

February 14, 2019 - A new study from Rice University’s Baker Institute for Public Policy shows vertical integration in healthcare has little to no impact on care quality.

Performance on a range of measures, including hospital readmissions rates, was not significantly different for loosely affiliated independent practices and practices integrated into hospitals, revealed data on more than 4,400 hospitals in CMS’ Hospital Compare database for 2008 to 2015.

“The government requires that hospitals report on a wide variety of quality measures, such as practice of preventive care for surgical patients, whether their doctor or nurse communicated well, or whether the patient would recommend the hospital to others,” author Vivian Ho, James A. Baker III Institute Chair in Health Economics and Director of the center, stated in a press release.

“Physician-hospital integration did not improve the quality of care for the overwhelming majority of these measures,” she continued. “If patient welfare doesn’t improve after integration, there may be other reasons why physicians and hospitals are forming closer relationships — perhaps to raise profits.”

Vertical integration in healthcare has and continues to be a major trend. Hospitals acquired approximately 5,000 independent practices from 2014 to 2016, the most recent data from the Physicians Advocacy Institute (PAI) and Avalere Health revealed in 2018.

READ MORE: How Hospital Merger and Acquisition Activity is Changing Healthcare

As practices develop closer relationships with hospitals, so are their professionals. About 64 percent of medical professionals in a recent Medicus Firm survey were employed by a hospital, medical group, or other larger healthcare facility in 2018. That percentage is up from 58 percent the previous year.

Hospitals and practices claim vertical integration in healthcare will improve care coordination, eliminate redundancies, reduce waste, and improve care quality. For example, two independent physicians who joined Morris Hospital in Illinois in July 2018 explained that they made the decision for their patients.

“I believe the partnership is really going to help me take better care of my patients,” Raja K. Saleem, MD, stated in the announcement. “I will have more time to focus on patient care at the office without having to worry about the business side of running the practice.”

However, the Baker Institute for Public Policy study questions whether patient care is truly benefiting from the vertical integration in healthcare.

Authors Vivian Ho and Marah Short, Associate Director of the institute’s Center for Health and Biosciences analyzed how different levels of physician-hospital integration impacted 29 measures related to hospital readmission rates, process of care, and patient satisfaction.

READ MORE: Healthcare Merger and Acquisition Activity Up 14.4% in 2018

From loosest to tightest, the levels of physician-hospital integration studied were independent practice associations, open physician–hospital organizations (OPHOs), closed physician–hospital organizations (CPHOs), and fully integrated organizations (FIOs).

The researchers found process adherence, readmissions rates, and patient satisfaction mean values to be similar across the four levels of integration.

“While eight out of 29 quality measures have results which suggest that integration may be significantly associated with quality at the 95 percent confidence interval (CI) level, coefficients for only two quality measures remain significant with the Bonferroni correction,” the report stated.

For process of care, FIOs had better adherence to the continuation of beta blockers than nonintegrated hospitals by 1.38 percentage points. CPHOs and FIOs also had better readmission rates for pneumonia compared to less integrated organizations by 0.19 and 0.12 percentage points, respectively.

While care quality did not significantly improve through vertical integration in healthcare, patient satisfaction took a hit. The study linked increased market concentration to lower patient satisfaction across the board.

READ MORE: Major Healthcare Mergers and Acquisitions Making Waves in 2019

Increased market concentration through physician-hospital integration was strongly associated with a reduction in performance across all ten patient satisfaction measures at the 95 percent confidence level (p < 0.05). And six of the ten measures remained statistically significant with the Bonferroni corrected p value (p < .005).

“Although better patient experience may not always correlate with higher clinical quality, measuring quality based on patient perception is increasingly important as more consumers use online physician ratings and reviews of patient experience to select providers,” Short stated in the announcement.

“Therefore, we need further research on the ability of patient satisfaction to reflect clinical quality, and if it does not, we need to develop and provide to patients better measures in terms that patients can understand and use.”

Overall, policymakers and regulators should “continue to focus scrutiny on proposed hospital mergers, take steps to maintain competition and reduce counterproductive barriers to entry,” the authors wrote in a summary of their paper.

Regulators have been busy analyzing the impacts of several major horizontal mergers, like the one between Catholic Health Initiatives and Dignity Health which created a  $29 billion system of 142 hospitals and more than 700 care sites in 21 states.

But the impact of healthcare merger and acquisition activity may be even more local. Physician-hospital integration also threatens competition in local healthcare markets and regulators may want to focus their efforts on identifying vertical mergers and acquisitions that may negatively impact patient satisfaction and costs.