Provider Consolidation Increases Per-Person Spending

An analysis of claims data from the Health Care Cost Institute (HCCI) from 2008 to 2013 finds statistically significant increases in consolidation among outpatient oncology providers and hospitals and/or health systems. These changes largely occurred in 2010 and 2011, according to the recent HCCI report, “The Impact of Provider Consolidation on Outpatient Prescription Drug-based Cancer Care Spending.”

Many policy makers have been concerned about the effects of medical provider consolidation on spending levels and trends because many medical providers have recently merged or affiliated with hospitals or health systems. The effects of such consolidation is ambiguous: it may lead to economies of scale, resulting in reduced spending, or consolidation may allow outpatient practices and/or hospitals to gain bargaining power in negotiations with certain insurers, increasing prices or changing the mix of treatments provided to patients and leading to increased spending. The HCCI report stated that policymakers’ concerns regarding the impact of provider consolidation on outpatient spending are warranted.

Using claims data, the researchers found that increased medical provider consolidation with hospitals and/or health systems results in increased spending on outpatient prescription drug-based cancer treatment. These results appear to be driven in part by increases in the prices charged for treatment, including facility fees that hospital outpatient departments are able to charge payers.

One example cited in the report is that a one percentage point increase in the proportion of medical providers affiliated with hospitals and/or health systems is associated with a 34% increase in average per-person annual spending and a 23% increase in the average per-person price of treatment.

“Comparing the magnitude of the spending and price effects, we believe spending results are in part driven by price increases,” the authors wrote.

More work is needed to understand whether increased spending among vertically concentrated providers is associated with improved quality of care and/or access to care for patients suffering from cancers and insured by commercial payers, state Medicaid programs, and federal Medicare programs. The report notes that it is not known whether these results are generalizable to care consolidation in the outpatient treatment of other specific diseases.