Hospitals Continue to Acquire More Physician Practices

Ken Terry

February 22, 2019

The trend of consolidation between hospitals and physician practices is proceeding apace. From July 2016 to January 2018, hospitals acquired 8000 medical practices, and an additional 14,000 physicians left private practice to enter into employment arrangements with hospitals, according to new data compiled by Avalere Health and the Physicians Advocacy Institute (PAI).

Earlier Avalere-PAI research tracked the sustained trend of physician practice acquisitions and physician employment by hospitals and health systems from 2012 to 2016. During the 5.5-year study period, the number of hospital-acquired physician practices increased from 35,700 in 2012 to more than 80,000 in 2018. Forty-four percent of US physicians were employed by hospitals or health systems in January 2018, compared to about 1 in 4 in July 2012, the study found.

During that period, the study shows, hospital employment of physicians grew by 78%, increasing from 94,700 physicians in 2012 to 168,800 in 2018. Employment of doctors jumped all across the United States, with increases ranging from 91% to 303% by region.

From July 2016 to January 2018, the number of hospital-employed physicians rose 9%, from 154,900 to 168,800. The percentage of all doctors employed by hospitals and health systems increased from 41.7% to 44%, a slower rate of increase than from 2012 to 2016.

In the same 18-month period, the number of hospital-owned practices grew from 72,100 to 80,000, and the percentage of medical practices owned by hospitals increased from 29.7% to 31.2%, the study says.

All regions of the country except for Alaska and Hawaii saw an increase in the percentage of hospital-employed physicians from 2016 to 2018. The percentage of hospital-owned practices increased in every area. The biggest increases were in the West, where physician employment and hospital practice ownership grew by 6.6% and 8.1%, respectively.

From 2012 to 2018, the Northeast had the largest increase in the portion of doctors employed by hospitals, growing from 22.1% to 45.7%. The West and Alaska/Hawaii experienced the largest growth in the percentage of practices owned by hospitals.

"The continued trend of hospital-driven consolidation is dramatically reshaping the healthcare system," said Robert Seligson, PAI's president and CEO of the North Carolina Medical Society, in a news 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."

Why Hospitals Buy Practices

One reason for hospital practice purchases has been Medicare's policy of paying more to hospital outpatient departments — which include owned practices — than to independent practices for providing the same services. The Centers for Medicare & Medicaid Services recently adopted a "site neutral" policy by which all physician practices are paid on the Medicare fee schedule, regardless of ownership.

Hospitals have also acquired practices to capture physician referrals and laboratory orders. The average net revenue each physician — whether employed or not — generated for his or her hospital was $1.56 million in 2016, according to a Merritt Hawkins survey.

When hospitals employ doctors, moreover, they can negotiate higher payments with private insurers than physicians can on their own. A 2015 study conducted by the Institute for Policy Research at Northwestern University shows that when a hospital acquires a medical group, physician prices increase nearly 14%.

However, it is unclear whether hospitals have made out better by employing physicians than by simply encouraging doctors to admit patients to their facilities. Losses of more than $100,000 per doctor per year have been reported for hospital-owned practices, according to Medical Economics.

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