Industry observers say practice acquisition trends could be slowing down and may reverse.

Sept. 8—A new study confirms the ongoing trend of physician gravitation from small to large group practices.

The study, which was published Sept. 6 in Health Affairs, found that in a two and one-half year period from 2013 to 2015 physicians in small group practices migrated to larger physician group practices, independent physician organizations (IPOs) and hospital-owned practices in growing numbers.

The proportion of physicians in groups of fewer than 10 dropped from 40.1 percent in 2013 to 35.3 percent in 2015, while the proportion of physicians practicing in groups of more than 100 grew from 29.6 percent to 35.1 percent.

The shift coincides with a transformation in reimbursement in the U.S. healthcare system, from a fee-for-service payment system that incentivizes volume of services to a value-based system that rewards improved healthcare outcomes and includes risk-based payments.

Changes in federal laws and regulations have incentivized physicians to join accountable care organizations and other health delivery models that allow physicians to share risk and responsibility for both the cost and quality of patient care, wrote David Muhlestein and Nathan Smith, the authors and both senior researchers with the Salt Lake City-based healthcare consulting firm, Leavitt Partners.

They suggested that the growing financial and technical challenges and administrative burdens placed on physicians from ‘meaningful use’ requirements and the upcoming implementation of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) may discourage physicians from small group practices. Another contributing factor was the “need to get bigger” to participate in the trend to population-based insurance contracting for both government and commercial payers, the authors wrote.

The migration was more pronounced among primary care physicians than specialists. Greater movement to larger practices was found among primary care physicians, while marginal increases occurred among specialty groups.

The study not only chronicles an ongoing trend, but validates the rapid pace of change, Muhlestein said in an interview.

“The study marks a significant change in a relatively short period of time,” Muhlestein said.

Biggest Change

The study shows that primary care physicians—the “quarterbacks” to success in a value-based purchasing world—are increasingly involved in accepting organization risk. While the change is swift and ongoing in the migration of physicians to larger practices, “more than half of primary care doctors continue to practice in groups of 25 or less. I don’t know where it will end up, but it’s happening now,” Muhlestein said.

“To respond to the changing payment models under MACRA, physician groups must be large enough to be able to negotiate with health plans, both public and private, as it relates to population,” Muhlestein said. “And you can’t easily do that with a three-physician practice.”

Another factor driving the movement is that new physicians completing their residencies are increasingly hired with income guarantees by physician organizations or hospitals, which allows them to build their practices, said David Gans, a senior fellow of industry affairs at the Englewood, Colo.-based Medical Group Management Association.

“Very small physician practices have trouble matching those guarantees,” Gans said in an interview.

Large practices also enjoy greater economies of scale, including better information technology infrastructure. MACRA also will benefit larger physician organizations, partly because they can better accommodate the onerous reporting requirements and IT infrastructure.

Large physician practices and employed hospital physician groups wield greater negotiating clout and get better contracts than their smaller counterparts, Gan said. That advantage is partly because of their ability to accept risk in caring for large patient populations.

However, the move to larger practices will not increase the cost of care, Gans said. Instead, costs should drop with better care coordination and care management within those large practices. With multiple doctors sharing EHRs, the health system should see reduced duplications of tests and services.

“It could reduce access to care, but large practices are more likely to have extended hours and can work within their infrastructure to offer more support staff that you wouldn’t see in a small practice,” Gans said.

However, the benefits could be geographically dependent.

“If you live in a more urban area, there should be increased access, but less access in rural areas.”

Farzad Mostashari, MD, former chief of the Office of National Coordinator for Health Information Technology (ONC) and founder of Bethesda, Md.-based consulting firm, Aledade, Inc., questioned whether the trend is a good thing. Decreased market competition, higher prices, and the loss of physician autonomy are some of the potentially negative downsides. Mostashari decried the loss of the human element and greater bureaucratization in the move to larger practices.

“When practices are bought there is not really any improvement in value: costs go up, but value does not,” Mostashari said in an interview. “Research supports that many large groups are not doing clinical integration. This is mostly about sending referrals to hospital specialists.”

The study authors noted that “evidence is mixed as to whether physician consolidation will lead to better outcomes and lower costs.”

The employment shift is fueled by high physician pay from health systems and greater leverage with health plans, Mostashari said.

Trend Reversal?

Mostashari recalled that 20 years ago hospitals also bought physician practices, only later to divest them. Typically hospitals lose money purchasing physician practices because when doctors become salaried, they’re not as productive and lose some of their entrepreneurial drive.

“I could see this trend reversing as it did in the past,” Mostashari said.

Jeff Goldsmith, a national advisor at Navigant Healthcare, said in an interview the gravitation of doctors to large group practices, IPOs, and hospital-owned practices is partly a consequence of burdensome laws and regulations that have made the practice of medicine more costly and onerous.

There has been a greater awareness of patient coordination and safety but Goldsmith noted that probably would have happened without consolidation—although a bit slower.

Hospital purchases of physician group practices slowed in 2014 and 2015, according to Goldsmith.

“If there is a preponderance of larger groups forming it’s not because hospitals are adding physicians to their groups,” Goldsmith said. “My sense is we’re seeing a sustained pause.”

Mark Taylor is a freelance writer based in Chicago.

Publication Date: Thursday, September 08, 2016