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Credit: Petr Kratochvil
Medical practices in less competitive markets charge more for their services, according to a study published in JAMA.
The study, based on US healthcare data from 2010, provides new information about the effects of competition on prices for office visits paid by preferred provider organizations (PPOs).
“The research comes out of trying to understand some dramatic changes that have occurred in the healthcare system over a couple of decades,” said Laurence Baker, PhD, of the Stanford University School of Medicine in California.
One such change is the shift from practices with one or two doctors toward larger, more complex organizations with many physicians. An impact of this can be reduced competition among physician practices.
Dr Baker and his colleagues sought to understand how variation in the amount of competition within a region affects the amounts doctors are paid.
The researchers assessed the relationship between competition and prices paid by PPOs for the most commonly billed services within 10 prominent physician specialties—internal medicine, family practice, cardiology, dermatology, gastroenterology, neurology, general surgery, orthopedics, urology, and otolaryngology.
To establish what prices various medical practices were paid for services, the team used Truven Analytics MarketScan Commercial Claims and Encounters database, which contains the prices paid to physicians for more than 49 million privately insured people from all over the US. They obtained the number of claims and the mean price paid for each service in 1058 counties representing all 50 states.
To measure competitiveness, the researchers drew inspiration from the business world. Using Medicare data, they adapted a standard economic competition measure to track physician practice competition for different US regions.
The Hirschman-Herfindahl Index (HHI) uses the relative sizes of practices to measure market concentration. A higher HHI indicates a less competitive market, and a lower HHI indicates higher competition.
Less competition, higher prices
The researchers found that less competition among physician practices was associated with higher prices paid by private PPOs for office visits.
Across 10 types of office visits, the difference in the HHI was associated with average prices for office visits 8.3% to 16.1% higher. In a more conservative model, the difference in the HHI was associated with 3.5% to 5.4% higher average prices.
The researchers pointed out that, in 2011, privately insured individuals in the US spent nearly $250 billion on physician services. In that context, these small percentage increases could translate to tens of billions of dollars in extra spending.
The team also found that, between 2003 and 2010, prices increased more rapidly in areas that were less competitive. Even when there is no change in HHI, practices in less competitive areas could continue to drive up prices.
“These larger organizations might have better processes in place to optimize care,” said Kate Bundorf, PhD, also of the Stanford University School of Medicine.
“But our research also points out [that we] have to think about the effect on prices and try to balance those two things when we think about how to form policy about these organizations.”
Dr Baker echoed that sentiment.
“Sometimes, it can be tempting to say our goals for the healthcare system should be only about taking care of patients and doing it as well as possible,” he said. “We don’t want to worry about the economics. But the truth is, we do have to worry about the prices because the bill does come, even if you wish it wouldn’t.” 
Credit: Petr Kratochvil
Medical practices in less competitive markets charge more for their services, according to a study published in JAMA.
The study, based on US healthcare data from 2010, provides new information about the effects of competition on prices for office visits paid by preferred provider organizations (PPOs).
“The research comes out of trying to understand some dramatic changes that have occurred in the healthcare system over a couple of decades,” said Laurence Baker, PhD, of the Stanford University School of Medicine in California.
One such change is the shift from practices with one or two doctors toward larger, more complex organizations with many physicians. An impact of this can be reduced competition among physician practices.
Dr Baker and his colleagues sought to understand how variation in the amount of competition within a region affects the amounts doctors are paid.
The researchers assessed the relationship between competition and prices paid by PPOs for the most commonly billed services within 10 prominent physician specialties—internal medicine, family practice, cardiology, dermatology, gastroenterology, neurology, general surgery, orthopedics, urology, and otolaryngology.
To establish what prices various medical practices were paid for services, the team used Truven Analytics MarketScan Commercial Claims and Encounters database, which contains the prices paid to physicians for more than 49 million privately insured people from all over the US. They obtained the number of claims and the mean price paid for each service in 1058 counties representing all 50 states.
To measure competitiveness, the researchers drew inspiration from the business world. Using Medicare data, they adapted a standard economic competition measure to track physician practice competition for different US regions.
The Hirschman-Herfindahl Index (HHI) uses the relative sizes of practices to measure market concentration. A higher HHI indicates a less competitive market, and a lower HHI indicates higher competition.
Less competition, higher prices
The researchers found that less competition among physician practices was associated with higher prices paid by private PPOs for office visits.
Across 10 types of office visits, the difference in the HHI was associated with average prices for office visits 8.3% to 16.1% higher. In a more conservative model, the difference in the HHI was associated with 3.5% to 5.4% higher average prices.
The researchers pointed out that, in 2011, privately insured individuals in the US spent nearly $250 billion on physician services. In that context, these small percentage increases could translate to tens of billions of dollars in extra spending.
The team also found that, between 2003 and 2010, prices increased more rapidly in areas that were less competitive. Even when there is no change in HHI, practices in less competitive areas could continue to drive up prices.
“These larger organizations might have better processes in place to optimize care,” said Kate Bundorf, PhD, also of the Stanford University School of Medicine.
“But our research also points out [that we] have to think about the effect on prices and try to balance those two things when we think about how to form policy about these organizations.”
Dr Baker echoed that sentiment.
“Sometimes, it can be tempting to say our goals for the healthcare system should be only about taking care of patients and doing it as well as possible,” he said. “We don’t want to worry about the economics. But the truth is, we do have to worry about the prices because the bill does come, even if you wish it wouldn’t.”
Credit: Petr Kratochvil
Medical practices in less competitive markets charge more for their services, according to a study published in JAMA.
The study, based on US healthcare data from 2010, provides new information about the effects of competition on prices for office visits paid by preferred provider organizations (PPOs).
“The research comes out of trying to understand some dramatic changes that have occurred in the healthcare system over a couple of decades,” said Laurence Baker, PhD, of the Stanford University School of Medicine in California.
One such change is the shift from practices with one or two doctors toward larger, more complex organizations with many physicians. An impact of this can be reduced competition among physician practices.
Dr Baker and his colleagues sought to understand how variation in the amount of competition within a region affects the amounts doctors are paid.
The researchers assessed the relationship between competition and prices paid by PPOs for the most commonly billed services within 10 prominent physician specialties—internal medicine, family practice, cardiology, dermatology, gastroenterology, neurology, general surgery, orthopedics, urology, and otolaryngology.
To establish what prices various medical practices were paid for services, the team used Truven Analytics MarketScan Commercial Claims and Encounters database, which contains the prices paid to physicians for more than 49 million privately insured people from all over the US. They obtained the number of claims and the mean price paid for each service in 1058 counties representing all 50 states.
To measure competitiveness, the researchers drew inspiration from the business world. Using Medicare data, they adapted a standard economic competition measure to track physician practice competition for different US regions.
The Hirschman-Herfindahl Index (HHI) uses the relative sizes of practices to measure market concentration. A higher HHI indicates a less competitive market, and a lower HHI indicates higher competition.
Less competition, higher prices
The researchers found that less competition among physician practices was associated with higher prices paid by private PPOs for office visits.
Across 10 types of office visits, the difference in the HHI was associated with average prices for office visits 8.3% to 16.1% higher. In a more conservative model, the difference in the HHI was associated with 3.5% to 5.4% higher average prices.
The researchers pointed out that, in 2011, privately insured individuals in the US spent nearly $250 billion on physician services. In that context, these small percentage increases could translate to tens of billions of dollars in extra spending.
The team also found that, between 2003 and 2010, prices increased more rapidly in areas that were less competitive. Even when there is no change in HHI, practices in less competitive areas could continue to drive up prices.
“These larger organizations might have better processes in place to optimize care,” said Kate Bundorf, PhD, also of the Stanford University School of Medicine.
“But our research also points out [that we] have to think about the effect on prices and try to balance those two things when we think about how to form policy about these organizations.”
Dr Baker echoed that sentiment.
“Sometimes, it can be tempting to say our goals for the healthcare system should be only about taking care of patients and doing it as well as possible,” he said. “We don’t want to worry about the economics. But the truth is, we do have to worry about the prices because the bill does come, even if you wish it wouldn’t.”