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Outpatient Care Costs Are on the Rise

As hospitals continue to buy practices, visits are costing more

As more doctors switch from private practices to hospital-owned practices, the cost of outpatient services rises.

Hannah Neprash and colleagues from the Harvard Medical School Department of Health Care Policy examined data on doctors who left private practices for hospitals in 240 U.S. cities between 2008 and 2012. The researchers linked those numbers to the health care spending records of more than 7 million consumers with private insurance. The results were published in JAMA Internal Medicine.

As the Boston Globe, reports, the patients weren’t getting more services. They were simply paying more for each visit. It’s normal for outpatient services to be priced a bit higher in a hospital than they are in an independent doctor’s office. Because hospitals have higher overhead costs, Medicare, the federal insurer of the elderly and people with disabilities, pays an average of $68 more for an outpatient service performed in the hospital than for a service performed in a doctor’s office. But if a hospital wants even more money, it’s out of luck — these prices aren’t negotiable. “Medicare can usually call the shots,” said Elizabeth Bradley, a professor at the Yale School of Public Health who specializes in health care costs.

Private insurers don’t have as much power as Medicare. They have to negotiate prices with each health care provider. And if a hospital employs most of the doctors in a city, then insurance companies don’t have much choice but to accept the hospital’s prices, even if they are higher than what Medicare is willing to pay. The same goes for physicians who join big hospitals. They suddenly gain the institution’s bargaining power, and they can charge more.

All this helps explain why costs go up — and why physicians have been flocking to hospitals in droves. Over the past quarter-century, the percentage of U.S. physicians who own their own practices has declined by about 2% every year.

Source: Boston Globe, October 19, 2015.

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