Coordinated Care Increases Health Care Costs

Published December 15, 2014

A study published in the Journal of the American Medical Association has found consolidation between physician practices and hospitals may increase some forms of care coordination but leads to higher total expenditures per patient.

The study’s findings suggest recent reforms aimed at promoting coordination of care may not save money.

“The same service when performed as a ‘hospital outpatient service’ is reimbursed at a higher rate than when performed as an ‘office-based physician service,'” explained Devon Herrick, a senior fellow in health care studies at the National Center for Policy Analysis. “This may be the same physician working out of the same office he or she always has worked out of, but the designation changes to ‘hospital outpatient,'” once the practice has been consolidated into a hospital system, said Herrick.  

Coordinated Care Savings Illusory

Coordinated care has been promoted as a solution to insufficient coordination of hospital care and physician care, which is thought to lead to increased and unnecessary costs. Bringing previously physician-owned practices under the control of hospitals would increase efficiency and allow physicians and hospitals to better coordinate care, advocates claimed.

The key finding of the researchers was that practices owned by local hospitals or multihospital systems incur significantly higher expenditures per patient than integrated medical groups and IPAs owned by participating physicians.

The researchers did find physician practices owned by local hospitals and multihospital systems may better coordinate care than organizations owned by their participating physicians. But any resulting improvements through coordination of care were not associated with lower expenditures per patient.

Between 2009 and 2012 the total expenditures for care per patient were 10 percent higher in physician organizations owned by a local hospital and 20 percent higher in organizations owned by a multihospital system than in organizations owned by participating physicians, after adjusting for patient disease severity and other factors, the researchers found.

The Affordable Care Act, better known as Obamacare, included incentives for hospitals to buy physician practices in order to benefit from coordinated care.

“With the Obama administration’s encouragement and as a result of demographic factors, physicians increasingly began to work for hospitals and hospitals bought physician practices in large numbers,” Herrick said. “Now, just over half of physicians work for a hospital.”

Kenneth Artz ([email protected]) is a freelance writer for The Heartland Institute