Insurers pay larger practices more

Kaiser Health News published a piece on how physician practices have become increasingly hospital-owned, while the reimbursement rates for large practices tend to cost insurance companies more. According to some claims data, the publication's analysis found that insurance companies reimbursed physicians employed by a hospital system two to four times more than what they reimbursed independent physicians for a vaginal delivery (the piece followed the story of an obstetrician). I have anecdotally heard that large medical systems have approached independent physicians, offering to buy their practice in exchange for better pay and less administrative overhead. While many physicians may bemoan the loss of independence, that offer will entice many. The reason that the large medical practices can afford to make those offers is that they employ enough of the local market's physicians that they can command much higher rates -- high enough to compensate for the higher salaries and overhead. If these acquisitions were done on a national scale, the Federal Trade Commission might be sufficiently interested to stop the concentration of power; however, given the local nature of health care, these acquisitions tend not to attract regulatory oversight.

The insurance companies clearly understand the power dynamics, knowing that any particular independent physician doesn't meaningfully affect its business. However, the insurance companies seem to take a short-sighted view on the matter: by refusing to pay independent physicians anywhere near what they pay large practices, they allow the large practices to make very attractive acquisition offers. As practices consolidate, insurance companies become increasingly beholden to these large practices, which can in turn command higher prices and make even more attractive offers.