Analysis Shows Hospital Ownership of Physician Practices Growing Rapidly

Kerry Dooley Young

March 19, 2018

Hospital ownership of physician practices has grown notably in recent years, due in part to payment policies that reward these acquisitions and administrative burdens on doctors, according to an analysis update on this long-noted trend provided by the Physicians Advocacy Institute (PAI).

Hospitals acquired 5000 independent physician practices between July 2015 and July 2016, according to an analysis conducted by Avalere Health for the PAI, an advocacy group established with funds from class action settlements filed on behalf of physicians against major national for-profit health insurers. From mid-2012 to mid-2016, the percentage of hospital-employed physicians rose by more than 63%, the PAI said.

These figures provide a snapshot into a trend, which some policy experts and lawmakers already have flagged as a driver of healthcare costs.

"Payment policies mandated by insurers and government heavily favor large health systems, creating a competitive advantage that stacks the deck against independent physicians, who are already struggling to survive under expensive, time-consuming administrative and regulatory burdens," said Robert Seligson, MBA, MA, who is the PAI's president and chief executive officer of the North Carolina Medical Society, in a statement about the Avalere research.

The Avalere-PAI release appears to depict a faster rate of growth in the trend of hospital-employed physicians than does a 2017 report from the American Medical Association (AMA). Avalere found that 42% of physicians, or approximately 155,000 of 369,000 surveyed for an SK&A database, were employed by hospitals in July 2016, compared with 26%, or approximately 95,000 of 365,000 surveyed, in July 2012.

The AMA, in contrast, in a report last year, said that movement toward hospital-owned practices and physician employment directly by hospitals appeared to have slowed since 2014. It pegged the percentage of physicians working in a practice with at least some hospital ownership or who are direct hospital employees as being at the same level in 2014 and 2016 of about 32.8%, but this was higher than the 29.0% seen for 2012.

The two reports drew from different sources, with the AMA report using the group's Physician Practice Benchmark Surveys. In its work, Avalere used an SK&A database that contains physician and practice location information on hospital/health system ownership.

Payment Concerns

Many policy experts remain concerned, though, that consumers and taxpayers face extra costs when doctors are employed by hospitals. Separate from the Avalere-PAI release, the Medicare Payment Advisory Commission (MedPAC) on Thursday highlighted this issue in its March report to Congress. It costs Medicare $158 for the most common type of evaluation and management (E&M) office visit at many hospital outpatient departments (HOPDs), while the program pays only $74 for this visit at a freestanding office, MedPAC said.

MedPAC estimates that Medicare spent $1.8 billion more in 2016 for E&M office visits than it would have if outpatient department and freestanding offices were covered at the same rate. In addition, people enrolled in Medicare spent $460 million more on their share of the costs of these visits than they would have if the payment rates had been the same in both settings.

Congress and the Centers for Medicare and Medicaid Services (CMS) have in recent years taken steps to address payment policies that give hospitals incentive to acquire physician practices. Congress took a step to remove a financial incentive for hospitals to expand their ownership of physician practices in the Bipartisan Budget Act of 2015. The law cut off the higher outpatient pay for many new off-campus HOPDs, but allowed those already billing Medicare at HOPD rates to continue. CMS last year announced a plan to change how it will pay for drugs that hospitals acquire through the 340B drug discount program, which had proven an incentive for acquisitions of practices focused on cancer and rheumatology.

Policymakers need to keep the consequences of consolidating physician practices into hospital groups as they advance new payment systems from CMS, J. Michael McWilliams, MD, PhD, professor of healthcare policy at Harvard Medical School, Boston, Massachusetts, told Medscape Medical News by email.

He said he's worried that there could be more consolidation triggered by a rush "to impose downside risk in alternative payment models" through the implementation of changes to physician payments dictated by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).

"Currently, the alternative payment model participation bonuses under MACRA disproportionately go to the larger provider organizations because downside risk is required to receive the bonuses," Dr McWilliams said. "That widens existing payment differential between the big and the small."

Lawmakers and CMS should strive to create "an even playing field, allowing the best delivery models to emerge and compete," he said. Physicians will need to have resources available to meet requirements for information technology infrastructure and other demands associated with an increased trend toward use of quality metrics in setting payment rates.

But Dr McWilliams said that the scale of this support does not have to be very large, and the resources do not need to be provided by hospitals.

"Provider consolidation and the excessive prices that follow from it is probably the biggest health policy issue facing us today," he told Medscape Medical News. "This needs to be a priority among policymakers."

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