Accessible Version

MEDICARE

Increasing HospitalPhysician 

Consolidation 

Highlights Need for 

Payment Reform

Report to Congressional Requesters

December 2015

GAO-16-189

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-16-189, a report to 

congressional requesters

December 2015

MEDICARE

Increasing Hospital-Physician Consolidation 

Highlights Need for Payment Reform 

Why GAO Did This Study

Medicare expenditures for HOPD 

services have grown rapidly in recent 

years. Some policymakers have raised 

questions about whether this growth 

may be attributed to services that were 

typically performed in physician offices 

shifting to HOPDs. GAO was asked to 

examine trends in vertical 

consolidation and its effects on 

Medicare. 

This report examines, for years 2007 

through 2013, (1) trends in vertical 

consolidation between hospitals and 

physicians and (2) the extent to which 

higher levels of vertical consolidation 

were associated with more E/M office 

visits being performed in HOPDs. GAO 

analyzed, using various methods 

including regression analyses, the 

most recent available claims data from 

CMS and survey data from the 

American Hospital Association, in 

which hospitals report the types of 

financial arrangements they have with 

physicians.

What GAO Recommends

In order to prevent the shift of services 

from lower paid settings to the higher 

paid HOPD setting from increasing 

costs for the Medicare program and 

beneficiaries, Congress should 

consider directing the Secretary of the 

Department of Health and Human 

Services (HHS) to equalize payment 

rates between settings for E/M office 

visits—and other services that the 

Secretary deems appropriate—and to 

return the associated savings to the 

Medicare program. HHS provided 

technical comments on a draft of this 

report, which GAO incorporated as 

appropriate.

What GAO Found

Vertical consolidation is a financial arrangement that occurs when a hospital 

acquires a physician practice and/or hires physicians to work as salaried 

employees. The number of vertically consolidated hospitals and physicians 

increased from 2007 through 2013. Specifically, the number of vertically 

consolidated hospitals increased from about 1,400 to 1,700, while the number of 

vertically consolidated physicians nearly doubled from about 96,000 to 182,000. 

This growth occurred across all regions and hospital sizes, but was more rapid in 

recent years. After hospitals and physicians vertically consolidate, services 

performed in physician offices, such as evaluation & management (E/M) office 

visits, can be classified as being performed in hospital outpatient departments 

(HOPD). Medicare often pays providers at a higher rate when the same service 

is performed in an HOPD rather than in a physician office. For example, in 2013, 

the total Medicare payment rate for a mid-level E/M office visit for an established 

patient was $51 higher when the service was performed in an HOPD instead of a 

physician office.

Number of Vertically Consolidated Hospitals and Physicians, 2007–2013

Note: This analysis was limited to hospitals that served Medicare beneficiaries.

The percentage of E/M office visits—as well as the number of E/M office visits 

per beneficiary—performed in HOPDs, rather than in physician offices, was 

generally higher in counties with higher levels of vertical consolidation in 2007 

through 2013. For example, the median percentage of E/M office visits performed 

in HOPDs in counties with the lowest levels of vertical consolidation was 4.1 

percent in 2013. In contrast, this rate was 14.1 percent for counties with the 

highest levels of consolidation. GAO’s findings suggest that Medicare will likely 

pay more than necessary for E/M office visits. Such excess payments are 

inconsistent with Medicare’s role as an efficient purchaser of health care 

services. However, the Centers for Medicare & Medicaid Services (CMS)—the 

agency that is responsible for the Medicare program—lacks the statutory 

authority to equalize total payment rates between HOPDs and physician offices 

and achieve Medicare savings. 

View GAO-16-189. For more information, 

contact James Cosgrove at (202) 512-7114 or 

cosgrovej@gao.gov.
Letter 1

Page i GAO-16-189 Medicare Hospital Physician Consolidation

Background 5

Data Indicate an Increase in Vertical Consolidation between 

Hospitals and Physicians from 2007 through 2013 9

Vertical Consolidation Associated with Higher Utilization of 

Medicare E/M Office Visits in Hospital Outpatient Departments 12

Conclusions 16

Matter for Congressional Consideration 17

Agency and Third-Party Comments and Our Evaluation 17

Appendix I: Scope and Methodology 21

Appendix II: Full Regression Results 30

Appendix III: Evaluation & Management Office Visit Utilization by Level of Vertical Consolidation, 2007 through 

2013 33

Appendix IV: Association between Vertical Consolidation and Overall Utilization of Evaluation & Management 

Office Visits across All Settings 36

Appendix V: GAO Contact and Staff Acknowledgments 37

GAO Contact 37

Staff Acknowledgments 37

Appendix VI: Accessible Data 38

Data Tables 38

Tables

Table 1: Medicare Payment Rates for Evaluation & Management Office 

Visits, by Site of Service, 2013 6

Table 2: Characteristics of Medicare Beneficiaries, by County Level of 

Vertical Consolidation, 2013 15

Table 3: Select Types of Hospital-Physician Arrangements Reported in 

AHA Annual Survey DatabaseTM 21

Table 4: Regression Estimation Results for U.S. Counties, 2007 through 

201331

Table 5: Utilization of E/M Office Visits in Total and in HOPDs, by 

County Level of Vertical Consolidation, 2007 33

Contents
Table 6: Utilization of E/M Office Visits in Total and in HOPDs, by 

County Level of Vertical Consolidation, 2008 33

Table 7: Utilization of E/M Office Visits in Total and in HOPDs, by 

County Level of Vertical Consolidation, 2009 34

Table 8: Utilization of E/M Office Visits in Total and in HOPDs, by 

County Level of Vertical Consolidation, 2010 34

Table 9: Utilization of E/M Office Visits in Total and in HOPDs, by 

County Level of Vertical Consolidation, 2011 35

Table 10: Utilization of E/M Office Visits in Total and in HOPDs, by 

County Level of Vertical Consolidation, 2012 35

Table 11: Utilization of E/M Office Visits in Total and in HOPDs, by 

County Level of Vertical Consolidation, 2013 35

Data Table for Figure 1: Number of Vertically Consolidated Hospitals 

and Physicians, 2007 through 2013 38

Data Table for Highlights Figure and Figure 2: Distribution of Vertically 

Consolidated Hospitals and Physicians, 2013 38

Data Table for Figure 3: Median Percentage of Medicare E/M Office 

Visits Performed in Hospital Outpatient Departments, by 

County Level of Vertical Consolidation, 2013 38

Figures

Page ii GAO-16-189 Medicare Hospital Physician Consolidation

Figure 1: Number of Vertically Consolidated Hospitals and Physicians, 

2007 through 2013 10

Figure 2: Distribution of Vertically Consolidated Hospitals and 

Physicians, 2013 11

Figure 3: Median Percentage of Medicare E/M Office Visits Performed 

in Hospital Outpatient Departments, by County Level of 

Vertical Consolidation, 2013 13
Page iii GAO-16-189 Medicare Hospital Physician Consolidation

Abbreviations

AHA American Hospital Association

CMS Centers for Medicare & Medicaid Services

E/M evaluation & management 

FFS fee-for-service

HCPCS Healthcare Common Procedure Coding System

HHI Herfindahl-Hirschman Index

HHS Department of Health and Human Services

HOPD hospital outpatient department

MedPAC Medicare Payment Advisory Commission

MedPAR Medicare Provider Analysis and Review

OPPS Outpatient Prospective Payment System
Page iv GAO-16-189 Medicare Hospital Physician Consolidation

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Page 1 GAO-16-189 Medicare Hospital Physician Consolidation

441 G St. N.W.

Washington, DC 20548

December 18, 2015

Congressional Requesters

Medicare expenditures for hospital outpatient department (HOPD) 

services have grown rapidly, increasing from $22.4 billion to $36.3 billion 

from 2007 through 2013, or about 8.3 percent annually. In comparison, 

the national economy grew by an average annual rate of 2.4 percent, and 

total Medicare Part B spending grew by an average annual rate of 5.8 

percent over the same period.1 Some policymakers have raised questions 

about whether or to what extent the growth in spending on services 

performed in HOPDs may be attributed to services that were typically 

performed in physician offices shifting to HOPDs. Such a shift could 

undermine Medicare’s ability to be an efficient purchaser of health care 

services, given that Medicare often pays providers at a higher rate—

sometimes twice as much—when the same service is performed in an 

HOPD rather than in a physician office.

This difference in Medicare payment rates, based on where a service is 

performed, provides an incentive for hospitals to acquire physician 

practices and/or hire physicians as salaried employees—financial 

arrangements health care experts commonly refer to as vertical 

consolidation.2 Other factors, such as new payment polices that reward 

coordination, may also incent vertical consolidation. After hospitals and 

physicians vertically consolidate, the same services that were once 

reimbursed at a lower total payment rate can be classified as HOPD 

services and reimbursed by Medicare at a higher total payment rate. For 

one common type of service that can be performed in both physician 

offices and HOPDs—evaluation & management (E/M) office visits—

several organizations have estimated that equalizing payment rates 

 

1Medicare Part B covers certain HOPD, physician, and laboratory services, among other 

services. For Medicare spending figures, see The 2015 Annual Report of The Boards of 

Trustees of The Federal Hospital Insurance and Federal Supplementary Medical 

Insurance Trust Funds (Washington, D.C.: July 2015). 

2Hospitals can employ physicians in multiple ways. For example, a hospital can directly hire 

physicians or acquire an already established practice. Throughout this report, we refer to hospitals 

and physicians in such arrangements as vertically consolidated hospitals and physicians, 

respectively. 

Letter
between physician offices and HOPDs would save Medicare billions of 

dollars, with some estimates predicting savings of nearly $1 billion to $2 

billion a year for the Medicare program and beneficiaries.

Page 2 GAO-16-189 Medicare Hospital Physician Consolidation

3

You asked us to examine trends in vertical consolidation and its effects 

on Medicare. In this report, we examine, for years 2007 through 2013,

1. trends in vertical consolidation between hospitals and physicians 

and

2. the extent to which higher levels of vertical consolidation were 

associated with more E/M office visits being performed in HOPDs 

instead of physician offices.

To examine trends in vertical consolidation between hospitals and 

physicians from 2007 through 2013, we analyzed data from the American 

Hospital Association (AHA) Annual Survey Database,TM in which hospitals 

report the types of financial arrangements they have with physicians and 

the number of physicians in those relationships.4 We limited our analysis to 

hospitals that served Medicare beneficiaries during this period, which we 

identified using Medicare Provider Analysis and Review (MedPAR) files.5

Additionally, based on a review of pertinent literature, we identified and 

interviewed academic researchers and industry representatives about the 

various types of hospital-physician relationships, possible data sources to 

 

3E/M office visits are provided by physicians and nonphysicians to assess patients’ health and 

manage their care. In general, Medicare pays roughly 80 percent of the payment rate for E/M 

office visits under Medicare Part B, and the beneficiary is responsible for the remaining 20 

percent. Savings estimates came from entities such as the Bipartisan Policy Center and 

Medicare Payment Advisory Commission (MedPAC).

4At the time we conducted our analyses, 2013 AHA data were the most recent available. 

The AHA Annual Survey DatabaseTM is a comprehensive hospital database for health 

services research that is derived from the AHA annual survey of hospitals, which has been 

conducted since 1946. The survey is sent out to all hospitals that are open and operating 

in the U.S., a total of over 6,300 hospitals, and has had an average response rate of 76 

percent from 2007 through 2013. Similar to previous research on vertical consolidation, 

we considered a hospital to be vertically consolidated if it had one of three types of 

relationships with physicians—an integrated salary, foundation, or equity model. See 

appendix I for a detailed description of these three arrangements.

5MedPAR files contain information on Medicare inpatient discharges for short-term acute 

care hospitals. At the time we conducted our analyses, 2013 MedPAR data were the most 

recent available. Limiting our analysis to only hospitals that serve Medicare beneficiaries 

results in excluding certain types of hospitals, such as Department of Veterans Affairs 

hospitals. 
track vertical consolidation, and health care system policies that could be 

driving consolidation.

To examine the extent to which higher levels of vertical consolidation 

were associated with more E/M office visits being performed in HOPDs 

instead of physician offices, we first examined trends in the setting where 

E/M office visits were performed.

Page 3 GAO-16-189 Medicare Hospital Physician Consolidation

6 Specifically, we analyzed Medicare fee-forservice (FFS) claims from the Medicare Part B Carrier and Outpatient 

claim files from 2007 through 2013 to identify where E/M office visits were 

performed.7 To determine the extent to which higher levels of vertical 

consolidation were associated with more E/M office visits being performed in 

HOPDs rather than physician offices, we conducted two analyses. First, 

we ranked counties into quintiles based on the level of 2013 vertical 

consolidation in each county. Specifically, the counties in the lowest 

quintile were considered to have low levels of vertical consolidation, and 

the next four quintiles were considered to have medium-low, medium, 

medium-high, and high levels of vertical consolidation, respectively. 

Within each quintile, we then calculated a number of statistics, such as 

the median percentage and number of E/M office visits per beneficiary 

performed in HOPDs. For each quintile, we also calculated descriptive 

statistics, such as the median risk score, to determine whether counties 

with higher levels of vertical consolidation had sicker or healthier 

beneficiaries.8 Second, in order to ensure that the relationship between 

consolidation and where E/M office visits were performed was not spurious, we 

estimated panel-data regression models. Our models controlled for county 

characteristics, such as whether a county is urban or rural, and for health 

 

6For the purposes of this report, we focused on E/M office visits. Like E/M office visits, other 

services, such as imaging and surgical services, often have a higher total Medicare payment rate 

when performed in an HOPD, and the setting in which these services are performed could 

be affected by vertical consolidation. 

7Medicare data from the Carrier file include claims from noninstitutional providers, such as 

physicians. Medicare data from the Outpatient file include claims from institutional 

outpatient providers, such as HOPDs. At the time we conducted our analyses, 2013 

Outpatient and Carrier data were the most recent available.

8A beneficiary’s risk score is the ratio of expected health care expenditures for that 

beneficiary under Medicare FFS relative to the average health care expenditures for all 

Medicare FFS beneficiaries.
care market characteristics, such as the level of competition among 

hospitals and physicians.

Page 4 GAO-16-189 Medicare Hospital Physician Consolidation

9

Our analysis has some limitations. While the response rate for the AHA 

Annual Survey DatabaseTM was generally high for each year—on 

average, about 76 percent of all hospitals responded—and we made 

efforts to identify potentially problematic responses, the data on vertical 

consolidation was self-reported by hospitals. In addition, we were unable 

to make our measure of vertical consolidation reflect the intensity of 

vertical consolidation relationships—that is, the number of vertically 

consolidated physicians per hospital—because of data limitations.

We took several steps to ensure that the data used to produce this report 

were sufficiently reliable. Specifically, we assessed the reliability of the 

Medicare claims data we used and the AHA Annual Survey DatabaseTM 

by interviewing officials responsible for overseeing and collecting these 

data, including officials from the Centers for Medicare & Medicaid 

Services (CMS)—the agency that is responsible for the Medicare 

program. We also reviewed relevant documentation and examined the 

data for obvious errors, such as missing values and values outside of 

expected ranges. We determined that the data were sufficiently reliable 

for the purposes of this report. See appendix I for more information 

regarding our scope and methodology.

We conducted this performance audit from February 2014 through 

December 2015 in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives.

 

9Our use of the AHA Annual Survey DatabaseTM and Medicare claims data to investigate the 

effects of vertical consolidation builds off of previous research. For example, see: Baker, 

Laurence C., M. Kate Bundorf, and Daniel P. Kessler. “Vertical Integration: Hospital 

Ownership of Physician Practices is Associated with Higher Prices and Spending.” Health 

Affairs 33, no. 5 (May 2014). 
E/M office visits are frequently performed services during which a 

physician or other provider assesses a patient’s health and begins 

managing his or her care.

Page 5 GAO-16-189 Medicare Hospital Physician Consolidation

10 These services are predominantly performed in 

two settings—physician offices and HOPDs.11 Medicare FFS paid for 

approximately 250 million E/M office visits in 2013.

Under Medicare’s payment policy, Medicare’s total payment rate is higher 

when an E/M office visit is provided in an HOPD rather than in a physician 

office.12 When the service is provided in a physician office, Medicare makes 

a single payment to the physician at Medicare’s physician fee schedule 

non-facility rate. When the service is provided in an HOPD, Medicare 

makes two payments—one payment at the physician fee schedule facility 

rate and another payment to the hospital, typically at the hospital 

outpatient prospective payment system (OPPS) rate. The total of these 

two payment rates is higher than Medicare’s total payment rate when the 

service is provided in a physician office. For example, in 2013, the total 

Medicare payment rate for a mid-level E/M office visit for an established 

patient—billed under Healthcare Common Procedure Coding System 

(HCPCS) code 99213—was $51 higher when the service was performed 

in an HOPD instead of a physician office (see table 1).

 

10To bill Medicare for these services, providers select a Healthcare Common Procedure Coding 

System (HCPCS) code that best represents the level of E/M service performed based on three 

elements: patient history, examination, and medical decision making. The combination of 

these three elements can range from a very limited encounter to a very detailed 

examination requiring an hour of the provider’s time. 

11While E/M office visits can be performed in a variety of settings, 98 percent of E/M office 

visits were performed in physician offices or HOPDs in 2013.

12Medicare’s total payment rate is higher when an E/M office visit is performed in an HOPD, 

regardless of whether or not a physician is vertically consolidated. For certain other types of 

services, Medicare’s total payment can be higher when the service is performed in a 

physician office rather than an HOPD. 

Background

E/M Office Visits and 

Other Services with Total 

Payment Rates that Vary 

Across Settings
Table 1: Medicare Payment Rates for Evaluation & Management Office Visits, by Site of Service, 2013

Page 6 GAO-16-189 Medicare Hospital Physician Consolidation

HCPCS Code

Total Physician Fee 

Schedule NonFacility Payment Rate

HOPD - Rate 

Physician Fee 

Schedule 

Facility Rate

HOPD Rate -

OPPS 

Payment 

Rate 

Total 

HOPD 

Payment Rate

Dollar 

Difference 

Between Total 

Payment Rates

99201 $44 $26 $57 $83 $39

99202 75 49 74 123 48

99203 108 75 97 172 64

99204 165 128 128 257 92

99205 204 165 176 340 137

99211 20 9 57 66 45

99212 44 25 74 98 54

99213 73 50 74 123 51

99214 107 77 97 174 67

99215 143 108 128 236 93

Source: GAO analysis of Centers for Medicare & Medicaid Services data. | GAO-16-189

Notes: Healthcare Common Procedure Coding System (HCPCS), hospital outpatient department 

(HOPD), outpatient prospective payment system (OPPS). Evaluation & management office visits are 

provided by physicians and nonphysicians to assess patients’ health and manage their care. The 

Medicare physician fee schedule and OPPS are two distinct payment systems. The payment rates 

established under each system are governed by separate requirements. The total HOPD payment 

rate may not be equal to the sum of its parts and the dollar difference between total payment rates 

may not be equal to the actual difference due to rounding.

While CMS modified the manner in which Medicare pays for E/M office 

visits after 2013, large differences in total payment rates continue to exist 

for E/M office visits. Beginning in 2014, CMS made the OPPS payment 

rate the same for all the HCPCS codes for E/M office visits. However, the 

new uniform OPPS payment rate combined with the physician fee 

schedule facility payment rate for E/M office visits provided in HOPDs 

continues to exceed the payment rate for the same services performed in 

physician offices. For example, in 2015, Medicare’s total payment rate for 

E/M office visits ranged from $58 to $86 higher when performed in an 

HOPD compared to a physician office, depending on the specific HCPCS 

code billed.

Many other services, such as imaging and surgical services, are also 

reimbursed at a higher rate by Medicare when performed in HOPDs 
versus other settings.

Page 7 GAO-16-189 Medicare Hospital Physician Consolidation

13 For example, Medicare’s total payment rate for 

magnetic resonance imaging of the lumbar spine without dye (HCPCS 

code 72148) was about $29 higher when performed in an HOPD 

compared to a physician office in 2013. Furthermore, Medicare’s total 

payment rate for cataract surgery (HCPCS code 66984) was about $760 

higher when performed in an HOPD compared to an ambulatory surgical 

center in 2013.

Some industry groups argue that higher payment rates for services 

performed in HOPDs are justified because hospitals treat sicker patients, 

incur higher costs due to the need to furnish emergency services, and 

provide services that are unavailable elsewhere in the community for 

vulnerable populations, such as those dually eligible for Medicare and 

Medicaid. However, in separate reports, MedPAC and the Department of 

Health and Human Services (HHS) Office of Inspector General have 

recommended or suggested that Congress eliminate or reduce 

differences in Medicare total payment rates across settings for various 

services, including E/M office visits, imaging services, and surgical 

 

13When provided in HOPDs, the OPPS payment rate for certain services includes dependent, 

ancillary, supportive, and adjunctive items, which are packaged into a single payment rate 

for the primary service. For E/M office visits, MedPAC found, in 2012, that packaged 

services account for a small percentage of total costs—about 2.5 percent. For other 

services, packaged items could represent a higher share of total costs. 
services.

Page 8 GAO-16-189 Medicare Hospital Physician Consolidation

14 To date, legislation fully addressing these recommendations has not 

been enacted.15

Recent research suggests that hospitals and physicians are increasingly 

vertically consolidated, which allows services to shift from physician 

offices to HOPDs.16 When hospitals and physicians vertically consolidate, the 

hospital-owned practice must meet certain criteria to gain what is known as 

provider-based status, which allows the hospital to bill the HOPD rate,

thereby increasing Medicare’s total payment rate for the same service.17

For example, the physician practice and hospital must be financially and 

clinically integrated. Further, although exceptions exist, physician practices 

are generally required to be within 35 miles of the hospital to gain 

provider-based status.18 If a practice meets these conditions, Medicare’s total 

payment rate for the same service can be substantially higher despite the fact that 

 

14See Medicare Payment Advisory Commission, Report to the Congress: Medicare Payment Policy 

(Washington, D.C.: March 2012), which recommended that Congress enact legislation to equalize 

payment rates for E/M office visits provided in HOPDs and physician offices; Report to the 

Congress: Medicare and the Health Care Delivery System (Washington, D.C.: June 

2013),which suggested that Congress could eliminate or reduce payment differences for 

services such as imaging and surgical services; and Department of Health and Human 

Services Office of Inspector General, Medicare and Beneficiaries Could Save Billions if 

CMS Reduces Hospital Outpatient Department Payment Rates for Ambulatory Surgical 

Center-Approved Procedures to Ambulatory Surgical Center Payment Rates (A-05-12-

00020) (April 2014), which recommended that HHS seek legislation to exempt lowering 

the OPPS rates for ambulatory surgical center approved procedures from OPPS budget 

neutrality requirements.

15As a result of legislation enacted November 2, 2015, services furnished by off-campus HOPDs 

(i.e., HOPDs that are not located on a hospital campus) are excluded from the OPPS, effective 

January 1, 2017. However, this exclusion will not apply to services furnished by providers 

billing as HOPDs prior to enactment of the legislation—that is, all providers billing as 

HOPDs during our study—who would continue to be paid under the OPPS or to services 

provided by on-campus HOPDs. See Bipartisan Budget Act of 2015, Pub. L. No. 114-74, § 

603, 129 Stat. 584, 597-598 (2015).

16See Kane, CK and Emmons, DW. “Policy research perspectives – New data on physician practice 

arrangements: private practice remains strong despite shifts toward hospital employment.” 

American Medical Association, 2013.

17A provider-based entity comprises both the specific physical facility and the personnel and 

equipment needed to deliver the services at that facility. 

18For example, a physician practice can gain provider-based status, even if the practice is located 

more than 35 miles away from the hospital, if the hospital and physician practice serve the 

same patient populations. For more information regarding provider-based status, including 

a list of requirements providers must meet to gain provider-based status, see 42 C.F.R. § 

413.65(b) (2014). 

Billing Practices after 

Vertical Consolidation 

between Hospitals and 

Physicians
the practice’s location, the physicians who practice there, and the 

beneficiaries served could be the same as before consolidation occurred.

Our analysis of AHA survey data shows that from 2007 through 2013, the 

number of vertically consolidated hospitals increased by 21 percent. 

Specifically, out of the approximately 4,700 surveyed hospitals included in 

our study, 1,408 or 30 percent of the hospitals reported having a vertical 

consolidation arrangement with physicians in 2007.

Page 9 GAO-16-189 Medicare Hospital Physician Consolidation

19 This number increased 

to 1,707 or 36 percent in 2013—an average annual increase of 3.3 percent (see 

fig. 1).

In addition, AHA survey data also show that the number of vertically 

consolidated physicians nearly doubled between 2007 and 2013, with 

faster growth toward the end of this time period. Specifically, the number 

of these physicians increased from over 95,000 in 2007 to almost 

182,000 in 2013—an average annual increase of 11.3 percent (see fig. 

1). From 2010 to 2013, the number of vertically consolidated physicians 

grew at an average annual rate of 13.9 percent, compared to a rate of 8.8 

percent from 2007 to 2010.

 

19We limited our analysis to include hospitals in the AHA Annual Survey DatabaseTM that served 

Medicare beneficiaries on an inpatient basis based on our analysis of Medicare claims data, which 

resulted in about 4,700 hospitals for each year.

Data Indicate an 

Increase in Vertical 

Consolidation 

between Hospitals 

and Physicians from 

2007 through 2013
Figure 1: Number of Vertically Consolidated Hospitals and Physicians, 2007 through 2013

Page 10 GAO-16-189 Medicare Hospital Physician Consolidation

Note: We limited our analysis to hospitals that served Medicare beneficiaries on an inpatient basis 

based on our analysis of Medicare claims data.

Although the increase in the number of vertically consolidated physicians 

occurred across a broad range of hospitals from 2007 through 2013, 

relatively few hospitals accounted for a large number of these physicians. 

AHA’s survey data show that the number of vertically consolidated 

physicians increased across all regions of the country; in both urban and 

rural areas; and among hospitals of different sizes. However, relatively 

few hospitals accounted for a large number of vertically consolidated 

physicians. For example, the 372 out of 1,707 vertically consolidated 

hospitals that had more than 100 vertically consolidated physicians 

accounted for 84 percent of all vertically consolidated physicians but only 

22 percent of vertically consolidated hospitals in 2013 (see fig. 2).
Figure 2: Distribution of Vertically Consolidated Hospitals and Physicians, 2013

Page 11 GAO-16-189 Medicare Hospital Physician Consolidation

Notes: The percentage of hospitals is based on 1,707 vertically consolidated hospitals out of the 

4,689 total hospitals included in our analysis for 2013. We limited our analysis to hospitals that served 

Medicare beneficiaries on an inpatient basis based on our analysis of Medicare claims data.

a

Percentages may not sum to 100 due to rounding. Each physician figure represents 3 percentage 

points.

Researchers and industry representatives whom we interviewed offered 

numerous potential explanations for the recent increases in vertical 

consolidation.20 Some stated that the trend could partially be explained by 

higher Medicare payment rates for services performed in HOPDs compared to 

other settings, the desire among some hospitals to gain market share, and 

changes in health care payment and delivery systems. For example, 

accountable care organizations, bundled payment models, and 

Medicare’s Hospital Readmissions Reduction Program—which penalizes 

hospitals for high rates of readmissions—provide incentives to vertically 

 

20We spoke with several researchers who conducted studies on hospital-physician relationships and 

with industry representatives from organizations such as the AHA, American Medical Association, 

America’s Health Insurance Plans, and Medical Group Management Association.
consolidate in order to improve care for beneficiaries, maximize 

payments, and minimize penalties.

Page 12 GAO-16-189 Medicare Hospital Physician Consolidation

21 Researchers and industry representatives 

whom we interviewed also mentioned that the increasing challenges associated 

with managing a private physician practice, including financial and 

regulatory burdens, could also explain some of the increase in vertical 

consolidation. Some of these researchers and representatives added that 

hospitals and physicians may be vertically consolidating to enhance care 

coordination and improve efficiency.

The percentage of E/M office visits—as well as the number of E/M office 

visits per beneficiary—performed in HOPDs, rather than physician offices, 

was generally higher in counties with higher levels of vertical 

consolidation in 2007 through 2013. The beneficiaries from counties with 

relatively high levels of vertical consolidation were not sicker, on average, 

than beneficiaries in counties with lower levels of consolidation.

Our analysis of AHA and Medicare claims data shows that the percentage 

of E/M office visits performed in HOPDs was generally higher in counties 

with higher levels of vertical consolidation in 2013. Specifically, after 

dividing counties into five equal groups based on their 2013 level of 

consolidation, we found that the median percentage of E/M office visits 

performed in HOPDs in the group of counties with the lowest levels of 

vertical consolidation was 4.1 percent. In contrast, this rate was 14.1 

percent for the counties with the highest levels of consolidation (see fig. 

3).

 

21Accountable care organizations are groups of doctors, hospitals, and other providers who 

voluntarily join together with the goal of better coordinating high quality care and realizing 

financial savings. A bundled payment is a single payment made to providers for all services 

to treat a given condition or provide a given treatment. In commenting on this report, CMS 

officials stated that the 340B Drug Pricing Program could also provide an incentive for 

hospitals to acquire physician practices. This program requires drug manufacturers to 

provide outpatient drugs to eligible health care organizations/covered entities at 

significantly reduced prices. 

Vertical Consolidation 

Associated with 

Higher Utilization of 

Medicare E/M Office 

Visits in Hospital 

Outpatient 

Departments

Percentage of Medicare 

E/M Office Visits 

Performed in HOPDs 

Higher in Counties with

Higher Levels of Vertical 

Consolidation
Figure 3: Median Percentage of Medicare E/M Office Visits Performed in Hospital 

Page 13 GAO-16-189 Medicare Hospital Physician Consolidation

Outpatient Departments, by County Level of Vertical Consolidation, 2013

Note: Counties were sorted into quintiles based on their level of vertical consolidation in 2013. 

Specifically, the counties in the lowest quintile were considered to have low levels of vertical 

consolidation, and the next four quintiles were considered to have medium-low, medium, mediumhigh, and high levels of vertical consolidation, respectively.

For years 2007 to 2012, the percentage of E/M office visits performed in 

HOPDs was also generally higher in counties with higher levels of vertical 

consolidation, though the association was weaker compared to 2013. For 

example, the median percentage of E/M office visits performed in HOPDs 

in the group of counties with the lowest level of vertical consolidation was 

3.9 percent in 2007, compared to a median of 7.3 percent in the counties 

with the highest levels of consolidation.

As part of our analysis, we also calculated the number of E/M office visits 

in each county on a per beneficiary basis. We found that the number of 

E/M office visits performed in HOPDs per 100 Medicare beneficiaries was 

also generally higher in counties with higher levels of vertical 

consolidation each year from 2007 through 2013. For example, in 2013 

the number of E/M office visits performed in HOPDs per 100 beneficiaries 
was 26 for the counties with low levels of vertical consolidation, whereas 

the number was substantially higher—82 services per 100 beneficiaries—

in counties with the highest level of vertical consolidation.

Page 14 GAO-16-189 Medicare Hospital Physician Consolidation

22 We found 

similar correlations in 2007 through 2012. (See app. III for additional analyses of 

the number of E/M office visits performed in HOPDs in counties with 

different levels of vertical consolidation from 2007 through 2013.)23

The association we found between higher levels of vertical consolidation 

and higher utilization of E/M office visits in HOPDs remained even after 

controlling for differences in county-level characteristics and other market 

factors that could affect the setting in which E/M office visits are 

performed. Specifically, we developed a regression model that controlled 

for county characteristics that do not change over relatively short periods 

of time, such as whether a county is urban or rural, and county 

characteristics that could change over time, such as the level of 

competition among hospitals and physicians within counties. Our 

regression model’s results were similar to our initial results: the level of 

vertical consolidation in a county was significantly and positively 

associated with a higher number and percentage of E/M office visits 

performed in HOPDs—that is, as vertical consolidation increased in a 

given county, the number and percentage of E/M office visits performed in 

HOPDs in that county also tended to be higher. (See app. I and app. II for 

more information on our regression model and results.)

 

22While there were changes in the absolute numbers, counties with higher levels of 

consolidation tended to have a higher percentage and number of E/M office visits 

performed in HOPDs after accounting for the total volume of services and the number of 

beneficiaries in a county, respectively.

23We also examined the effect of vertical consolidation on the total number of E/M office 

visits. For more information, see appendix IV. 
Beneficiaries from counties with higher levels of vertical consolidation 

were not sicker, on average, than beneficiaries from counties with lower 

levels of consolidation. Specifically, beneficiaries from counties with 

higher levels of vertical consolidation tended to have either similar or 

slightly lower median risk scores, death rates, rates of end-stage renal 

disease, and rates of disability compared to those from counties with 

lower levels of consolidation (see table 2).

Page 15 GAO-16-189 Medicare Hospital Physician Consolidation

24 Further, counties with higher 

levels of consolidation had a lower percentage of beneficiaries dually 

eligible for Medicaid, who tend to be sicker and have higher Medicare 

spending than Medicare beneficiaries who are not dually eligible for 

Medicaid.25 This suggests that areas with higher E/M office visit utilization in 

HOPDs are not composed of sicker than average beneficiaries.

Table 2: Characteristics of Medicare Beneficiaries, by County Level of Vertical Consolidation, 2013 

County Level of 

Vertical 

Consolidation

Median 

Risk Score

Median 

Age

Median 

Percentage That 

Died in Year

Median Percentage 

with End-Stage 

Renal Disease

Median 

Percentage 

Disabled

Median 

Percentage Dual 

Eligibles

Low 0.96 69.8 5.2% 1.0% 22.6% 21.4%

Medium-Low 0.95 70.2 5.2 0.8 20.1 16.3

Medium 0.93 70.7 5.1 0.7 18.2 15.0

Medium-High 0.93 70.7 5.1 0.7 18.5 15.4

High 0.93 70.3 5.0 0.7 19.7 14.9

Source: GAO analysis of Centers for Medicare & Medicaid Services and American Hospital Association data. | GAO-16-189

Notes: Counties were sorted into quintiles based on their level of vertical consolidation in 2013. 

Specifically, the counties in the lowest quintile were considered to have low levels of vertical 

consolidation, and the next four quintiles were considered to have medium-low, medium, mediumhigh, and high levels of vertical consolidation, respectively. A beneficiary’s risk score is the ratio of 

expected health care expenditures for that beneficiary under Medicare fee-for-service relative to the 

average health care expenditures for all Medicare fee-for-service beneficiaries. End-stage renal 

disease is a condition of permanent kidney failure.

 

24While the absolute numbers experienced small changes, beneficiaries from counties with higher 

levels of vertical consolidation tended to have either similar or slightly lower average risk 

scores, death rates, rates of end-stage renal disease, disability rates, and rates of dual 

eligibles compared to those from counties with lower levels of consolidation after 

weighting for the number of beneficiaries who lived in a county. A beneficiary’s risk score 

is the ratio of expected health care expenditures for that beneficiary under Medicare FFS 

relative to the average health care expenditures for all Medicare FFS beneficiaries. Endstage renal disease is a condition of permanent kidney failure. 

25For an examination of spending by dual eligibility status, see: Congressional Budget Office, 

Dual-Eligible Beneficiaries of Medicare and Medicaid: Characteristics, Health Care Spending, 

and Evolving Policies (Washington, D.C.: June 2013). 

Medicare Beneficiaries in 

Counties with Higher 

Levels of Vertical 

Consolidation Were Not 

Sicker Than Those in 

Counties with Lower 

Levels of Consolidation
As we previously stated, the extent of vertical consolidation grew from 

2007 through 2013. Coinciding with that growth, we found that E/M office 

visits were performed more frequently in the higher paid HOPD setting in 

counties with higher levels of vertical consolidation. Such excess 

payments are inconsistent with Medicare’s role as an efficient purchaser 

of health care services. According to CMS, the agency does not have the 

statutory authority to equalize total payment rates between HOPDs and 

physician offices. Further, CMS lacks the authority to return the 

associated savings to the Medicare program.

Page 16 GAO-16-189 Medicare Hospital Physician Consolidation

26 Therefore, absent legislative 

intervention, the Medicare program will likely pay more than necessary for 

E/M office visits.

From 2007 through 2013, the number of vertically consolidated 

physicians nearly doubled, with faster growth in more recent years. 

Regardless of what has driven hospitals and physicians to vertically 

consolidate, paying substantially more for the same service when 

performed in an HOPD rather than a physician office provides an 

incentive to shift services that were once performed in physician offices to 

HOPDs after consolidation has occurred. Our findings suggest that 

providers responded to this financial incentive: E/M office visits were 

more frequently performed in HOPDs in counties with higher levels of 

vertical consolidation. We found this association in both our analysis of 

E/M office visit utilization in counties with varying levels of vertical 

consolidation and in our regression analyses. Further, our analysis of 

2013 health status data suggests that beneficiaries from counties with 

higher levels of vertical consolidation, where we found more E/M office 

visits performed in HOPDs, were not sicker, on average, than 

beneficiaries who lived in counties with lower levels of consolidation, 

where we found fewer E/M office visits performed in HOPDs.

While vertical consolidation has potential benefits, we found that the rise 

in vertical consolidation exacerbates a financial vulnerability in Medicare’s 

 

26The Secretary of HHS is required to annually revise the groups, relative payment weights, and the 

wage and other adjustments to the hospital outpatient services that are paid under the OPPS to take 

into account changes in medical practice, changes in technology, the addition of services, 

new cost data, and other relevant information and factors. However, any such adjustments 

must be offset by adjustments in other relative weights in a budget neutral manner. Social 

Security Act § 1833(t)(9)(A), (B). Because of this budget neutrality requirement, Medicare 

would not realize savings resulting from such revisions, in that forgone payments would 

not be returned to the Medicare program.

Conclusions
payment policy: Medicare pays different rates for the same service, 

depending on where the service is performed. Although Medicare aims to 

be an efficient purchaser of health care services, CMS has stated that the 

agency currently lacks the authority to equalize payment rates between 

settings. Further, CMS lacks the authority to return the associated 

savings to the Medicare program. Until the disparity in payment rates for 

E/M office visits is addressed, Medicare could be expending more 

resources than is necessary.

In order to prevent the shift of services from physician offices to HOPDs 

from increasing costs for the Medicare program and beneficiaries, 

Congress should consider directing the Secretary of HHS to equalize 

payment rates between settings for E/M office visits—and other services 

that the Secretary deems appropriate—and to return the associated 

savings to the Medicare program.

HHS provided technical comments on a draft of this report, which we 

incorporated where appropriate. In addition, we provided two 

organizations—the American Medical Association and AHA—the 

opportunity to review our draft because these organizations represent the 

types of providers and care settings that were the main focus of our 

report. The American Medical Association had no comments. AHA did not 

comment on the main finding of our report—that higher levels of vertical 

consolidation were associated with more E/M office visits being 

performed in HOPDs instead of physician offices. Further, AHA noted 

several reasons why, in their opinion, a service performed in an HOPD 

should receive a higher Medicare reimbursement compared to when the 

same service is performed in other settings. AHA did comment on two 

specific aspects of our report—our characterization of beneficiary health 

status and reasons why vertical consolidation occurs. A summary of 

these comments and our response are below.

AHA gave several reasons why a service performed in an HOPD should 

receive a higher Medicare reimbursement compared to when the same 

service is performed in other settings, such as physician offices. For 

example, AHA commented that HOPD payment rates are based on 

audited cost reports and should not be based on physician payment 

rates. We acknowledge that it might be inappropriate to equalize the total 

Medicare payment rate for all services. However, Medicare aims to be a 

prudent purchaser of health care services, and that goal is not achieved if 

Medicare’s total payment rate for certain services—such as E/M office 

Page 17 GAO-16-189 Medicare Hospital Physician Consolidation

Matter for 

Congressional 

Consideration

Agency and ThirdParty Comments and 

Our Evaluation
visits—is substantially higher simply because hospitals have acquired 

physician practices. Other entities such as MedPAC have also suggested 

that Medicare base its payments for services on the lowest cost, clinically 

appropriate setting. 

AHA stated that it disagreed with what it interpreted our report to show—

that overall, patients treated at HOPDs are not sicker than those treated 

at physician offices. Our report does not make such an assertion, but 

does include our finding that beneficiaries residing in counties with higher 

levels of vertical consolidation were not sicker, on average, than 

beneficiaries residing in counties with lower levels of consolidation. Given 

that counties with higher levels of vertical consolidation had more E/M 

office visits performed in HOPDs, our evidence suggests that areas with 

higher E/M office visit utilization in HOPDs were not composed of sicker 

than average beneficiaries.

AHA commented that vertical integration—what our report terms vertical 

consolidation—is an essential ingredient for successful implementation of 

the Patient Protection and Affordable Care Act and that we failed to 

adequately account for reasons other than payment differentials that drive 

vertical consolidation. Our report notes multiple reasons, identified by the 

researchers and industry experts we interviewed, as to why hospitals and 

physicians might vertically consolidate. These potential reasons include 

certain payment and delivery changes associated with the Patient 

Protection and Affordable Care Act. While we identified multiple factors 

that may be contributing to increases in vertical consolidation, a full 

analysis of the causes or the appropriateness of vertical consolidation 

between hospitals and physicians was outside the scope of our work. 

We are sending copies of this report to the appropriate congressional 

committees, the Secretary of HHS, and the CMS administrator. In 

addition, the report is available at no charge on the GAO website at 

http://www.gao.gov.

Page 18 GAO-16-189 Medicare Hospital Physician Consolidation
If you or your staffs have any questions about this report, please contact 

me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made key contributions to this 

report are listed in appendix V.

James Cosgrove

Director, Health Care

Page 19 GAO-16-189 Medicare Hospital Physician Consolidation
List of Requesters

The Honorable Orrin Hatch

Chairman

The Honorable Ron Wyden

Ranking Member

Committee on Finance

United States Senate

The Honorable Mike Enzi

Chairman

Subcommittee on Primary Health and Retirement Security

Committee on Health, Education, Labor and Pensions

United States Senate

The Honorable Jim McDermott

Ranking Member

Subcommittee on Health

Committee on Ways and Means

House of Representatives

Page 20 GAO-16-189 Medicare Hospital Physician Consolidation
Appendix I: Scope and Methodology

This appendix describes the scope and methodology used to examine our 

two objectives: (1) trends in vertical consolidation between physicians and 

hospitals from 2007 through 2013 and (2) the extent to which higher 

levels of vertical consolidation were associated with more evaluation &

management (E/M) office visits being performed in hospital outpatient 

departments (HOPD) instead of physician offices from 2007 through 

2013.

To examine trends in vertical consolidation between hospitals and 

physicians, we used survey data from the American Hospital Association 

(AHA) Annual Survey Database,TM in which hospitals report what types of 

relationships they have with physicians and the number of physicians in 

those relationships, and Medicare Provider Analysis and Review 

(MedPAR) files, which contain information on Medicare inpatient

discharges for short-term acute care hospitals, from 2007 through 2013. 

First, we used MedPAR data to identify hospitals that served at least one 

Medicare beneficiary from 2007 through 2013. We then took that list of 

hospitals—which are identified using their Centers for Medicare & 

Medicaid Services Certification Number—and, using the AHA Annual 

Survey Database,TM determined whether each hospital was vertically 

consolidated with physicians in each year from 2007 through 2013. 

Similar to previous research on vertical consolidation, we considered a 

hospital to be vertically consolidated if it had one of three types of 

relationships with physicians—an integrated salary, foundation, or equity 

model. (See table 3 for a description of these three arrangements.)

Table 3: Select Types of Hospital-Physician Arrangements Reported in AHA Annual Survey DatabaseTM

Page 21 GAO-16-189 Medicare Hospital Physician Consolidation

Type of relationship Description

Integrated salary model Physicians are salaried by the hospital or another entity of a health system to provide medical services 

for primary care and specialty care. 

Equity model A professional corporation that allows established practitioners to become shareholders in exchange for 

the tangible and intangible assets of their existing practices. 

Foundation A corporation, organized either as a hospital affiliate or subsidiary, which purchases both the tangible 

and intangible assets of one or more medical group practices. Physicians remain in a separate 

corporate entity but sign a professional services agreement with the foundation. 

Source: GAO summary of American Hospital Association data documentation. | GAO-16-189

To identify the number of vertically consolidated hospitals, we counted the 

number of hospitals with any one of these three types of relationships. To 

identify the number of vertically consolidated physicians, we implemented 

edits to modify reported counts of vertically consolidated physicians that 

Appendix I: Scope and Methodology

Examining Trends in 

Vertical Consolidation 

between Hospitals and 

Physicians
Appendix I: Scope and Methodology

we believed were likely duplicative and then summed the number of 

physicians. We identified duplicative survey responses as those where 

hospitals reported more than 10 vertically consolidated physicians and 

also reported the same number of vertically consolidated physicians as 

another hospital in the same hospital system.

Page 22 GAO-16-189 Medicare Hospital Physician Consolidation

1

In such instances, we 

assumed that the total number of vertically consolidated physicians associated 

with a hospital system was reported multiple times by more than one hospital.

Additionally, based on a review of pertinent literature, we identified and 

interviewed industry representatives and academic researchers. To better 

understand hospitals’ perspectives on vertical consolidation, we 

interviewed officials from AHA. Similarly for physicians, we interviewed 

the American Medical Association and Medical Group Management 

Association. We also interviewed numerous academic researchers to 

better understand issues such as the various types of hospital-physician 

relationships, possible data sources to track vertical consolidation, and 

health care system policies that could be driving consolidation.

To attribute E/M office visits to a given county, we used the beneficiary 

county of residence that was listed on the Carrier and Outpatient file 

claims.2 To determine the total number of E/M office visits that were performed 

 

1We did not identify hospitals as potentially reporting duplicative counts of vertically 

consolidated physicians if they reported 10 or fewer physicians because 1) a very small 

percentage of the overall number of vertically consolidated physicians were associated 

with hospitals with 10 or fewer physicians and 2) we believed that the chances of two 

hospitals in the same system coincidentally having the same number of vertically 

consolidated physicians increased as the number of vertically consolidated physicians per 

hospital decreased. 

2We defined E/M office visits as HCPCS codes 99201-99215. For the purposes of this 

study, we did not differentiate based on the intensity of E/M office visits. 

Examining the Extent to 

Which Higher Levels of 

Vertical Consolidation 

Were Associated with 

More E/M Office Visits 

Being Performed in 

Hospital Outpatient 

Departments

Bivariate Analyses and 

Variable Construction
Appendix I: Scope and Methodology

in a given county, we combined the number of E/M office visits from the Carrier 

file and the number of E/M office visits associated with professional claims in 

the Medicare Outpatient file.

Page 23 GAO-16-189 Medicare Hospital Physician Consolidation

3 To determine the number of E/M office visits 

performed in HOPDs in a given county, we summed the number of services 

billed in the Medicare Outpatient file, including services provided by critical 

access hospitals.4 The number of E/M office visits performed in physician 

offices was calculated by subtracting the number of HOPD services from 

the total number of services.5 To calculate the number of services per 

Medicare beneficiary in a given county, we used the Medicare Denominator file 

to identify fee-for-service (FFS) beneficiaries.6

To calculate the level of vertical consolidation in each county, we used 

the AHA Annual Survey DatabaseTM and MedPAR claims.7 First, we 

calculated the share of MedPAR services that were delivered by vertically 

 

3We considered an Outpatient file service a professional service if the bill type was 85x and the 

revenue center was 096x, 097x, or 098x. For more information on this, see the Medicare 

Claims Processing Manual, Chapter 4.

4Specifically, we analyzed claims with a type of bill 13x or 85x and excluded professional claims. 

As a sensitivity analysis, we determined the number of HOPD services using the place of 

service code on Carrier claims. This specification tended to indicate that a slightly lower 

percentage of services were performed in HOPDs. In 2013, for example, we found that 

10.1 percent of E/M office visits were performed in HOPDs using the place of service 

variable, compared to 11.1 percent using Outpatient file claims. However, when we tested 

this alternative specification, counties with higher levels of consolidation still had higher 

HOPD utilization. In 2013, for example, the counties in the bottom quintile in terms of 

vertical consolidation had a median of 4.5 percent of office visits performed in HOPDs 

compared to 12.9 percent for the counties in the highest quintiles. This range is similar to 

the one we found using our Outpatient file claims as the numerator of the percentage—4.1 

percent to 14.1 percent. 

5We classified all services not performed in HOPDs as being performed in a physician office, as 

less than 2 percent of E/M office visits were performed in settings other than an HOPD or 

physician office during our study period. 

6The Medicare Denominator file contains demographic and enrollment information about Medicare 

beneficiaries.

7Because we did not know the markets of the vertically consolidated physicians, we used the 

MedPAR markets of the hospitals with whom they are consolidated as a proxy. As a 

sensitivity analysis, we used HOPD markets as a proxy, as those markets could better 

proxy physician markets. When we used HOPD markets instead of the MedPAR markets, 

counties with higher levels of consolidation still had higher HOPD utilization. In 2013, for 

example, the counties in the bottom quintile had a median of 5.4 percent of E/M office 

visits performed in HOPDs compared to 14.8 percent for the counties in the highest 

quintile. This range is similar to the one we found using MedPAR data—4.1 percent to 

14.1 percent.
Appendix I: Scope and Methodology

consolidated hospitals in each zip code in which a beneficiary received at 

least one service.

Page 24 GAO-16-189 Medicare Hospital Physician Consolidation

8 We then created a weighted average hospital level vertical 

consolidation measure using all the zip codes a hospital served in a year. Finally, 

we created a weighted average county level vertical consolidation measure 

based on the hospitals that served each county.9 To calculate control

variables for our regression analyses, we used a similar process. Specifically, we 

calculated variables for profit status, public vs. private ownership, hospital 

size, teaching status, whether a hospital belonged to a system, and 

Herfindahl-Hirschman Indexes (HHI) for hospital and physician market 

concentration.10

To determine how the level of vertical consolidation in a county was 

associated with the setting in which E/M office visits were provided before 

controlling for other factors, we conducted a bivariate analysis for every 

year from 2007 through 2013. Specifically, we ranked counties into 

quintiles based on the level of consolidation in each county in 2013. In the 

bottom quintile were the 20 percent of counties with the lowest levels of 

vertical consolidation; such counties were considered to have low levels 

of vertical consolidation. In order, the next four quintiles were considered 

to have medium-low, medium, medium-high, and high levels of vertical 

consolidation. For 2007 through 2012, we used the same thresholds to 

sort counties into the five levels of consolidation. Within each of the five 

county groups for each year, we then calculated the 1) median and mean 

percentage of E/M office visits that were performed in HOPDs and 

physician offices and 2) the median and mean number of E/M office visits 

per beneficiary performed in HOPDs, physician offices, and in total.

 

8For this analysis, we considered a hospital to be vertically consolidated if it had more than 10 

vertically consolidated physicians. This prevented hospitals that had a very small number of 

vertically consolidated physicians as counting the same as hospitals with significantly 

more physicians. 

9For each county, this variable is between 0 and 1; a value of 1 represents a county that is served 

entirely by hospitals whose entire market area—that is, zip codes of the beneficiaries 

served by the hospital—is served by vertically consolidated hospitals and a value of 0 

represents a county that is served entirely by hospitals whose entire market areas are 

served by hospitals that are not vertically consolidated.

10For the purposes of creating our measure of horizontal hospital concentration, we considered all 

hospitals that were part of the same system to be part of the same hospital because we assumed 

that hospitals that are part of the same system do not compete with one another in the 

same manner as hospitals that are not part of the same system.
Appendix I: Scope and Methodology

To determine whether counties with higher levels of vertical consolidation 

had sicker or healthier beneficiaries, we calculated descriptive statistics 

for beneficiaries who lived in a given county in 2013 using the Medicare 

denominator file.

Page 25 GAO-16-189 Medicare Hospital Physician Consolidation

11 Specifically, for each county, we calculated the mean 

and median risk score, age, and the percentage of beneficiaries that died, 

had end-stage renal disease, were disabled, and were dually eligible for 

Medicare and Medicaid.12 Similar to the bivariate analysis described above, we

then we ranked counties into quintiles based on the level of vertical 

consolidation in 2013. Within the quintiles, we calculated the median and 

mean values for each of the variables.

We developed an econometric model to analyze the effect of vertical 

consolidation on the setting where beneficiaries received E/M office visits 

from 2007 through 2013. Specifically, we analyzed how the level of 

vertical consolidation affected 1) the percentage of E/M office visits 

performed in HOPDs, 2) the number of E/M office visits performed in 

HOPDs per beneficiary, and 3) the total number of E/M office visits per 

beneficiary. Our analysis used data for 3,121 U.S. counties from 2007 

through 2013.

· For the model analyzing the percentage of E/M office visits performed 

in HOPDs, we used the log-odds transformation (also called the logit 

transformation) of this proportion. Specifically, we used the following 

formula for this dependent variable:

Where rit represents the proportion of E/M office visits that were 

provided in an HOPD, and the i and t subscripts represent the county 

 

11We limited these calculations to only Medicare FFS beneficiaries. These beneficiaries can 

receive services outside of their county of residence. With the exception of the death rate, 

all characteristics were weighted based on the number of months a beneficiary was 

enrolled in Medicare. Weighting the death rate by the number of months beneficiaries 

were enrolled in Medicare artificially deflates the death rate. 

12When calculating the risk score, we excluded beneficiaries that were newly enrolled, enrolled in 

Medicare Advantage, had end-stage renal disease, or were in a long term care facility. The risk 

score used was normalized and adjusted for coding intensity. 

Panel-Data Regression Model

Dependent Variables
Appendix I: Scope and Methodology

and year, respectively.

Page 26 GAO-16-189 Medicare Hospital Physician Consolidation

13 This formulation has the advantage of allowing 

the dependent variable to range over all values for any value of r between 

zero and one.14

· For our models analyzing the number of E/M office visits performed in 

HOPDs per beneficiary and the total number of E/M office visits per 

beneficiary, our dependent variables were the logarithm of the number 

of services per beneficiary.

· Our key explanatory variable was the level of vertical consolidation. 

Our hypothesis was that higher levels of vertical consolidation would 

be associated with a higher percentage and number of E/M office 

visits being performed in HOPDs.

· Our model controlled for horizontal physician and horizontal hospital 

concentration, using HHIs. We hypothesized that greater 

concentration of market power among physicians would lead to E/M 

office visits being provided in physician offices rather than HOPDs, all 

else being equal. In contrast, we hypothesized that greater 

concentration of market power among hospitals would lead to E/M 

office visits being provided in HOPDs rather than physician offices, all 

else being equal.

· Our model included hospital characteristic variables to account for 

possible differences in hospital size and institutional arrangements. 

Specifically, our model included variables for the following hospital 

characteristics: profit status, public vs. private ownership, hospital 

size, teaching status, and whether a hospital belonged to a system.

· Our model included time fixed effects (a dummy variable for each year 

in the analysis). In addition, we included county fixed effects (a 

dummy variable for each of the 3,121 counties in the analysis). These 

county fixed effects assist in controlling for unobserved heterogeneity.

 

13We also ran a model using the proportion rit, and the results for our main variable of interest, 

vertical consolidation, were similar in terms of sign and significance.

14This transformation required that the value of rit be strictly greater than 0 and less than 1. 

Although there were no observations with a value of 0, about 0.5 percent of our 

observations were equal to or exceeded 1. For any value equal to or greater than 1, we 

changed the value to 0.9999 for the model estimation. To ensure that the small number of 

values that were transformed did not unduly affect our results, we also ran the model 

excluding these observations.

Explanatory Variables
Appendix I: Scope and Methodology

The regression analysis used a panel data model for 3,121 U.S. counties 

for the years 2007 through 2013 as follows:

In this model:

· Yit is the dependent variable for county i in year t. For the model 

analyzing the percentage of E/M office visits performed in HOPDs, the 

dependent variable is the logit transformation of the percentage of 

services in an HOPD setting—that is, , 

where rit, is the percentage of E/M office visits in an HOPD. For our 

models analyzing the number of E/M office visits performed in HOPDs 

per beneficiary and the total number of E/M office visits per 

beneficiary, , where sit, is the number of services per 

Medicare beneficiary.

· ciis a fixed effect or dummy variable for county i.

· ft is a fixed effect or dummy variable for year t.

· Zit

h

are the hospital-characteristic variables and market structure 

variables, such as horizontal physician HHI, horizontal hospital HHI, 

and vertical consolidation, associated with county i at time t, and αh

are the parameters associated with each of these variables.

· εit are the error terms.

· We used xtivreg2 in STATA to estimate our models.

Page 27 GAO-16-189 Medicare Hospital Physician Consolidation

15 Our parameter 

estimates are consistent given the assumptions of our model. Our standard 

 

15The xtiverg2 procedure in STATA implements Instrumental Variable/General Method of 

Moments estimation of the fixed-effects and first-differences panel data models with 

possibly endogenous regressors. 

Model Specification
Appendix I: Scope and Methodology

errors are robust to heteroskedasticity and clustering at the county level.

· The hospital characteristics, the horizontal hospital HHI, and the 

vertical consolidation measures were calculated using MedPAR data, 

while the dependent variable was calculated using Outpatient and 

Carrier file data. This separation reduced the likelihood that these 

market characteristics were correlated with unobserved determinants 

of the setting where beneficiaries received E/M office visits. However, 

the physician HHI measure was calculated using Carrier file data, so 

we tested this variable for endogeneity.

Page 28 GAO-16-189 Medicare Hospital Physician Consolidation

16

Our study has some limitations. While the response rate for the AHA 

Annual Survey DatabaseTM was high for each year—about 76 percent—

the data on vertical consolidation was self-reported by hospitals. In the 

process of examining the AHA Annual Survey Database,TM we identified 

responses that we believe were likely duplicative. However, our ability to 

identify and fix duplicative responses is limited because we were not able 

to directly contact survey respondents based on our data licensing 

agreement. Second, because the AHA Annual Survey DatabaseTM does 

not contain identifying information for vertically consolidated physicians, 

we used hospital inpatient markets to proxy vertically consolidated 

physician markets. Although this is a limitation, we conducted a sensitivity 

analysis with HOPD markets, and our results held. Further, we believe 

there are several reasons why vertically consolidated physician markets 

should substantially overlap with hospital inpatient markets. For example, 

physician practices generally must be located within 35 miles of its parent 

hospital to bill as an HOPD, and many payment reforms—such as 

accountable care organizations, bundled payments, and Medicare’s 

Hospital Readmissions Reduction Program—reward hospitals for 

managing their patients across inpatient and outpatient settings. Third, 

vertically consolidated hospitals varied widely in terms of the number of 

vertically consolidated physicians associated with them. While our 

bivariate and regression analyses only consider a hospital vertically 

consolidated if it has more than 10 vertically consolidated physicians, we 

 

16Other work on the effects of market concentration on prices has instrumented the key 

concentration measures, see, for example, W. N. Evans et al. “Endogeneity in the 

Concentration-Price Relationship: Causes, Consequences, and Cures.” The Journal of 

Industrial Economics, vol. XLI, no. 4, December 1993. However, our work focused on 

modeling the setting where beneficiaries received services and utilization, not price. 

Although work by Baker et al. analyzing prices did not use instrumental variables, we 

wanted to test for the possibility that there was endogeneity of the horizontal physician 

HHI variable.

Limitations
Appendix I: Scope and Methodology

were unable to make our measure of vertical consolidation reflect the 

intensity of vertical consolidation relationships—that is, the number of 

vertically consolidated physicians per hospital—because of data 

limitations. Finally, time lags may occur between vertical consolidation 

and our measures of how often E/M office visits are performed in an 

HOPD. A hospital can purchase physician practices and not convert them 

to HOPDs immediately or ever. Consequently, these lags may be long 

and variable, and we have no systematic data to measure the timing of 

these possible effects.

We took several steps to ensure that the data used to produce this report 

were sufficiently reliable. Specifically, we assessed the reliability of the 

Centers for Medicare & Medicaid Services data and the AHA Annual 

Survey DatabaseTM we used by interviewing officials responsible for 

overseeing these data sources. We also reviewed relevant

documentation and examined the data for obvious errors, such as 

missing values and values outside of expected ranges. We determined 

that the data were sufficiently reliable for the purposes of this report.

We conducted this performance audit from February 2014 through 

December 2015 in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives.

Page 29 GAO-16-189 Medicare Hospital Physician Consolidation

Data Reliability and Audit 

Standards
Appendix II: Full Regression Results

This appendix provides more detailed results for the models we used to 

analyze the effect of vertical consolidation on the setting where 

beneficiaries received E/M office visits from 2007 through 2013.

· Counties with higher levels of vertical consolidation were significantly 

more likely to have a higher proportion of their E/M office visits 

performed in HOPDs. These counties also had a significantly higher 

rate of utilization of E/M office visits in HOPDs. However, those same 

counties also had a significantly lower rate of overall utilization of E/M 

office visits, although the size of this negative association was 

smaller.

Page 30 GAO-16-189 Medicare Hospital Physician Consolidation

1 Specifically, all else being equal, our models predict that a county 

with no vertical consolidation going to completely consolidated would 

experience:

· an increase in the percent of E/M office visits performed in HOPDs 

of 2.7 percentage points on average;

· an increase in the number of E/M office visits per beneficiary 

being performed in HOPDs of approximately 30 percent on 

average; and

· a decrease in the total number of E/M office visits per beneficiary 

of less than 2 percent on average.

· We used a set of medical service supply variables from the Area 

Health Resource Files as instruments: the number of federal and nonfederal active MDs as a percentage of the total population, total 

hospital beds per capita, and whether the area was designated as a 

health care professional shortage area for primary care physicians.2

 

1

In order to conduct additional sensitivity analyses, we examined alternative specifications 

for our models. First, we replaced the logit transformation in our model that analyzed the 

percentage of E/M office visits performed in HOPDs with a simple percent of E/M office 

visits in an HOPD and found similar results for vertical consolidation. Secondly, we 

estimated our utilization per beneficiary equations using levels rather than logs and found 

similar results in terms of sign and significance on the main variable of interest—namely, 

the vertical hospital consolidation measure.

2Area Health Resources Files (AHRF) contain county, state, and national level data on a broad 

range of health resources and socioeconomic indicators which impact demand for health care. The 

AHRF provides current as well as historic data for more than 6,000 variables for each of 

the nation’s counties and contains information on health facilities, health professions, 

measures of resource scarcity, health status, economic activity, health training programs, 

and socioeconomic and environmental characteristics. 

Appendix II: Full Regression Results
Appendix II: Full Regression Results

· In our models of the percentage of E/M office visits performed in 

HOPDs and total number of E/M office visits per beneficiary, the 

C-test accepted the null hypothesis of exogeneity of the physician 

horizontal Herfindahl-Hirschman Index (HHI) variable, and the 

Hansen J-statistic accepted the null hypothesis that our 

instruments were valid. The Sanderson-Windmeijer test also 

supported our use of these instruments, by rejecting the null 

hypothesis of weak instruments.

· In our model of the number of E/M office visits performed in 

HOPDs, the Hansen J-statistic accepted the null hypothesis that 

our instruments were valid, and the Sanderson-Windmeijer test 

rejected the null hypothesis of weak instruments. However, the Ctest rejected the null hypothesis of exogeneity of the physician 

horizontal HHI variable, so we report our instrumental variable 

estimates for our log of utilization of E/M office visits performed in 

HOPDs.

· A full set of results is provided in table 4.

Table 4: Regression Estimation Results for U.S. Counties, 2007 through 2013

Page 31 GAO-16-189 Medicare Hospital Physician Consolidation

Ordinary least 

squares estimate of 

logit of percent

HOPD 

Instrumental variable 

estimate of log of per 

beneficiary utilization in

HOPD 

Ordinary least squares 

estimate of log of per 

beneficiary utilization

overall

Vertical consolidation 0.311*** 0.304** -0.0179*

(0.0000) (0.0016) (0.0106)

Physician horizontal Herfindahl-Hirschman Index 

(HHI)

-4.538*** -13.48 0.735***

(0.0000) (0.1117) (0.0000)

Hospital horizontal HHI 0.426 0.838 0.0229

(0.1534) (0.0548) (0.4897)

For-profit hospitals -0.408*** -0.241* -0.0297

(0.0001) (0.0348) (0.0612)

Public ownership hospitals 0.580*** 0.652*** -0.0232

(0.0000) (0.0002) (0.1824)

Hospitals with 100 to 300 beds -0.626*** -0.420** 0.0260

(0.0002) (0.0013) (0.0938)

Hospitals with more than 300 beds -0.587*** -0.263* 0.0195

(0.0004) (0.0392) (0.2525)

Teaching hospitals -0.0267 -0.00288 -0.0126
Appendix II: Full Regression Results

Page 32 GAO-16-189 Medicare Hospital Physician Consolidation

Ordinary least 

squares estimate of 

logit of percent

HOPD 

Instrumental variable 

estimate of log of per 

beneficiary utilization in

HOPD 

Ordinary least squares 

estimate of log of per 

beneficiary utilization

overall

(0.6930) (0.9672) (0.1986)

System hospitals 0.151 0.0459 0.0194*

(0.0764) (0.4344) (0.0216)

2007 dummy -0.535*** -0.473*** -0.0744***

(0.0000) (0.0000) (0.0000)

2008 dummy -0.445*** -0.390*** -0.0762***

(0.0000) (0.0000) (0.0000)

2009 dummy -0.354*** -0.307*** -0.0621***

(0.0000) (0.0000) (0.0000)

2010 dummy -0.378*** -0.318*** 0.00573**

(0.0000) (0.0000) (0.0014)

2011 dummy -0.254*** -0.203*** -0.00988***

(0.0000) (0.0000) (0.0000)

2012 dummy -0.105*** -0.0840*** -0.0150***

(0.0000) (0.0000) (0.0000)

Observations 21,847 21,847 21,847

p-values in parentheses - * p<0.05, ** p<0.01, *** p<0.001

Source: GAO analysis of Centers for Medicare & Medicaid Services data, Area Health Resources Files, and American Hospital Association data. | GAO-16-189
Appendix III: Evaluation & Management Office 

Visit Utilization by Level of Vertical 

Consolidation, 2007 through 2013

The percentage of E/M office visits—as well as the number of E/M office 

visits per 100 beneficiaries—performed in HOPDs was generally higher in 

counties with higher levels of vertical consolidation from 2007 through 

2013 (see tables 5 - 11).

Table 5: Utilization of E/M Office Visits in Total and in HOPDs, by County Level of 

Page 33 GAO-16-189 Medicare Hospital Physician Consolidation

Vertical Consolidation, 2007 

Level of 

Vertical 

Consolidation

Median Percentage 

of E/M Office Visits 

Performed in 

HOPDs

Median Number of E/M 

Office Visits Performed in 

HOPDs per 100 

Beneficiaries

Median Number of 

Total E/M Office 

Visits per 100 

Beneficiaries

Low 3.9% 22 599

Medium-Low 5.9 30 547

Medium 6.2 31 534

Medium-High 7.9 38 545

High 7.3 39 580

Source: GAO analysis of Centers for Medicare & Medicaid Services and American Hospital Association data. | GAO-16-189

Notes: Evaluation & management (E/M), hospital outpatient department (HOPD).

Table 6: Utilization of E/M Office Visits in Total and in HOPDs, by County Level of 

Vertical Consolidation, 2008 

Level of 

Vertical 

Consolidation

Median Percentage 

of E/M Office Visits 

Performed in 

HOPDs

Median Number of E/M 

Office Visits Performed in 

HOPDs per 100 

Beneficiaries

Median Number of 

Total E/M Office 

Visits per 100 

Beneficiaries

Low 3.7% 21 608

Medium-Low 6.2 33 556

Medium 7.2 36 532

Medium-High 9.8 45 528

High 8.2 43 582

Source: GAO analysis of Centers for Medicare & Medicaid Services and American Hospital Association data. | GAO-16-189

Notes: Evaluation & management (E/M), hospital outpatient department (HOPD).

Appendix III: Evaluation & Management 

Office Visit Utilization by Level of Vertical 

Consolidation, 2007 through 2013
Appendix III: Evaluation & Management Office 

Visit Utilization by Level of Vertical 

Consolidation, 2007 through 2013

Table 7: Utilization of E/M Office Visits in Total and in HOPDs, by County Level of 

Page 34 GAO-16-189 Medicare Hospital Physician Consolidation

Vertical Consolidation, 2009 

Level of 

Vertical 

Consolidation

Median Percentage 

of E/M Office Visits 

Performed in 

HOPDs

Median Number of E/M 

Office Visits Performed in 

HOPDs per 100 

Beneficiaries

Median Number of 

Total E/M Office 

Visits per 100 

Beneficiaries

Low 3.8% 22 614

Medium-Low 6.7 35 572

Medium 7.0 37 545

Medium-High 8.9 45 537

High 8.4 46 577

Source: GAO analysis of Centers for Medicare & Medicaid Services and American Hospital Association data. | GAO-16-189

Notes: Evaluation & management (E/M), hospital outpatient department (HOPD).

Table 8: Utilization of E/M Office Visits in Total and in HOPDs, by County Level of 

Vertical Consolidation, 2010 

Level of 

Vertical 

Consolidation

Median Percentage 

of E/M Office Visits 

Performed in 

HOPDs

Median Number of E/M 

Office Visits Performed in 

HOPDs per 100 

Beneficiaries

Median Number of 

Total E/M Office 

Visits per 100 

Beneficiaries

Low 3.8% 23 644

Medium-Low 5.9 34 610

Medium 7.5 42 573

Medium-High 7.3 41 588

High 8.5 52 620

Source: GAO analysis of Centers for Medicare & Medicaid Services and American Hospital Association data. | GAO-16-189

Notes: Evaluation & management (E/M), hospital outpatient department (HOPD).
Appendix III: Evaluation & Management Office 

Visit Utilization by Level of Vertical 

Consolidation, 2007 through 2013

Table 9: Utilization of E/M Office Visits in Total and in HOPDs, by County Level of 

Page 35 GAO-16-189 Medicare Hospital Physician Consolidation

Vertical Consolidation, 2011 

Level of 

Vertical 

Consolidation

Median Percentage 

of E/M Office Visits 

Performed in 

HOPDs

Median Number of E/M 

Office Visits Performed in 

HOPDs per 100 

Beneficiaries

Median Number of 

Total E/M Office 

Visits per 100 

Beneficiaries

Low 3.8% 23 641

Medium-Low 6.2 36 607

Medium 8.3 46 564

Medium-High 7.9 49 599

High 9.8 57 600

Source: GAO analysis of Centers for Medicare & Medicaid Services and American Hospital Association data. | GAO-16-189

Notes: Evaluation & management (E/M), hospital outpatient department (HOPD).

Table 10: Utilization of E/M Office Visits in Total and in HOPDs, by County Level of 

Vertical Consolidation, 2012 

Level of 

Vertical 

Consolidation

Median Percentage 

of E/M Office Visits 

Performed in 

HOPDs

Median Number of E/M 

Office Visits Performed in 

HOPDs per 100 

Beneficiaries

Median Number of 

Total E/M Office 

Visits per 100 

Beneficiaries

Low 4.1% 24 636

Medium-Low 6.6 38 610

Medium 8.9 49 572

Medium-High 9.7 56 582

High 11.8 66 600

Source: GAO analysis of Centers for Medicare & Medicaid Services and American Hospital Association data. | GAO-16-189

Notes: Evaluation & management (E/M), hospital outpatient department (HOPD).

Table 11: Utilization of E/M Office Visits in Total and in HOPDs, by County Level of 

Vertical Consolidation, 2013

Level of 

Vertical

Consolidation

Median Percentage 

of E/M Office Visits 

Performed in 

HOPDs

Median Number of E/M 

Office Visits Performed in 

HOPDs per 100 

Beneficiaries

Median Number of 

Total E/M Office 

Visits per 100 

Beneficiaries

Low 4.1% 26 658

Medium-Low 6.1 37 622

Medium 8.7 49 580

Medium-High 11.6 65 586

High 14.1 82 601

Source: GAO analysis of Centers for Medicare & Medicaid Services and American Hospital Association data. | GAO-16-189

Notes: Evaluation & management (E/M), hospital outpatient department (HOPD).
Appendix IV: Association between Vertical 

Consolidation and Overall Utilization of 

Evaluation & Management Office Visits across 

All Settings

To examine whether vertical consolidation affected total utilization, we 

examined the association between vertical consolidation in a county and 

the total number of evaluation & management (E/M) office visits per 

beneficiary and found mixed results. Specifically, while counties with the 

lowest level of vertical consolidation had higher total utilization of E/M 

office visits compared to counties with the highest levels of vertical 

consolidation, total utilization of E/M office visits neither increases nor 

decreases consistently as the level of vertical consolidation increases in a 

county in our bivariate analysis. For example, in 2013, the median 

number of total E/M office visits per 100 beneficiaries decreased from 658 

among the counties with the lowest levels of vertical consolidation to 580 

among counties with a medium level of vertical consolidation; however, 

among counties with high levels of vertical consolidation, the number 

increased to 601.

Page 36 GAO-16-189 Medicare Hospital Physician Consolidation

1 Furthermore, unlike our results examining the setting in 

which E/M office visits were performed, our results changed when we tested an 

alternative measure of vertical consolidation.2 For example, using the alternative 

specification, the median number of total E/M office visits per 100 

beneficiaries in counties with the highest level of vertical consolidation 

was at least 10 services per 100 beneficiaries higher than in counties with 

the lowest level of consolidation in 4 out of 7 years from 2007 through 

2013.

 

1We found similar patterns in each year from 2007 through 2012. We also tested the association 

between vertical consolidation and total volume of E/M office visits using a regression based 

analysis and found a small, significant association. See appendix II for more detailed 

results. 

2Because we did not know the markets of the vertically consolidated physicians, we used the 

MedPAR markets of the hospitals with whom they are consolidated as a proxy. As a sensitivity 

analysis, we used HOPD markets as a proxy, as those markets can better proxy physician 

markets. 

Appendix IV: Association between Vertical 

Consolidation and Overall Utilization of 

Evaluation & Management Office Visits 

across All Settings
Appendix V: GAO Contact and Staff 

Acknowledgments

James Cosgrove, (202) 512-7114 or cosgrovej@gao.gov

In addition to the contact above, Jessica Farb, Assistant Director; Todd 

Anderson; Krister Friday; Michael Kendix; Richard Lipinski; Brian 

O’Donnell; Dan Ries; Said Sariolghalam; Eric Wedum; and Jennifer 

Whitworth made key contributions to this report.

Page 37 GAO-16-189 Medicare Hospital Physician Consolidation

Appendix V: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments
Appendix VI: Accessible Data

Data Table for Figure 1: Number of Vertically Consolidated Hospitals and 

Page 38 GAO-16-189 Medicare Hospital Physician Consolidation

Physicians, 2007 through 2013

Accounted for 84 percent 

of vertically consolidated 

physicians

Accounted for 15 percent 

of vertically consolidated 

physicians

Accounted for 2 percent 

of vertically consolidated 

physicians

22 41 37

Data Table for Highlights Figure and Figure 2: Distribution of Vertically 

Consolidated Hospitals and Physicians, 2013

2007 2008 2009 2010 2011 2012 2013

Vertically 

consolidate

d physicians

 

95,612 

 106,062 111,373 

123,004 

139,419 156,216 181,787 

Vertically 

consolidate

d hospitals

 

1,408 

 1,464 1,531 

1,589 

1,648 1,670 1,707 

Data Table for Figure 3: Median Percentage of Medicare E/M Office Visits Performed 

in Hospital Outpatient Departments, by County Level of Vertical Consolidation, 2013

Level of Vertical Consolidation in County 2013

Low 4.10%

Medium-Low 6.10%

Medium 8.70%

Medium-High 11.60%

High 14.10%

Appendix VI: Accessible Data

(291178)

Data Tables
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