Medicare spending on imaging and lab services increased by $73 million after a hospital or health system acquired a physician practice, according to a new study that raises questions about the benefits of vertical healthcare integration.
The study, released Wednesday in the journal Health Affairs, is the latest to explore how the trend of hospitals buying up practices is affecting healthcare prices and spending. A major reason for the increase in spending is physician offices moving more services to the hospital, which charge Medicare more than nonhospital providers.
The study looked at Medicare fee-for-service claims data from 2013 to 2016. It examined if hospital or health system ownership of physician practices were “associated with changes in the site of care or Medicare reimbursement rates for ten common diagnostic imaging and laboratory services,” the study said.
It explored the number of procedures per 1,000 Medicare beneficiaries attributed to a physician group performed in the hospital and nonhospital sites of care. Overall, the study looked at 29.5 million imaging procedures from 13.3 million Medicare beneficiaries and 341.4 million lab tests from nearly 17 million beneficiaries.
Researchers found that the number of procedures that translated from a non-hospital provider like a free-standing laboratory to a hospital increased when a provider joined a hospital.
“Among physician groups not vertically integrated with a hospital or health system, 67.9% of imaging tests were performed in hospital-based facilities compared with 76.9% for vertically integrated physicians,” the study said. “For laboratory tests, the respective percentages were 53.6% and 61.2%.”
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From 2013 to 2016, the number of physicians in groups that were owned by a hospital or system increased by 16.2%.
“After vertical integration, the monthly number of imaging tests performed in hospital sites of care increased by 26.3 procedures per 1,000 attributed beneficiaries,” the study said. “The number of procedures performed in nonhospital sites of care decreased by 24.8 procedures per 1,000.”
The number of lab tests increased by 44.5 per 1,000 beneficiaries and the number of tests performed in non-hospital settings declined by 36 per 1,000 beneficiaries.
The changes in sites led to higher Medicare reimbursement as Medicare pays hospitals more for the same procedures as those performed in a non-hospital setting.
All told the shifts in care led to a spending increase of $73 million when taking into account both imaging and lab tests.
Researchers also found there were increased rates of testing procedures for vertically integrated providers.
“It is difficult to argue that the additional spending is related to better quality of care, as these specific services are likely to be highly standardized — and hence undifferentiated — across diagnostic providers,” the study said. “The increased payment is instead a reflection of pre-existing Medicare payment rates that reimburse hospitals more for these services than they reimburse competing providers.”
The Centers for Medicare & Medicaid Services has taken steps to address the gap in reimbursement between hospital and non-hospital services. The agency sought to cut payments to hospitals for off-campus clinics to bring Medicare payments more in line with physician offices.
The findings come as the COVID-19 pandemic has accelerated the trend of consolidation among hospitals and physician groups. Providers have been hit hard financially by the pandemic as patient volume has dropped due to hesitancy to get care for fear of contracting the virus.
“Our study adds to the growing literature around the impacts of vertical integration,” the study said. “Our findings admittedly do not rule out potential positive impacts of vertical integration along other clinical dimensions, but they do highlight an example of where long-standing reimbursement practices likely require review and refinement in light of evolutions within the contemporary U.S. healthcare marketplace.”