At its November public meeting, the Medicare Payment Advisory Commission (MedPAC) discussed various Medicare payment policy issues, including provider consolidation and increasing the supply of primary care physicians.

In 2018, Congress asked MedPAC to study provider consolidation, specifically trends in horizontal (hospital-to-hospital) consolidation and vertical (physician-to-hospital) integration. MedPAC staff argued that Medicare policy does not induce consolidation, but some commissioners pointed out that negative Medicare margins may lead to greater consolidation. Some commissioners also requested a future analysis of the issue from a macro-level perspective by including research on insurer consolidation. MedPAC will discuss the effect of consolidation on the 340B Drug Pricing Program at the January 2020 meeting and include a chapter on it in its March report.

MedPAC found that that horizontal consolidation has increased in recent years, with the share of “super concentrated” markets increasing from 47% in 2003 to 57% in 2017. MedPAC also found that horizontal consolidation does not affect Medicare beneficiaries’ costs because Medicare sets prices, though it is associated with higher commercial prices due to greater market share and bargaining power. MedPAC found no clear evidence on how consolidation affects hospital costs or quality.

MedPAC’s analysis found that vertical integration has also increased. In 2012, 26% of physicians were employed by hospitals; this share grew to 44% in 2018. MedPAC argued that vertical integration increases Medicare payments and beneficiary cost sharing by shifting services from lower-paying physician offices to higher-paying hospital outpatient departments. MedPAC also said that commercial rates were higher due to increased provider bargaining power.

On primary care physicians (PCPs), MedPAC discussed its findings from interviews with medical schools, residency and fellowship program directors, and researchers. They cited three factors that discourage physicians from choosing primary care: lower compensation, faculty discouraging students from pursuing primary care careers, and residents and medical students not being exposed to high-functioning, community-based primary care practices, longitudinal patient relationships, and geriatric care settings.

As for how Medicare could attract physicians to primary care, interviewees recommended giving bonuses to residency programs that produce high numbers of PCPs, encouraging the training of residents at high-performing primary care practices, requiring residents to spend more time in outpatient and geriatric settings, and giving more support to rural residency programs. Interviewees also suggested ideas for reducing the compensation gap between PCPs and specialists, including increasing payments to PCPs and geriatricians. They had mixed reviews on offering a loan repayment program.