A new study finds that hospital costs play an oversized role in overall health care cost increases—with hospital prices outpacing physician prices by almost 20 percent. The new research is adding to the debate about the role of mergers and acquisitions in hospital costs overall.

The study, by Health Affairs, found that hospital prices for inpatient care grew 42 percent from 2007 to 2014, compared with 18 percent growth in physician prices for that same period. In outpatient settings, hospital care grew 25 percent, compared to 6 percent for physician prices.

“A majority of the growth in payments for inpatient and hospital-based outpatient care was driven by growth in hospital prices, not physician prices,” the study's authors write. “Our work suggests that efforts to reduce health care spending should be primarily focused on addressing growth in hospital rather than physician prices.”

The American Hospital Association (AHA) quickly disputed the findings of the report, releasing a statement that questioned the data used by the study. The AHA statement pointed out that the Health Affairs study did not include Medicare and Medicaid data, and also left out data from Blue Cross plans, which can be a sole provider of insurance in many parts of the U.S.

“It is important to note that hospitals and health systems must manage a number of significant costs that do not apply to the physicians included in the study,” the AHA statement said. “This includes the fact that hospitals face many challenges related to a high number of regulatory requirements, which increase administrative expenses and staffing needs for compliance.”

Still, the Health Affairs study seems likely to add to the debate over mergers and acquisitions in the health care field, at a time when M&A activity is high. One such deal, the recent merger of Dignity Health and Catholic Health Initiatives, created the country's largest nonprofit health system. The new system, CommonSpirit Health, will have 700 facilities in 21 states.

As health care costs continue to be a national issue, the new report is likely to spur more discussion on whether such M&A activity will reduce competition, and with it, incentives to hold down costs.

The Health Affairs article pointed to tighter regulation of M&A activity as one possible step in addressing the high costs of hospital care. “Policy makers should consider a range of options to address hospital price growth, including antitrust enforcement, administered pricing, the use of reference pricing, and incentivizing referring physicians to make more cost-efficient referrals,” the report said.

According to an article in Health Leaders, the new study complements other research that raises red flags about health care M&A activity. “There's some work I've done with the coauthors of this study separately that shows consolidation is definitely a component of price growth on the facility side,” said Stuart Craig, one of the lead authors of the study. “We looked at hospital mergers and found that prices increase after hospital mergers.”

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Hospital cost growth significantly outpacing physician costs

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