Dr. Michael Richards: The Domino Effects Consolidation Has On Healthcare Spending

January 5, 2022
Josie Livengood

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For episode nine of the second season of our podcast, we were joined by Dr. Michael Richards, a healthcare economist and Associate Professor at Baylor University (Sic ‘Em), who has published significant research on rising healthcare costs.

Prior to joining Baylor University, Richards was part of the early admissions program at the University of Illinois College of Medicine, where he received his BS, MD, and MPH degrees. He then went on to complete his PhD in health economics at Yale University, which was immediately followed by a postdoctoral research position within the University of Pennsylvania Wharton School's Leonard Davis Institute of Health Economics. After leaving Penn, he spent three years as an Assistant Professor within Vanderbilt University's Department of Health Policy.

He has carried out a variety of studies on health policy topics including the effects of consolidation on healthcare costs, healthcare insurance models, and supply-side dimensions of the healthcare sector. His primary research area involves healthcare provider responses to public policies and evolving market environments.

Our host, Steven Cutbirth, sat down with Dr. Richards to discuss several topics, including his areas of research and interest, incentives for providers and other key players in healthcare, and more.

You can listen to the whole episode here or on Spotify, Apple Podcasts, or wherever else you listen to podcasts. If you’re short on time, we’ve included a few highlights from our conversation below:

Steven: “I know you’ve studied healthcare consolidation significantly. In one study, you found that post-integration (after the doctors group was acquired), doctors ordered more tests overall and shifted many of them to their affiliated hospital, which is more expensive, leading to roughly $73 million in additional Medicare spending. Could you tell us a little more about that research, what you found, and how Medicare maybe even incentivized some of that?”

Michael: “Yes, of course. We're really thinking about the broad implications healthcare consolidation has. It's kind of knocking down dominoes and creating other issues that have a lot of impacts on our spending and so on. The area of consolidation I've had quite a bit of focus on is what we often refer to as vertical integration. So instead of two hospitals coming together in a horizontal merger, what we're thinking about is a hospital aligning with another type of healthcare provider, often physician practices. And so we've seen over the last five to ten years an acceleration of the purchases by hospitals and health systems of what were otherwise independent physician practices. So through a couple of different studies we've been interested in what kind of implication does that have for these physician referral patterns when they're then transitioned under this employee-employer relationship with a hospital or health system. The specific study that you referenced, one of the things that we found was a big shift in testing. Both laboratory testing and imaging testing. Now when we're thinking about healthcare spending, admittedly, these aren't the big ticket items. These aren't the things that are really eye-popping, but they are very high value. And so when you're shifting the specific test to a more expensive setting, which is the hospital-based setting, as opposed to an independent imaging or lab service outside of the hospital or health system, you can really rack up a lot of dollars quickly. This is something that we think of as economists and as consumers as kind of undifferentiated products. The hospital version of the MRIs shouldn't be very different from the independent imaging center, right? But we pay them as just a relic or artifact of the Medicare approach to these fee-for-service payment schedules. And so by driving these referral patterns we can be paying more for the same care.”

Steven: “Within the past year, regulations have gone into effect and more are coming to start requiring price transparency. Initially hospitals haven’t been thrilled to comply. As a healthcare economist, what are your views on price transparency? Are you in the Danish concrete camp or are you optimistic about the potential effects it could have? Do you think it has the potential to drive up or down healthcare costs?”

Michael: “I think about price transparency as one piece of the broader consumer engagement movement in healthcare. I think they're very much linked in important ways and kind of one needs the other. I think there are a few things that we want to keep in mind to have a balanced view of both 1. what it has done and 2. the potential for what it can do in the future. One of which is typically when we look at the healthcare utilization and healthcare spending across the country, we typically generate estimates of 30 to 40% fall into the shoppable category. That's clearly an opportunity to do things better and add some efficiencies, adds value, but it also means that there's a large chunk of healthcare dollars that are going to need other types of interventions, reforms, and kind of a movement towards something better. We have studies that have shown that when you marry price transparency with another type of initiative, whether it's reference pricing or even direct bonus payments to individuals when they make the low cost or more efficient choice, it does generate a response. So there's clearly opportunities to build upon that, especially in things that people understand, such as labs or generic drug prices, or using an ambulatory surgery center for their colonoscopy. But you know, the effects often are not huge. So we want to keep that in mind. Patients still tend to rely a lot on the referrals because they come from their clinical providers that they trust and they rely upon for a lot of decision making. And so that's going to be an important piece of this is thinking about what are also the providers’ incentives and to help kind of guide the patient in these choices. I think we have to, in the spirit of consolidation, still have to think ‘Where does competition play into this and how are we bringing more transparency to the market?’ But also what is that competitive landscape? Are there actually enough providers competing? Because that's going to have implications on how these price transparency and other consumer initiatives ultimately play out. On the other hand, I do think even though these caveats apply, I do think there's a neat opportunity that I don't hear as many people talk about. So, we've done studies to look at how these different tools and interventions play out. Obviously there's a lot of growth and excitement in the tech innovation and healthcare space. So new companies, new ideas are sprouting up, but actually I get the most excited when we're talking about price transparency and kind of the shift in a more empowered healthcare consumer. It creates an opportunity to get these enrollees, to get these consumers, these patients to have a little more buy-in for managed care. We had this massive backlash to managed care in the early 2000s, and we've kind of run away from it for 20 years. We're just now starting to explore it again when we're talking about employer sponsored health insurance. I'm not a fan and it's not a secret, because I worry about the incentives that come with it from the employers perspective. They like being known as having a good plan. And what does a good plan usually mean? It usually means everyone's in it. There's kind of no network, there's no steering. From the employer's perspective, they care about the total cost. Both the salaries and the benefits. And so it's really hard to convince people that if their employer sponsored plan is too expensive, it’s paying too much for healthcare services, that it's actually the employer that is bearing those costs, not their employees. It's just really hard for people to internalize that. But it creates these kinds of weak incentives to have something kind of more meaningful in terms of a kind of managed care and more and more efficient care. But if you have this consumer engagement, if you have these price transparency tools, if you have these coupled incentive programs to really kind of encourage this, it does allow the individuals to start to realize their choices.”

To hear the whole conversation, click here for the full podcast episode. If you’d like to connect with Michael or learn more from him, you can contact him at michael_richards@bayolr.edu or visit his personal website.

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