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Financial integration is not associated with better quality

August 11, 2020

Topics: Quote of the Day

By Elliott S. Fisher, Stephen M. Shortell, A. James O’Malley, Taressa K. Fraze, Andrew Wood, Marisha Palm, Carrie H. Colla, Meredith B. Rosenthal, Hector P. Rodriguez, Valerie A. Lewis, Steven Woloshin, Nilay Shah, and Ellen Meara
Health Affairs, August 2020


Health systems continue to grow in size. Financial integration—the ownership of hospitals or physician practices—often has anticompetitive effects that contribute to the higher prices for health care seen in the US. To determine whether the potential harms of financial integration are counterbalanced by improvements in quality, we surveyed nationally representative samples of hospitals (n = 739) and physician practices (n = 2,189), stratified according to whether they were independent or were owned by complex systems, simple systems, or medical groups. The surveys included nine scales measuring the level of adoption of diverse, quality-focused care delivery and payment reforms. Scores varied widely across hospitals and practices, but little of this variation was explained by ownership status. Quality scores favored financially integrated systems for four of nine hospital measures and one of nine practice measures, but in no case favored complex systems. Greater financial integration was generally not associated with better quality.

From the Discussion

We found little relationship between financial integration of hospitals and physician practices and better quality, as measured by higher levels of adoption of care delivery and payment reforms. Independent hospitals had lower scores for four of nine measures (marginally so for two of these), but there were no differences between hospitals in simple and complex systems. Independent physician practices were less likely to participate in payment reforms but more likely to screen patients for clinical conditions or social needs. In no case did physician practices in complex systems have higher scores. Bigger system size was not associated with better scores.

Our findings are consistent with findings from other research. The evidence from earlier studies that financial integration between hospitals and physician groups improves process measures of quality is at best mixed, with only one study finding evidence of improvement on several measures of process quality. We examined a broader range of measures and found no pattern to suggest that financial integration for physician practices was associated with better quality. Our results are also consistent with recent research from the patient’s perspective finding that larger medical practices and hospital-owned groups do not provide more coordinated care. There is also some evidence that small physician practices deliver better care on other domains of quality, and physician-led ACOs have been more successful than hospital-integrated ACOs.

From the Implications for Policy and Practice

These findings also raise the question of why financially integrated delivery systems do not do better in adopting such reforms. One possibility is that sufficient conditions do not yet exist to motivate change. The move away from fee-for-service to value-based payment might not yet be at the tipping point for financially integrated systems to “activate” their potentially greater resources and capabilities to implement recommended reforms.

Another possibility could be differences in the capacity for innovation in the different organizational forms studied. The assumption that the larger, more financially integrated delivery systems have a greater capacity to innovate by adopting such reforms might not be true. Larger organizations can experience diseconomies of scale and increased costs of coordination that can be avoided by smaller, more nimble organizations.



By Don McCanne, M.D.

Much has been written about consolidation in the health care industry, including integration of hospitals and physician practices, primarily because the anticompetitive effects have significantly contributed to higher health care prices. So what value are we receiving for this higher level of health care spending?

Assuming a given volume of health care, then the higher cost should be bringing us higher quality in care. This study concludes, “Greater financial integration was generally not associated with better quality.”

Perhaps it’s innovation? But the authors also observe, “The assumption that the larger, more financially integrated delivery systems have a greater capacity to innovate by adopting such reforms might not be true. Larger organizations can experience diseconomies of scale and increased costs of coordination.”

Another factor behind consolidation and integration, besides anticompetitive pricing, may be the effort to better position themselves for alternative payment models such as accountable care organizations (ACOs) and the Medicare Shared Savings Program. Well, here too, the results so far have been very unimpressive with little cost savings and negligible improvements in quality.

What have we been doing wrong? There are no doubt many factors, but foremost amongst them is that we have been leaving the neoliberals in charge of our politics which has given the medical-industrial complex near carte blanche in their control of our health care delivery system.

So what can we do? The single payer model of Medicare for All is specifically designed to provide the appropriate volume of care, that is of high quality, and that is financed through a system that is affordable for each of us. Further, through regional planning and separate budgeting of capital improvements, it provides appropriate capacity in the system thereby avoiding market consolidation done merely for the purpose of increasing profits. Capacity decisions are made based on patient needs, not entrepreneurial goals.

The authors conclude, “Much more needs to be learned about how to accelerate improvement. This may be through the expanded adoption of alternative payment models that reward high-value care; the better alignment of payment models across payers to increase the magnitude of incentives; greater transparency of both cost and outcomes data; greater leadership and managerial skills in implementing changes in care redesign and continuous quality improvement; or, most likely, all of the above.” More neoliberal medical-industrial management. Sadly, they just don’t get it.

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About the Commentator, Don McCanne

Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

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