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Thursday, February 28, 2019

Why Are Hospitals Rolling-Up Physician Practices At A Record Pace?

Hospital Acquisitions of Physician Practices Rose 128% Since 2012

New data shows hospital acquisitions of physician practices are increasing, causing the number of hospital-employed physicians to rise by 70 percent from 2012 to 2018.

Hospital acquisitions of physician practices continues to be a strong trend in the healthcare space, according to new data from Avalere Health and the Physicians Advocacy Institute (PAI).

In an emailed press release, the organizations reported that hospitals acquired approximately 8,000 physician practices between July 2016 and July 2018. That number is on top of the 5,000 hospital acquisitions of physician practices from July 2015 to July 2016.

Overall, hospital acquisitions of physician practices increased by 128 percent from 2012 to 2018, the updated analysis found. In July 2012, only 35,700 practices were considered hospital-owned, but that number jumped to 80,000 practices by the start of 2018.

While hospitals engaged in robust acquisition activity, physician employment by hospitals and health systems also dramatically increased since 2012, the analysis revealed.

Over the five-and-half-year study period, the number of physicians employed by hospitals or health systems increased by more than 70 percent, growing from 94,700 employed physicians in mid-2012 to 168,800 employed physicians by the start of 2018.

During the most recent 18-month period alone, 14,000 physicians left their private practices to work for a hospital or health system.

Additionally, researchers found that all regions experienced an uptick in hospital-owned practices at every measured time period. The increase of hospital-owned practices in the regions ranged from 91 percent to 303 percent.

“The continued trend of hospital-driven consolidation is dramatically reshaping the healthcare system,” Robert Seligson, PAI’s President and CEO of the North Carolina Medical Society, stated in the press release. “PAI will continue to advocate for fair, transparent policies and champion physician clinical autonomy, regardless of the practice setting, to ensure that physicians can continue to deliver the best possible care to their patients.”

In general, healthcare mergers and acquisitions are taking off. PricewaterhouseCoopers (PwC) recently reported that merger and acquisition activity across the entire industry increased 14.4 percent in 2018, and deals among provider organizations, including hospitals and physician groups, accounted for 28 percent of the total number of transactions.

Reducing costs, improving care quality, increasing efficiency, and implementing value-based care are among the top reasons why providers are looking to mergers and acquisitions. Acquiring or merging with another provider organization allows both providers to leverage economies of scale, brand recognition, and other valuable capabilities.

In particular, physician practices are drawn to hospital acquisitions. AMGA recently found that the operating loss per physician increased from 10 percent of net revenue in 2016 to 17.5 percent by 2017. As a result, total losses during the two-year period grew from a median of $95,138 to $140,856 per doctor.

Merging with a hospital enables physicians to shoulder the financial burden of running a practice in a time when reimbursement rates are falling and providers are under increased pressure to decrease their costs.

At the same time, an acquisition allows the practice to take advantage of the hospital’s technological, administrative, and financial infrastructure that would otherwise be out-of-reach for most practices.

But hospital acquisitions of physician practices could spell trouble not only for independent physicians, but also the industry at large.

A separate Avalere Health and PAI study from 2017 found that the growing number of hospital-employed physicians is behind the $3.1 billion increase in total Medicare spending on four common services.

Another study from 2017 also showed that cancer costs were 60 percent higher when patients underwent chemotherapy at a hospital-based versus independent center.

“Hospital consolidation pushes healthcare costs upward,” explained Seligson in 2017. “The impact of hospitals owning outpatient practices places a greater financial burden on Medicare beneficiaries and on taxpayers.”

It is a difficult time to be an independent physician. Major stakeholders have argued that value-based care and healthcare reform in general are the death knell of the independent physician practice.

However, remaining independent is still a viable option for physicians. Groups like PAI are advocating for policies and regulations that level the playing field for independent practices and physicians. The group recently called for increased market competition, more site-neutral payment policies, and small practice support for value-based reimbursement programs like MACRA.

Independent practice associations (IPAs) are also looking to help physicians stay autonomous while still leveraging the capabilities of their peers. IPA allow practices to compete with their larger peers and share resources to stay afloat financially.

“Sometimes independent physicians are so independent that it's a detriment to their own survival,” Paul Reiss, MD, HealthFirst’s Chief Medical Officer, recently told RevCycleIntelligence.com. “Whereas joining with other like-minded individuals in similar practice situations creates this energy that allows them to survive.”

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