More than half of US physicians now work for or contract with fewer than 700 healthcare systems across the country, according to a new study in Health Affairs.
Between 2016 and 2018, the percentage of physicians affiliated with a healthcare system — defined as an organization that includes at least 50 physicians, 10 primary care doctors, and one nonfederal acute care hospital — increased by 11 percentage points, jumping from 40% to 51%. The proportion of primary care physicians affiliated with healthcare systems rose from 38% to 49%, the study found.
The researchers, led by Michael F. Furukawa, PhD, the acting director of the Division of Healthcare Delivery and Systems Research in the Center for Evidence and Practice Improvement at the Agency for Healthcare Research and Quality (AHRQ), used AHRQ data on healthcare systems as well as data from IMS Health and IQVIA to identify system-affiliated physicians.
Their findings confirm and extend earlier research showing a major increase in physician employment by hospitals over the past decade. For example, a survey by the American Medical Association (AMA) found that in 2018, 8% of doctors worked directly for a hospital, and nearly 27% worked for a hospital-owned practice, up from 5.6% and 23% in 2012, respectively. Another study, by Avelere Health and the Physicians Advocacy Institute (PAI), found that in 2018, 44% of physicians were employed by hospitals and health systems, up from 41.7% in 2016.
The authors of the current study note that they did not measure the full extent of industry consolidation, partly because they excluded hospitals that employed fewer than 50 doctors. So why did their results show that so many more doctors were working for hospitals than earlier studies did?
One reason is that not all of the physicians affiliated with healthcare systems are employed by them, Furukawa told Medscape Medical News. For example, he said, physicians in the Sharp Community Medical Group in San Diego do not work directly for Sharp Healthcare. They receive their paychecks from the group, which contracts with the healthcare system for their services. (That arrangement is in line with California’s corporate practice of medicine law, which bars most hospitals from directly employing doctors.)
The AMA and Avelere/PAI studies also used different kinds of data, Furukawa added. The AMA survey, for instance, relied on member reports that aren’t frequently updated, he said.
Michael La Penna, a healthcare consultant based in Grand Rapids, Michigan, told Medscape Medical News that he isn’t surprised that a majority of doctors are affiliated with hospitals. The study’s results, he said, “told us what we already knew” from observing facts on the ground. In some cities, he noted, it’s hard to find independent practices.
La Penna, whose clients include hospitals that employ physicians, said that healthcare systems have continued to add more physicians to their networks since 2018. In some cases, he said, efforts by private equity firms to acquire high-ticket specialty practices have spurred the hospitals to defensively buy out specialists such as orthopedic surgeons.
Vertical vs Horizontal Consolidation
Healthcare systems’ hiring of additional doctors follows a phase in which hospitals joined together into systems. According to the new study, the percentage of hospitals in healthcare systems increased by just two percentage points, rising from 70% to 72%, during the study period. Looked at in a slightly different way, in 2018, 91% of hospital beds were in system-affiliated hospitals — a small increase from the 88% in 2016.
During the same period, the number of healthcare systems that fit the study criteria increased from 626 to 637. Of the 626 systems in 2016, 556 were operating in 2018. The difference is partly explained by mergers of systems, the authors note.
The most common type of healthcare system ownership was nonprofit, which included 440 systems in both 2016 and 2018. The number of public/government hospital systems increased from 108 to 127. In contrast, the number of church-operated systems decreased from 59 to 53, and the number of for-profit systems dropped from 19 to 17.
Among the 556 systems that remained under the same ownership throughout the study period, the median number of affiliated physicians increased by 29%, from 285 to 369. Similarly, the median number of affiliated primary care physicians increased by 32%, from 106 to 140.
In for-profit systems, the median number of doctors more than doubled, from 519 to 1127, while the median number of hospitals grew by 156%, from nine to 23. These systems had by far the highest median number of employed doctors, the authors note.
Church-owned systems increased their median number of physicians by 32%, which is about the same as other not-for-profit systems; but in absolute numbers, they had the second highest median number of physicians. The 49 church-operated organizations employed a median of 820 physicians in 2018, up from 622 in 2016.
“Big church-operated healthcare systems like Ascension and Trinity Health and for-profit systems had the biggest growth in acquiring practices and the biggest percentage increases in affiliated doctors, partly because they were doing catch-up,” Furukawa explained. “Their baseline was lower than that of other types of systems.”
In addition, for-profit systems were aggressive in acquiring practices, partly because of government regulatory changes, such as the implementing of alternative payment models, he suggested.
La Penna agreed that the church-sponsored chains, which are in multiple states, have been acquiring more practices to compete with nonprofit systems that usually focus on single markets. The for-profit chains, which are few in number, are contending with all of the other systems to corral the remaining independent physicians, he said.
Driving Up Costs
A number of studies have shown that industry consolidation has raised costs by giving healthcare systems leverage over private insurance companies. This is true of both hospital mergers and physician employment. With more doctors aboard, healthcare systems can negotiate higher rates for their employed physicians.
They’ve also been able to take advantage of Medicare regulations that pay provider-based outpatient departments — physician offices affiliated with hospitals — at higher rates for evaluation and management services than independent practices are paid. The Centers for Medicare & Medicaid Services has tried to change this with “site-neutral” payments, but that policy change is currently tied up in court.
The coronavirus pandemic is putting further pressure on independent practices, which have seen revenues plunge 30% or more. According to a recent report from Merritt Hawkins, a physician recruiting firm, up to 35% of practices may close in some markets.
What that will mean for industry consolidation is up in the air. Merritt Hawkins noted that physician searches have dropped by 30%, an indication that healthcare systems are hiring fewer doctors than in the past because of the pandemic. At this point, there are far more doctors seeking jobs than there are available positions, Travis Singleton, executive vice president of Merritt Hawkins, told Medscape Medical News.
But La Penna said that despite the COVID-19 crisis, hospitals in New York City and along the East Coast are looking for bargains as practices start to go under. Some doctors, he said, are now knocking on hospital doors after resisting their entreaties for years.
The study was funded by AHRQ. The authors and La Penna have disclosed no relevant financial relationships.
Health Aff. Published online August 3, 2020. Full text