There has been a rise in the number of physician practices being owned by hospitals — the number has more than doubled from 2002 to 2008. This trend toward vertical integration means that there are now more producers of services that were at one time independent, and are now either related by contract or commonly owned.
It is debatable as to whether this trend is beneficial to consumers. On one side, this integration may improve the efficiency and quality of care through the reduction of transaction costs. Closer ties between hospitals and doctors may improve communication and reduce duplication of tests.
One the other hand, this integration may be hurting consumers because it allows hospitals and doctors to raise prices. Hospitals, through employing or contracting doctors, can increase their market by having control over larger numbers of services, as well as depriving rivals of referrals. Also, it can increase the incentive for doctors to provide unnecessary treatments, if these treatments are in essence a kickback for inappropriate referrals.
This vertical integration can have both harmful and beneficial effects. It is widely agreed that it provides better coordination of care — especially between hospitals and doctors — which is obviously in the best interest of patients. Alternatively, health policy analysts have concerns that the process can have consequences. As was stated, the integration as the potential to increase marketing power, as well as encouraging doctors to perform unnecessary or inappropriate treatments to facilitate kickbacks — which would be illegal if offered formally.
Understanding the effects of this integration is becoming increasingly important. The Affordable Care Act incentivizes that will likely cause an increase for vertical integration. The Act rewards hospitals and doctors who join together to create an ACO, or an accountable care organization. While these ACOs generally only affect how medical provides use Medicare, analysts believe these organizations will essentially increase how hospitals and doctors negotiate with private purchasers.
There are also potential social benefits. Studies have shown that in many cases the integration does seem to improve coordination of care, and may even decrease the rates of hospital admissions. There are many studies on the horizon being done to actually research if the quality of care is improved. Obviously, this is a very important topic for both healthcare providers and consumers.