Health Systems

More Pandemic Fallout: Independent Physicians Struggling to Stay Independent

Consolidations may accelerate. But is that a good thing for patients?

Mergers and acquisitions in the healthcare world have been shaping the landscape of the healthcare environment for decades, but the lasting consequences of COVID-19 may accelerate that process.

Healthcare systems and capital sources across the country still see many segments of the healthcare market as fragmented industries that are ripe for consolidation, allowing stakeholders to gain scale and align services and engagement. During COVID-19, many practices are struggling to keep the lights on because of the cancellation of the elective procedures that kept many employers in business.

The fiscal strain may make more practices interested in an infusion of capital, creating opportunities for private equity or other consolidating forces. For some practices, the only way to stay in business and keep their employees might be to sell. While owners may lose independence, the consolidation of these healthcare services can reduce non-compliance regulation, provide more accurate financial management, and could reduce the waste that are often present in independently owned businesses.

Jon Henderson, a partner at Polsinelli’s Dallas office focusing on healthcare, says that historic drivers of consolidation in physician services include “decreasing fee-for-service revenue coupled with value-based reimbursement models, capital demands to fund growth, and technology and infrastructure needs.”

The pandemic has cut into fee-for-service profits and moved many physicians to look harder at value-based care. It’s also forced physicians to expand their telehealth services, which often generate less revenue. In essence, it is the perfect storm for the forces of consolidation. But the pandemic has also diminished the financial power and desire for risk of those formerly looking to add to their physician groups. Health systems, especially, have also been hit hard and may not be interested in acquiring more practices.

“We believe after the pause, consolidation will accelerate,” Henderson says. “The COVID-19 situation will have exponentially pushed the market ahead of what would have occurred in the ordinary course of years and years of adoption.”

Regulatory limitations to consolidation are also being removed during the pandemic, such as the allowance of and reimbursement for telemedicine, expanded scopes of practice, and practicing across state lines. If the system serves well without any health and safety issues, these changes could be made permanent, reducing future barriers to consolidation and the practice of medicine.

“The future state of healthcare is patient centric, and is more about the patient and less about the provider,” Henderson says. “One of the ways that future state is being implemented is through private equity management, which exercises professionalism and managing businesses.”

While consolidation and economies of scale might save costs for stakeholders, studies show that more consolidation might not be best for patients. The consolidation of the healthcare industry has accompanied an unsustainable increase in the costs. Studies show that consolidated healthcare organizations cost more, especially when they are a part of a hospital system, where patients are often referred. A Rice University study demonstrated that costs go up and quality remains the same when physicians consolidate. 

There are organizations throughout North Texas and around the country specifically designed to help physicians remain independent. Physicians are forced to balance their desire for independence with the administrative burden of running a business. Dhruv Chopra is the CEO of Collaborative Imaging, an alliance of radiologists who work against consolidation in the industry. He is wary of the impact of the trend and the loss of independence for physicians. “Doctors make terrible employees,” Chopra says. “They are used to making life-and-death decisions, not used to being told what to do.”

But as the consequences of COVID-19 play out, physicians may not be able to remain independent and profitable. “All the drivers of consolidation will be accelerated,” Henderson says. “There will be a tipping point, where the seller of a business wants to do it as an optimized value.” 

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