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Do New Forms of Organization in Health Care Enhance Efficiency or Harm Competition?

Paper Session

Friday, Jan. 5, 2018 8:00 AM - 10:00 AM

Marriott Philadelphia Downtown, Grand Ballroom Salon J
Hosted By: Health Economics Research Organization
  • Chair: Martin Gaynor, Carnegie Mellon University

How Important Is Price Variation Between Health Insurers?

Amanda Starc
,
Northwestern University
Stuart Craig
,
University of Pennsylvania
Keith Ericson
,
Boston University

Abstract

Existing research has shown wide variation between hospitals in the prices they charge for procedures. Here, we show that variation between insurers in the prices negotiated is also substantial. Using the Massachusetts All-Payer Claims Database, we measure negotiated prices for each hospital-insurer pair in the state. We find that differences across payers explain about the same amount of price variation in the data. We also show important interactions between insurers and hospitals. These results have implications for insurance markets. In particular, we document the impact of these differences on the value of insurance to individuals. We find that an example high deductible health plan could have an actuarial value ranging from
0.3 to 0.6 depending the level of prices. We discuss the incentives for insurers to negotiate lower prices and how that depends on the sensitivity of individuals to both premiums and the insurer’s negotiated price level.

The Effects of Multispecialty Group Practice on Health Care Spending and Use

Kate Bundorf
,
Stanford University
Laurence C. Baker
,
Stanford University
Anne Royalty
,
Indiana University-Purdue University-Indianapolis

Abstract

U.S. physicians are increasingly joining multispecialty group practices. In thispaper, we analyze how a primary care physician’s practice type – single specialty primary practice versus multispecialty practice (MSP) – affects the cost of care and outcomeshealth care spending and use for U.S. Medicare beneficiaries. Focusing on beneficiaries who change their primary care physician due to a move from one geographic area to another, we comparechanges in practice patterns before and after the move between patients who switch to a different type of practice and those who do not. We combine this difference-in-differences analysis To address selection of patients into different practice types we use two approaches in combination. First, we identify patients who move from one geographic area to another and we observe whether, following the move, they switch to a different type of practice or remain in the same type of practice as before the move. We use a difference-in-difference study design and then, to further address the possibility of selection into practice type around the time of the move we combine that with an instrumental variables approach to address potential selection by patients into practice types after the move. to identify changes in spending associated with a switch of practice type. We estimate that MSP decreases Medicare-financed per capita expenditures by about $1,600 annually, representing a 28% reduction. The effect is symmetric; the estimated decrease in spending for patients switching from primary care physician in a single specialty practice to one in a MSP is approximately the same as the estimated increase in spending for those switching from MSP to single specialty practice. The effect is driven primarily by changes in hospital expenditures and is concentrated among patients with two or more chronic conditions. The results suggest that MSPs are more effective in keeping patients out of the

Are Hospital-owned or Physician-owned Organizations More Costly?

Vivian Ho
,
Rice University
Leanne Metcalfe
,
Blue Cross Blue Shield of Texas
Lan Vu
,
Blue Cross Blue Shield of Texas
Marah Short
,
Rice University
Robert Morrow
,
Blue Cross Blue Shield of Texas

Abstract

Provider organizations are increasing in complexity, as hospitals acquire physician practices and physician groups grow in size. Greater integration should increase care coordination and limit redundancies, which could lower costs. However, larger provider groups have greater negotiating power with insurers, which could raise prices. We analyzed insurance claims from Blue Cross Blue Shield of Texas (BCBSTX) for 2014 through 2016 in the four largest Texas metropolitan areas (Austin, Dallas, Houston, and San Antonio) to compare annual health expenditures for patients treated by doctors in hospital-owned versus physician-owned practices. We calculated annual spending (payments by the insurer plus out-of-pocket) for patients attributed to physicians, then determined the ownership status of physicians based on their recorded network for reimbursement in the BCBSTX internal database. The comparisons adjust for age, gender, comorbidities, number of patients enrolled in each group, and a geographic adjustment factor. Preliminary estimates suggest that patients with 12 months of continuous enrollment in a preferred provider organization incur spending which is 3 to 10 percent higher when treated by doctors in hospital-owned versus physician-owned practices. The spending difference appears attributable to greater inpatient and outpatient hospital use.

How Does Hospital-physician Integration Affect Hospital Prices?

Haizhen Lin
,
Indiana University
Ian McCarthy
,
Emory University
Michael Richards
,
Vanderbilt University

Abstract

The past decades has seen a new wave of hospital-physician alignment. From 2009 to 2015, the fraction of physicians owned by hospital systems in a market (defined as hospital referral region) increased from 9% to 25% nationwide. We offer one of the first hospital-level longitudinal analyses in examining how hospital-physician integration impact hospital prices.
Theoretically speaking, hospital-physician integration might lead to lowered hospital prices due to efficiency gains from transaction cost economies. It might also increase hospital prices if integration strengthens hospitals’ bargaining power when negotiating with insurers. The limited existing empirical literature is also mixed. We construct a panel of all US general medical and surgical hospital from 2009 to 2015 using various data source. The SK&A physician database offers hospital-physician integration. The Healthcare Cost Report Information System (HCRIS) data provides measures of hospital prices, and American Hospital Association (AHA) data allows us to link SK&A and HCRIS data, in addition to offering hospital characteristics controls. Our baseline identification exploits within-hospital variation in hospital-physician integration. Our preliminary analysis suggests that hospital-physician integration is associated with a 2% increase in prices. This positive effect is increasing in the level of integration. For example, prices are 3.5% higher for a hospital that owns more than 5% of the physicians in a market as compared to a non-integrated hospital. To address the concerns that hospital integration strategies could be related to unobservable factors that affect pricing, we have adopted various strategies, such as placebo tests and instrumental variable approach. These additional analyses have found consistent results. We then try to disentangle various mechanisms through which integration leads to increased prices: (1) increased referral (2) barrier to entry and (3) improved bargaining power. We find no evidence in support of the first mechanism.
Discussant(s)
Kate Ho
,
Columbia University
James Rebitzer
,
Boston University
David Chan
,
Stanford University
Robin Lee
,
Harvard University
JEL Classifications
  • I1 - Health