Medical practices in less competitive health-care markets charge more for services, according to a study conducted by researchers at the Stanford University School of Medicine and the National Bureau of Economic Research.

The study, based on U.S. health-care data from 2010, provides important new information about the effects of competition on prices for office visits paid by preferred provider organizations, known more commonly as PPOs. PPOs are the most common type of health insurance plan held by privately insured people in the United States.

The study will be published Oct. 22 in the Journal of the American Medical Association.

"The research comes out of trying to understand some dramatic changes that have occurred in the health-care system over a couple of decades," said the study's lead author, Laurence Baker, PhD, professor of health research and policy at Stanford.

One striking change is the shift from practices with one or two doctors toward larger, more complex organizations with many physicians. One important impact of this can be reductions in the amount of competition among physician practices. The study sought to understand how variation in the amount of competition within a region affects the amounts doctors are paid, an important consideration when developing health policy.

"This has always been an important issue, and now it's even more important as policy moves us more and more toward larger practices," said study co-author Kate Bundorf, PhD, associate professor of health and research policy.

The pluses and minuses

There is a push through the private sector and through Medicare to encourage the formation of larger practices, which could improve the efficiency of the health-care system, said Bundorf. The potential benefits of such organizations are clear: Doctors working in a group can easily exchange information about a patient's medical history and have the staff to support a large volume of patients, for example. However, there is little evidence about how larger groups could affect health-care spending.

"It's an important question for the U.S. health-care system right now," said Baker. "If we move toward larger practices, how can we get the benefits but avoid the challenges higher prices would create?"

The study assessed the relationship between competition among medical providers and prices paid by PPOs for the most commonly billed services within 10 prominent physician specialties. The researchers developed innovative measurements to make the comparisons.

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Competition keeps health-care costs low, U.S. researchers find