The New England Journal of MedicineVertical Integration and the Transformation of American Medicine

Navigating the Impacts of Healthcare Vertical Integration: Unraveling the Implications for Physicians and Patient Care

The landscape of American healthcare is undergoing a significant transformation due to the increasing trend of hospital acquisitions of physician practices. This shift, marked by a notable rise in hospital-owned practices, has profound implications for the organization, delivery, and economics of healthcare services. As hospitals integrate more practices and physicians into their fold, the ensuing changes not only influence the healthcare market dynamics but also have substantial repercussions for patient care, cost, and the quality of medical services.

Key Points:

• Hospital acquisitions of physician practices have surged, with the share of hospital-owned practices rising from 14% in 2012 to 31% by early 2018, and an additional 4,800 practices acquired between 2019 and 2022.
• Vertical integration, where hospitals and physician practices combine, aims to improve patient outcomes through better care coordination and economies of scale but has primarily led to increased healthcare costs without significant quality improvements.
• The strengthened negotiating power of integrated entities has led to higher prices, particularly due to facility fees and higher reimbursement rates for hospital-based services compared to outpatient settings.
• Medicare and other insurers’ payment policies have incentivized integration by offering higher reimbursement rates for hospital-based services, contributing to the trend.
• New antitrust guidelines from the FTC and DOJ aim to address potential competitive concerns raised by these acquisitions, focusing on market concentration and the cumulative effects of serial acquisitions.
• The effects of vertical integration vary significantly based on the specific characteristics of the acquiring and acquired entities, including size, geography, and the types of services provided.
• Practice acquisitions can have diverse impacts on clinicians, affecting their work-life balance, autonomy, job satisfaction, and potentially leading to longer working hours and increased burnout.
• Patients’ experiences and outcomes may vary post-acquisition, with potential benefits for those requiring coordinated care but possible disadvantages for others, especially in underserved communities.
• Future research is essential to understand the nuanced impacts of vertical integration on healthcare markets, clinician well-being, and patient care, informing policy and regulatory responses.

Hospitals acquired 8,000 medical practices and 14,000 physicians left private practice and entered into employment arrangements with hospitals between July 2016 and January 2018, according to a report by Avalere Health and the Physicians Advisory Institute (PAI).

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