Medical procedures more expensive where physicians cluster in large medical practices

As more physicians move from solo and small practices, a dozen common medical procedures are becoming more expensive in areas where physicians are clustered into large medical practices, according to a new study.

The October study in Health Affairs assessed the relationships between physician competition and prices paid by private organizations in 2010 for 15 common, high-cost procedures to determine whether high concentrations of physician practices and accompanying increased market power were associated with higher prices for services.

They found that prices were indeed 8 to 26 percent higher in the thousands of counties analyzed, with the highest average physician concentration compared to counties with the lowest. This was for 12 of the 15 procedures they examined, including colonoscopy with lesion removal, vasectomy, laparoscopic appendectomy and knee replacement surgery.

“Our findings are consistent with the hypothesis that greater market power allows physicians to bargain for higher prices from insurers,” wrote Dan Austin, a graduate of the Stanford University School of Medicine and a resident physician at the University of California, San Francisco, and Laurence C. Baker, chair of Health Research and Policy at Stanford and a core faculty member at CHP/PCOR.

“We concluded that physician competition is frequently associated with prices,” they said. “Policies that would influence physician practice organization should take this into consideration.”

The authors studied 15 high-cost, high-volume procedures that generated 7,000 total bills in 2010 and had a mean price of at least $500. They identified nine surgical and medical specialties: dermatology, cardiology, radiation oncology, gastroenterology, otolaryngology, urology, ophthalmology, orthopedics, and general surgery.

Average prices for the procedures studied varied. Total knee replacement surgery and insertion of intracoronary stent were the two most expensive, at  $2,301 and $1,282, respectively. Vasectomy and colonoscopy were the least expensive, at  $576 and $586.

The authors found there was also considerable variation across counties within each specialty. The mean price in the 90th-percentile county was 1.8 to 2.7 times higher than in the 10th-percentile county. The 75th-percentile county was commonly $200 to $300 more expensive than the 25th-percentile county, and in some cases more.

This study adds to the growing body of research that demonstrates wide variation in medical prices for the same procedure or test based on a number of factors, including where a procedure is performed and who performs it.

“We know from some good examples that larger, well-run practices can provide high- quality care," Baker said in an interview. “And many of our current policies are built around the notion that we should encourage the formation of larger organizations in the hope of improving the quality of care and fostering improvements in value."

But, adds Baker: “It is also important that we factor in these kinds of effects on prices and the downstream impacts this can have on our health-care costs.”