A study in from Rice University researchers in the Journal of General Internal Medicine shows that patients spend more when treated by doctors that bill through hospital-owned practices. The past couple decades have seen independent physician practices become more and more scarce, with the fractured industry moving increasingly toward consolidation. The first wave was spurred by large health systems acquiring independent practices, but now Wall Street is a major player in physician acquisition.
As practices are rolled into larger organizations, competition decreases, with fewer players fighting for patients. Independent practitioners have little bargaining power with insurance companies for higher reimbursement rates, leaving them in dire straits.
The study compared annual spending per patient and compared patients treated by independent physician practices to those treated by hospital-owned practices, accounting for quality as well. When treated by hospital-owned practices, the study found spending was 5.8 percentage points higher, with an emphasis on medical equipment, imaging, and outpatient care. The study says that the spending was greater due to the utilization of more services, rather than higher prices, even though the higher utilization rates did not result in higher quality care.
Physicians Advocacy Institute research found that between 2012 and 2016, the percentage of hospital employed physicians increased by more than 63 percent. That includes 40,000 physicians who shifted to being employed by hospitals from July 2014 to July 2016. By 2016, 29 percent of all physician practices were owned by hospitals.
In the South, the institute found that employed physicians made up 37 percent of the total, while it was more than half of doctors in the midwest. The PAI contrasted Medicare payment for routine services performed in a hospital and physician office, finding that cardiac imaging was nearly twice as expensive in a hospital, while a colonoscopy was more than 25 percent higher.
A Marketplace story looked at a Kaiser Health News analysis of claims data from Amino, a health transparency company, and found that independent physicians in the Bay Area received an average of $2,408.45 for a routine vaginal delivery, while Stanford physicians were reimbursed $5,238.13, and UCSF doctors received $8,049.84.
But those increased costs come with advantages for doctors and their employees. Dr. Jim Walton is CEO of Genesis Physicians Group, a nonprofit independent practice association, and has been both sides of the transaction. He sold his practice to the Baylor health system prior to the consolidation wave and spent ten years inside the large system.
There are inherent challenges to running a business as a practicing physician, especially for many who have little or no business training, and being an employed by a network or system relieves some of that pressure. “One of the benefits was to provide our staff benefits for the first time after being consolidated,” he says. “It was very important for us.”
Being purchased also provided a retirement program for employees at the clinic, and the burden of working with payer contracting was also lifted.
But with the loss of autonomy meant that physicians were not able to be flexible with payments if a patient was struggling financially, as they may have done prior to consolidation. While cutting patients deals is not the best business practice, for many physicians other things are more important. “You get to be your own boss, and can see and experience that generosity for families and patients,” Walton says.
“There are a fair number of physicians who sub-optimize their business process for quality of life and quality of care,” Walton says. “The physician community is very segmented, and not all are driven by the same motivation.”
Walton is doubtful that there are any quality changes for better or worse after consolidation, and says the economy of scale argument doesn’t really hold up. With added contracting power, consolidation usually ends up increasing prices for consumers and payers.
The lack of control may reduce some headaches, but it causes others. “Doctors derive joy from the profession – running their own practice, how their staff behaves toward patients, from the front desk to doctor and out,” Walton says. With consolidation, “they lose that control because those employees are not yours any longer. Billing and collecting and staff management are two factors that have a direct influence on patient experience.”
While hospital systems have started slowing down in their purchase of physician practices, other sources of capital are filling the gaps. Insurers are beginning to purchase practices and pharmacies now own clinics; Blue Cross Blue Shield of Texas announced plans to open their own clinics around Dallas-Fort Worth earlier this year to provide care where they saw gaps in coverage.
More recently, Wall Street has joined the race to consolidate the physician space, with an increase in private equity and venture capital funding. Walton says he received multiple offers a week to invest in or purchase Genesis from investment firms. “There are a lot of inefficiencies in practice of medicine; we are not the greatest business people, and they can help the doctor make money.”
But Walton says that the pros and cons that exist when hospitals purchase physician offices will only be heightened by an equity consolidation, when there are investors who will want a return. When they office is purchased by an investment firm or venture capital fund rather than a nonprofit health system, there is only a tighter focus on maximizing profits. “The positives and negatives are worse possibly with private equity,” Walton says. “It is fertile ground for finding efficiencies in the practice.”