Practice Notes

Are employed medical groups driving up health care costs?

by William Hudec

Bigger is not always better—that’s the argument behind health economist Austin Frakt’s recent article in The Upshot, a policy blog operated by The New York Times. Is Frakt on the mark? In this post, we examine each component of his argument separately.

Provider networks are consolidating

The Affordable Care Act has driven many provider organizations to consolidate or narrow their networks, in order to manage costs and quality of patient care more effectively and efficiently. With the ACA now in its fourth year, many markets show evidence that this trend has intensified.

Physician employment is among the most prevalent approaches to network consolidation. Merritt Hawkins recently reported that 64% of 2013 search assignments were for hospital-employed settings, matching its peak from 2012. As we noted last September, employed physicians skew younger than the median age for the physician cohort. While employed physicians remain a minority of total physicians, the demographic trends indicate that they will be increasingly more important over the long run.

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So what’s the downside?

Provider consolidation into larger Accountable Care Organization models may benefit Medicare and its beneficiaries. However, Frakt raises a concern that larger organizations using scale to achieve cost and quality objectives may also use their enhanced market power to pass increased premiums on to other health care consumers.

Is there evidence of that this happens? A recent Health Affairs article suggests there is. The report found that vertical integration between hospitals and physicians through employed medical groups correlates with higher hospital prices and spending. In fact, federal regulators have been scrutinizing this exact trend in recent months.

Is there an upside?

Acknowledging that competitive interests may be driving physician employment, the medical group’s value proposition should not be limited to cost calculations. If integration also yields improvements in quality of care or other outcomes, the higher costs may prove worthwhile. The Health Affairs authors were unable to assess these other potential impacts of consolidation, but other researchers have demonstrated a clear relationship between closer integration and quality improvements.

For medical groups, the challenge, then, is communicating that value to system partners and to consumers. Physician employment promises high-quality performance across the care continuum, such as better communication and reduced duplication; the medical group must both deliver on this promise, and demonstrate its own centrality in achieving those goals.

Member asks: How do I structure a physician performance scorecard?

Proving the value of integration

The Medical Group Strategy Council has developed several resources to help your medical group track and demonstrate the value of integration.

Vetted metrics: Medical groups are using clear and actionable dashboards to assess performance, identify improvement areas, and align individual goals with the organization’s mission.

Cohort-specific benchmarking: See how your medical group is performing relative to your peers with our 2013 Integrated Medical Group Benchmarking Initiative.

Best practices on improving the patient experience and meeting the new access standard: Attend our national meeting this summer to learn the latest from our members to address challenges related to patient experience and access.

Our Southwind colleagues also recently commented on this trend for Becker’s Hospital Review.


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Six lessons for building insightful dashboards that demonstrate holistic medical group value to health system executives and facilitate management over a broad scope of medical group operations. Read the study.