Prices, Incentives, and Provider Consolidation in Health Care

Several recent analyses have documented wide variation in prices and identified price increases as a key driver in cost growth. Substantial provider consolidation and various payment reform initiatives, requiring greater financial risk by providers, have also occurred. This project would use an all-payer claims database from Massachusetts to distinguish the proportions of cost growth for patients with similar diagnoses that are due to changes in: practice intensity, negotiated price levels for specific providers, and referrals to different provider types (e.g., shifts to lower priced providers or sites of service). These trends would be investigated for specific private payers and Medicaid. This initial work will inform the policy community on the sources of cost changes for different insurers over time and their relationship to utilization changes. By looking at a market with heavy reform activity, important insights could be gained for other part of the country considering similar payment and delivery reforms. If the proposed approach for decomposing the cost growth trends is successful, a second phase of work would correlate the cost trends to various alternative payment models implemented by payers in Massachusetts. Moreover, the project will use hospital and physician alignment data to generate insights on how consolidations have impacted prices and referral patterns.