The Effect of Hospital Acquisitions of Physician Practices on Prices and Spending (WP-15-02)


Cory Capps, David Dranove, Christopher Ody

One of the most important recent trends in the U.S. healthcare industry is hospital acquisition of physician practices. From 2007 to 2013, nearly 10 percent of physicians in the researchers’ sample were acquired by a hospital, increasing the share of physicians that are hospital owned by more than 50 percent. Supporters of hospital-physician integration argue that it offers the promise of significant cost savings while opponents raise concerns that integration will result in higher prices. Despite the heightened interest in hospital-physician integration, the research evidence is mixed and of questionable quality. Prior studies suffer from significant data problems that the researchers overcame by using administrative claims data provided by one or more anonymous insurer(s) operating in a number of states. With their data, they are able to (a) identify physician integration at the level of the individual practice, (b) study provider transaction prices before and after integration, and (c) examine broader medical spending. Capps, Dranove, and Ody find that, on average, physician prices increase nearly 14 percent post-integration—roughly a quarter of this increase is attributable to the exploitation of payment rules—and that price increases are larger when the acquiring hospital has a larger share of its inpatient market. They find no evidence that integration leads to reductions in spending, even four years post-integration.

Cory Capps, Partner, Bates White Economic Consulting

David Dranove, Walter J. McNerney Professor of Health Industry Management, Kellogg School of Management, Faculty Associate, Institute for Policy Research, Northwestern University

Christopher Ody, Research Assistant Professor of Strategy, Kellogg School of Management, Northwestern University


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