Physician Practice Acquisitions on the Rise: Implications for Healthcare Costs and Quality
The healthcare landscape is undergoing a significant transformation as physician practices increasingly become targets for acquisition by larger entities. A recent review by the Government Accountability Office (GAO) sheds light on this growing trend and its potential impacts on healthcare costs and quality.
Consolidation Trends in Physician Practices
The GAO report reveals a marked shift in physician employment patterns over the past decade. In 2012, less than 30% of physicians were affiliated with hospital systems. By 2022, this figure had risen to approximately 47%, according to a study by the American Medical Association cited in the report. This trend reflects a broader movement towards consolidation in the healthcare sector, with independent practices becoming increasingly rare.
The buyers in these acquisitions are diverse, including health systems, insurers, private equity firms, and other companies. Each type of acquirer brings its own motivations and potential consequences to the healthcare ecosystem.
Impact on Healthcare Costs and Quality
The GAO's analysis of multiple studies suggests that the consolidation of physician practices with health systems can lead to higher prices for healthcare services. This increase in costs is not always accompanied by improvements in care quality, with some studies indicating either no change or even a decrease in quality metrics.
One study found that total spending per Medicare patient increased by 5% for select elective surgeries from 2010 to 2015, partly due to the replacement of doctor's office visits with more expensive hospital outpatient visits. This shift in care settings contributes to the overall increase in healthcare expenditures.
Hospital systems argue that the increased costs may be attributed to improved utilization of services and the need to stabilize financially struggling practices post-acquisition. However, physician groups suggest that the pressure to see more patients in shorter appointments could lead to increased referrals for additional testing and specialist visits, further driving up costs.
Motivations and Consequences for Different Stakeholders
Physicians and Independent Practices
Physicians cite several reasons for selling their practices:
- Rising expenses outpacing revenue growth
- Desire to leverage scale for better insurer negotiations
- Access to expensive resources
- Reduction of administrative and regulatory burdens
- Retirement planning, especially relevant as the physician workforce ages
However, the dwindling number of independent practices creates a self-reinforcing cycle, as remaining independent doctors face increasing challenges in contract negotiations and patient referrals.
Health Systems and Hospitals
For health systems, acquiring physician practices offers multiple benefits:
- Additional revenue from physician services
- Increased referrals to their hospitals
- Greater market share, potentially leading to higher payment rates from insurers
- Improved ability to coordinate care across settings, facilitating value-based payment arrangements
Insurers and Private Equity
Insurers are also entering the physician practice market, with estimates suggesting about 2% of physicians work in insurer-owned practices. This strategy allows payers to:
- Gain leverage in price negotiations with other providers
- Lower care costs
- Promote participation in value-based care models
Private equity ownership of physician practices is on the rise, with one study indicating an increase from 4.5% in 2022 to 6.5% in 2023. These firms often consolidate smaller practices to increase market share or create management services organizations to streamline operations.
The healthcare industry continues to evolve rapidly, with the trend of physician practice acquisitions reshaping the landscape of care delivery. As this consolidation progresses, stakeholders across the healthcare spectrum will need to navigate the complex interplay of cost pressures, quality considerations, and regulatory scrutiny.
References
- Physician practice acquisitions on the rise: GAO
Consolidation with health systems can lead to higher prices, alongside a decrease or no change in care quality, according to a review from the Government Accountability Office.
Explore Further
What are the key financial terms or strategic objectives driving the acquisitions of physician practices by private equity firms and health systems?
How do insurer-owned physician practices compare in terms of cost and quality outcomes to those owned by health systems or private equity firms?
Are there regulatory measures currently being proposed or implemented to address the potential increase in healthcare costs resulting from physician practice consolidation?
What challenges do independent physician practices face when negotiating contracts or referrals in a market dominated by larger consolidated entities?
How does private equity's growing involvement in physician practice acquisitions impact the long-term sustainability and quality of patient care?