Vertical Integration's Costly Side Effects on Work Comp Spend

For years, the promised panacea for reining in exorbitant healthcare spending has been vertical integration - hospitals acquiring physician practices to align incentives and coordinate care delivery. In theory, having providers under one big happy healthcare umbrella eliminates fragmentation and redundancies that drive up costs. But a new study tells a very different story about what happens when hospitals become the masses employers for doctors. Rather than a cost-saving holistic approach, vertical integration seems to have opened a Pandora's box of overprovision, over-testing, and overspending - especially in the world of workers' compensation.

To oversimply this, vertical integration happens when a hospital buys up doctor's offices/clinics so they are all under the same ownership and control.

Before vertical integration, the hospital and doctor's offices were separate businesses. After vertical integration, they become one vertically integrated health system.

The study found that when an injured worker receives care at a vertically integrated health system (hospital + doctor's offices under the same ownership), a few things tend to happen:

1. The doctors order more tests, procedures, and services per office visit for the injured worker.
2. The injured worker has to go for more office visits during their treatment.
3. The injured worker sees more different doctors/providers during their care.
4. The doctors order more imaging tests like MRIs and X-rays.
5. The doctors tend to bill for more complex/expensive office visit charges.

So in essence, vertically integrated health systems provide more services, tests, procedures, and visits when treating an injured worker. All of this extra utilization drives up the total medical costs for that worker's compensation claim.

The study estimated vertical integration increased the total medical payments on a claim by 7-11% overall, and even more (up to 20%+) for low back injury claims specifically.

So while vertical integration may increase care coordination in theory, in practice it led to injured workers receiving more services, seeing more providers, and driving up the total incurred medical costs on their workers' comp claims.

Source: Workers Compensation Research Institute. (2024). Impact of vertical integration on use of medical care and claim outcomes [Conference presentation slides]. Workers Compensation Research Institute Issues & Research Conference, Boston, MA, United States. https://www.wcrinet.org/impact-vertical-integration-utilization-2024

As always, thank you to my employer, MTI America for the opportunity to attend and share these insights with the risk and insurance community.