Hospital Acquisition of Physician Practices Drives Up Costs

Hospital acquisition of physician practices has been on the rise, and as per research, it has been leading to higher healthcare costs. Less than half of U.S. physicians are actively working in independent, physician-owned practices. According to the American Medical Association (AMA) survey, approximately 42% of physicians remain in private practice, while nearly 47% are employed by hospitals. This depicts a sharp increase over the last decade.  

This change is strongly influenced by hospital acquisitions of private physician practices, a trend that has completely transformed the industry, which small, locally owned medical groups once dominated. While the unification might streamline operations for some health systems, new research shows that it is also linked to higher costs for both patients and insurers. 

Why Hospital Acquisition of Physician Practices Raises Costs 

According to a recent National Bureau of Economic Research (NBER) study, after hospitals acquire physician practices, prices for common medical services take a hike.  

For example:  

• Two years after a hospital buys an OB-GYN practice, labor and delivery prices rise by an average of $475. 
• Physician service prices for childbirth increase by approximately $502. 

Researchers focused more on childbirth because it’s the most common reason for hospital admission among people with private insurance. 

The study concluded that these post-acquisition price hikes are primarily driven by reduced market competition. 

Why Costs Increase After Acquisitions 

As noted by economists, hospital ownership can lead to higher prices for multiple reasons: 

• Fewer independent providers mean less competition.  
• Hospital-owned practices can charge additional “facility fees” for services provided in outpatient settings.  
• Larger systems can demand higher reimbursement rates from insurers. 

As per Matthew Grennan, associate professor of Economics at Emory University and one of the study’s authors, “Hospital acquisitions of private practices can result in anticompetitive price increases. The antitrust community needs to consider these potential harms more carefully.” 

Regulatory and Legislative Responses 

Despite all the evidence, there has been little federal intervention to prevent hospital mergers linked to rising healthcare costs. However, some states are taking action: 

• Oklahoma – Laws require hospitals to disclose the majority pricing for many services, and in the case of noncompliance, they face penalties. Debt collectors must also prove compliance before pursuing medical debt collection.  
• Colorado – Places a legal limit on the provider and hospital rates when insurance premiums exceed certain limits.  
• Montana & Oregon – Limit charges for state employee health plans. 
• Multiple States – Bipartisan initiatives aim to reduce or eliminate certain facility fees to protect patients from surprise costs. 

Why This Matters for Patients 

The U.S. has been subjected to serious financial burdens due to medical debt, with about 14 million Americans owing over $1,000 in medical bills, according to non profit KFF. With hospital ownership of physician practices growing, patients are likely to have fewer choices and higher costs, making transparency and competition critical priorities for policymakers. 

Bottom Line

The U.S. healthcare landscape is being reshaped by the hospital acquisition of physician practices. Even though these mergers may bring operational efficiencies, evidence suggests they often come at a cost of higher prices for patients and insurers. Regulatory oversight and consumer protections will be essential to ensure that healthcare remains accessible and affordable. 

If you’re a medical provider looking to safeguard your practice from financial risks, our insurance solutions for healthcare professionals can help you stay protected.