Kathleen Rutherford is the executive director of A Better Delaware, a nonpartisan public policy and political advocacy organization that supports pro-growth, pro-jobs initiatives and greater transparency and accountability in state government.
Delaware is missing the mark by a large margin regarding affordable health care.
Currently, Delaware ranks fifth in the country at health care cost per capita at $12,899 and is ranked as the 20th most expensive for health insurance premium costs at $6,600 per year. There are several factors that contribute to health care costs; however, emerging evidence suggests one large contributing factor is the trend towards reducing competition via the growth of large health institutions, who squelch competition in the marketplace.
Since 2012, the percentage of physicians nationwide who work in physician offices has changed from 60.1% to 26.1%, as of 2022. This trend increased more rapidly because of the COVID-19 pandemic. Between 2019-21, physician employment in hospitals or other corporate entities increased 19%. During that same time, there was a 38% increase in hospital or corporate ownership of physician practices. Many states have limitations on the corporate practice of medicine, which can serve to limit the conflicts of interest that often result in interference of a provider’s judgment due to outside influences.
Unfortunately, Delaware is not a corporate practice of medicine state, thereby facilitating corporate ownership of medical providers. In such ownership situations, providers’ judgment may be clouded by leadership that does not hold patient care as their primary driver for decision-making. Often, larger hospital and corporate institutions justify their consolidation as a means of reducing costs in health care. However, the evidence seems to point towards the contrary.
Provider consolidation and the resulting in-house referral systems which develop are driving costs of health care upward. Several studies have shown a clear link between physician consolidation and increased health care costs. The Journal of Health Economics indicates physician charges increased by 14.1% following acquisition. Vertical integration in health care has been proposed as a means of reducing cost. However, it can result in kickbacks for inappropriate referrals, thereby driving up costs. The Health Care Cost Institute found that the average price for a given service was always higher when performed in a hospital as an outpatient versus a private office setting.
Provider consolidation is accompanied by promises that the acquisition will allow the entities to work on innovative and improved models of care and with higher patient satisfaction and enhanced clinical outcomes. However, elimination of competition among providers creates incentives to hike prices and removes incentives to create value for patients. Consolidation tends to reduce the quality of care delivered due to disincentive from eliminating competition.
Privately owned physical therapy practices in Delaware are becoming subject to this tidal wave of change. This year, physical therapists encountered a legislative challenge (Senate Bill 245) of their practice from orthopedic surgeons. Their intent is to remove the prohibition of a physical therapist working in referral-for-profit employment and partnership circumstances. They purport that orthopedic surgeons owning physical therapy practices will result in newly formed entities that can provide better collaborative care and more innovative models of care, thereby reducing costs, enhancing patient satisfaction and improving patient outcomes.
If enacted, SB 245 will result in larger institutions with conflicts of interest owning and controlling most of the outpatient physical therapy in Delaware. The result will be the extinction of privately owned physical therapy practices, which will adversely impact the quality of care of this most critical component of the health care system. In many cases, physical therapists determine the functional outcome of individuals who sustain serious injury or surgery. The examining board of physical therapists and athletic trainers got it right in 1983 by inserting language which prohibits physical therapists from working in referral-for-profit situations due to the conflict of interest that arises. The intent of this provision was to eliminate the clouded judgment that occurs when financial incentives are the foundation for a medical referral.
Rather than focusing on and expanding anti-competitive strategies that only serve to fatten the wallets of those at the top of those entities at the expense of patients, Delaware should focus on creating strategies that facilitate healthy competition among providers, thereby eliminating financial incentive for referrals. Replacing financial incentive for medical referrals with a motive that is seeking out the best interest of the patient will result in reduced costs, higher-quality care and greater patient satisfaction and trust.
