By Kathleen Rutherford
Kathleen Rutherford is the executive director of A better Delawarea nonpartisan public policy and political advocacy organization that supports pro-growth initiatives, pro-jobs, and greater transparency and accountability in state government.
Delaware is missing the mark by a wide margin when it comes to affordable health care.
Delaware currently ranks fifth in the country in health care cost per capita at $12,899 and is ranked 20th most expensive in health insurance premium costs at $6,600 per year. There are several factors that contribute to health care costs; however, emerging evidence suggests that a major contributing factor is the tendency to reduce competition through the growth of large health institutions, which squash 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 due to the COVID-19 pandemic. Between 2019-21, the employment of doctors in hospitals or other corporate entities increased by 19%. During that same time, there was a 38% increase in corporate or hospital ownership of physician offices. Many states have limitations on the corporate practice of medicine, which can serve to limit conflicts of interest that often result in interference with a provider’s judgment due to outside influences.
Unfortunately, Delaware is not a corporate practice state of medicine, which facilitates corporate ownership of medical providers. In such ownership situations, providers’ judgment can be clouded by leadership that does not consider patient care as its primary decision-making driver. Larger hospitals and corporate institutions often justify their consolidation as a means of reducing health care costs. However, the evidence seems to point to the contrary.
Provider consolidation and the resulting internal referral systems that are developed are driving up health care costs. Several studies have shown a clear link between physician consolidation and rising health care costs. The Journal of Health Economics indicates that physician charges increased 14.1% after the acquisition. Vertical integration in health care has been proposed as a means to reduce costs. However, it can generate kickbacks for inappropriate referrals, which increases 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 than in a private practice.
The provider consolidation is accompanied by promises that the acquisition will allow the entities to work on innovative and improved care models and with higher patient satisfaction and better clinical outcomes. However, eliminating competition among providers creates incentives to raise prices and removes incentives to create value for patients. Consolidation tends to reduce the quality of care provided due to the disincentive to eliminate competition.
Private physical therapy practices in Delaware are subject to this tidal wave of change. This year, physical therapists faced a legislative challenge (Senate Bill 245) to their practice from orthopedic surgeons. It is intended to remove the prohibition on a physical therapist working in association and referral employment circumstances for profit. They state that orthopedic surgeons who have physical therapy practices will result in newly formed entities that can provide better collaborative care and more innovative care models, thus reducing costs, improving patient satisfaction and improving patient outcomes.
If enacted, SB 245 will result in larger institutions with conflicts of interest owning and controlling the majority of outpatient physical therapy in Delaware. The result will be the demise of privately owned physical therapy practices, negatively impacting the quality of care for this most critical component of the health care system. In many cases, physical therapists determine the functional outcome of people who experience a serious injury or surgery. The Board of Examiners for Physical Therapists and Athletic Trainers got it right in 1983 to insert language prohibiting physical therapists from working in for-profit referral situations because of the conflict of interest that arises. The intent of this provision was to eliminate the muddled judgment that occurs when financial incentives are the basis for a physician referral.
Instead of 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 removing the incentive financial for references. . Replacing the financial incentive for physician referrals with a motive that is in the patient’s best interest will result in reduced costs, higher quality care, and increased patient satisfaction and trust.
