NBER Working Paper 23871: Does Multispecialty Practice Enhance Physician Market Power?

By Laurence C. Baker, M. Kate Bundorf, and Daniel P. Kessler
National Bureau of Economic Research, September 2017

Abstract

In markets for health services, vertical integration – common ownership of producers of complementary services – may have both pro- and anti-competitive effects. Despite this, no empirical research has examined the consequences of multispecialty physician practice – a common and increasing form of vertical integration – for physician prices. We use data on 40 million commercially insured individuals from the Health Care Cost Institute to construct indices of the price of a standard office visit to general-practice and specialist physicians for the years 2008-2012. We match this to measures of the characteristics of physician practices and physician markets based on Medicare Part B claims, aggregating physicians into practices based on their receipt of payments under a common Taxpayer Identification Number. Holding fixed the degree of competition in their own specialty, we find that generalist physicians charge higher prices when they are integrated with specialist physicians, and that the effect of integration is larger in uncompetitive specialist markets. We find the same thing in the reciprocal setting – specialist prices are higher when they are integrated with generalists, and the effect is stronger in uncompetitive generalist markets. Our results suggest that multispecialty practice has anticompetitive effects.

http://www.nber.org…

Advocates of consolidation in health care tell us that both horizontal and vertical integration improve efficiency and improve the services delivered, thus improving quality and reducing costs. The secret, they say, is to allow the markets to work. But what does this study tell us?

Integration of generalist and multispecialty practices drives up prices of both the generalists and the specialists, which the authors attribute to the anticompetitive nature of multispecialty practices.

Of significance is that this study did not use Medicare data but rather used data from the Health Care Cost Institute which compiles data on commercially insured individuals – the private sector. This study shows, once again, that the U.S. system is unique in relying heavily on the medical-industrial complex, and we are paying dearly for that.

This trend in consolidation has been increasing, and yet where is the government when we need it? Does Medicare do any better? Well, yes. Prices are lower under Medicare than under the private insurance plans, except for the private Medicare Advantage plans (though more is paid to the insurers for administration and profits).

What would happen under an Improved Medicare for All program? Prices would be negotiated to cover legitimate costs and fair margins. That might mean that some Medicare fees would be adjusted upward, especially for primary care, but the chicanery of the private insurers in partnership with their contracted providers would no longer be a factor since they would be replaced by the single payer system.

No doubt progressive members of the policy community will say, “There goes PNHP again with their pipe dreams about single payer nirvana.” But other wealthy nations cover everyone at an average of half of our per capita costs, precisely because they rely on greater government oversight. “Only in America” do we put up with this – American exceptionalism that bites us.

Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.