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As independent practices vanish, experts debate the pros & cons of a consolidated market

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Independent physicians and practices are fast disappearing from the landscape of U.S. healthcare. But the overall question of what this means for the industry is polarizing. While some stakeholders believe it will raise costs and reduce access, others say it will make the healthcare system more sustainable.

A recent report shone a light on a rather staggering statistic — by the beginning of 2021, hospitals and other corporate entities, like insurers and private equity firms, owned about 48% of physician practices. This means, one in seven U.S. physicians were employed by a hospital or corporation in January.

The overall trend of consolidation in healthcare is one of the major driving forces behind physician practice acquisition, said Robert Pearl, a Stanford University professor, author and former CEO of The Permanente Medical Group, in a phone interview.

“You see a majority of care being delivered by a relatively small number of insurance companies, you see ever-growing consolidation among hospitals, and [then] doctors find themselves relatively powerless,” Pearl added, who has written a book about physician culture and its impact on healthcare costs, doctors and patients.

As a response to this loss of power, physicians are increasingly open to acquisition and employment. Being employed by a hospital, payer or private equity firm gives physicians access to capital, more negotiating power regarding reimbursement rates and additional resources, including new technology, Pearl said.

These benefits can make physician practices, and by extension, the healthcare system as a whole, more agile and sustainable, said Howard Drenth, national leader of the provider enterprise practice at Deloitte, in a phone interview. For example, being employed can allow physicians to weather unexpected storms, like the Covid-19 pandemic, more effectively than if they remain independent.

“My belief is that [physician practice acquisition] is a net positive,” Drenth said. “I believe that the organizations that are the acquirers or aggregators are able to bring substantial value to these practices that the practices may not have achieved on their own.”

It’s also important to note that the impact of independent practice acquisition on the healthcare market varies based on who is doing the buying.

For insurers, the motive behind acquisitions is integration, Drenth said. So, their focus lies in creating an integrated financing system and driving quality performance. On the other hand, health systems typically acquire practices to support existing service lines, like cardiology or orthopedics. And private equity firms are aiming to bring scale into the equation and help practices grow faster and thereby improve profit margins.

While Pearl and Drenth generally believe that acquisition does more good than harm, groups representing physicians hold the opposite view.

Independent physician practices are fixtures in their communities, and their loss will lead to a less competitive market in terms of both cost and quality, said Anders Gilberg, senior vice president of Medical Group Management Association, in an email.

“Although the impact of consolidation depends on the type of consolidation and how concentrated the market is, research shows that provider consolidation can lead to higher costs to patients without clear evidence of improved quality of care,” he said.

Marni J. Carey, executive director of the Association of Independent Doctors, echoed this sentiment, adding that fewer independent practices mean less choice for patients. For example, when a patient goes to a primary care physician who is employed by a hospital, they may only receive referrals to specialists also employed by the hospital. This can result in a closed loop of care that could be far more costly than an independent physician who has more flexibility with regard to referrals.

“Patients lose access [when practice acquisitions rise],” Carey said, in a phone interview. “[They] get funneled into systems and don’t get the wide latitude of choosing the best physician for their condition.”

A potential solution for physician practices that want to remain independent could be value-based payment arrangements, MGMA’s Gilberg added.

These can “potentially shield medical practices…by offering a consistent and sustainable source of reimbursement for services rendered, while also creating opportunities for cost savings and quality improvement,” he said.

Physicians appear to be showing interest in value-based care models, with respondents in an American Medical Group Association survey saying that 56% of their federal program revenue and 28% of their total commercial revenue came from value-based payment models in 2018. (The survey did not address whether the physicians who responded were independent or employed by hospitals or other entities.)

Dr. Christopher Chen, the CEO of concierge-style physician practice ChenMed, is all for physicians taking on more risk.

“Paradoxically, the best strategy for doctors who are ready to get over their Stockholm Syndrome with fee-for-service is not to take a little risk with ‘toe in the water’ value-based care programs, but to take a lot of risk,” he wrote in a blog on the ChenMed website in August 2020. “It’s actually quite freeing and quite possible to do much better financially while serving the best interest of patients.”

Photo: mucahiddin, Getty Images

 

 

 

 

 

 

 

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