Lost appetite: The expected surge in insurers buying physician practices never materialized

In 2010, Humana, the Louisville, Ky.-based insurer that specializes in medicare managed care, shelled out nearly $800 million for Concentra, which directly employs physicians, nurses and other clinicians delivering occupational medicine and urgent care. The move was a return to familiar territory for Humana.

It began life as a nursing home company and later became a hospital operator before morphing into an insurer.

The deal turned heads at the time. The Concentra acquisition started a small wave of Affordable Care Act-era transactions where a few insurance companies joined hospital and large physician groups in buying up medical practices.

But that early wave did not trigger the expected tsunami of physician practice purchases by insurers. Indeed, earlier this year Humana ended up selling Concentra to a specialty hospital chain and a private equity firm for nearly $1.1 billion.

Company officials say they realized they couldn't manage front-line providers caring for commercially insured patients.

“Concentra's operations did not ultimately align with Humana's strategy as well as we had originally anticipated,” Humana CEO Bruce Broussard said in March.

Not many insurers have shown an appetite for getting into the actual delivery of healthcare services. Hospitals overwhelmingly remain the main buyer of medical groups. Insurers would rather create new payment contracts or non-ownership partnerships than buy a practice outright.

The few insurers that are buying doctor groups are doing so in a targeted fashion. Primary-care providers, especially physicians and nurses who mostly treat Medicare patients, are in high demand since they are considered the gatekeepers for preventing and managing costly chronic illnesses.

That was Humana's strategy. After it bought Concentra, the company scooped up several clinics and acquired SeniorBridge, a provider group that cares for elderly patients at home.

Other major insurers also dabbled in the approach. Anthem purchased CareMore, a California-based medical group with a Medicare Advantage plan. UnitedHealth Group's health-services subsidiary, Optum, absorbed Monarch HealthCare, a large physician practice in California. Blue Cross and Blue Shield affiliate Highmark bought the entire West Penn Allegheny Health System in Pittsburgh, creating a hospital, physician and health plan network that rivals the neighboring UPMC system.

Controlling healthcare costs is the mantra of the times, and primary-care groups are viewed as one of the most important pieces of the puzzle because those doctors act as the initial access points for the insured. Finding out which patients need more intensive preventive care could avoid hospitalizations and save money, the thinking goes.

“Even the insurers have figured out, if we're going to offer competitive products, maybe we should have a strong primary-care or family-practice base,” said

Dr. Robert Wergin, the immediate past president of the American Academy of Family Physicians.

But overall, only a sliver of employed physicians work for an insurance company instead of their local hospital or health system. It won't change much going forward, according to multiple industry surveys and expert interviews.

Laura Palmer, a senior fellow at the Medical Group Management Association, said her organization has not heard of any situations in which physician members are directly selling or looking to be employed by a health insurer. In the American Medical Association's recent employment survey, physicians can indicate if they practice in an HMO or managed-care organization. But “the share of physicians who work for HMOs or MCOs is so small we don't break it out,” an AMA spokesman said. Roughly 2% of approximately 34,000 primary-care physicians in the AAFP's annual survey said they were employed by an insurer.

Insurers are mining patient data and working with providers to find and treat patients who need the most upfront care, said Stephen Shortell, a health policy professor at the University of California at Berkeley.

“That stops short of actually delivering medical care,” he said. Insurers “don't know that business. They're not trained to do it.”

Instead of full-fledged acquisitions, Shortell and others have seen many more alliances between insurers and physician practices—two parties that often are adversaries instead of partners. Insurers want to reward providers for good quality marks and lower costs, but don't necessarily want to be the ones writing physicians' entire paychecks.

“It's a big deal for payers to acquire medical groups,” said Josh Weisbrod, a partner at Bain & Co.'s healthcare practice. “It's making a statement about their approach … and it's not a slam dunk that it would be a marriage made in heaven.”

Many insurers shun buying equity in physician practices to avoid amplifying negative perceptions about their role in the healthcare process. Doctors and patients loathe dealing with preauthorization forms and insurance bills, Wergin said, and having a payer hover over a medical group conjures images of more skimped care.

But Leeba Lessin, CEO of Anthem's CareMore, said it's no different than what Kaiser Permanente, Geisinger Health System and other heralded integrated delivery systems have done for years. And those perceptions haven't stopped other hospital systems from entering the insurance game in an effort to align economic and clinical goals. “We're not alone in these,” Lessin said.

Capital District Physicians' Health Plan, a not-for-profit insurer based in Albany, N.Y., does not own any medical groups and has no immediate plans to do so. The physician-led company has taken a different route altogether.

CDPHP has spent $5 million over the past few years buying electronic health-record systems for physician groups that are already part of its network but don't have the time or money to make those investments. Physicians maintained full ownership of their practices.

The insurer also created a patient-centered medical home project. Almost 200 physician practices representing 840 network doctors and clinicians participate. CDPHP pays care-coordination fees and bonuses to providers, and in exchange, physicians adjust their practice to benefit patients. For example, physicians extend office hours and provide educational classes on preventive care, such as smoking cessation and diabetes management.

“We don't necessarily want to own practices,” said Bob Hinckley, chief strategy officer of CDPHP. “We want to work with them and help them be efficient so they can do their work at the most effective cost.”

Most payers are trying to find ways to collaborate rather than buy primary-care groups in their regions, similar to CDPHP. But some national, corporate insurers have still shown some interest in taking over practices that have advanced data-crunching capabilities and care-coordination techniques, Modern Healthcare reported earlier this year. Humana and UnitedHealth Group—the two largest Medicare Advantage insurers in the country—still have the most appetite, especially for primary-care providers who care for high-risk, high-cost Medicare members.

“In Medicare it really has a lot of value,” said Ana Gupte, managing director at investment bank Leerink Partners. “It doesn't make sense for commercial,” she said, because people in employer-sponsored plans are usually healthier than seniors and don't need to visit their doctor as frequently.

Humana with its Medicare Advantage focus owned 22 medical centers at the end of 2014, a majority of which are in senior-heavy Florida, according to company documents. Humana's CAC Florida Medical Centers, which are staffed by primary-care doctors and some specialists, represent a large slice of that total. Humana employed or had an ownership arrangement with 10,600 primary-care providers and Medicare-specific clinicians in 2014, compared with 8,400 in 2013.

OptumCare, the part of UnitedHealth's Optum unit that handles medical operations, has a direct relationship with 17,000 physicians. The company employs many of those physicians and assists others in contracting only, OptumCare CEO Jack Larsen said.

Monarch Healthcare has been an Optum-owned medical group for roughly four years now, and it faced some trouble for choosing to sell to a company that shares a balance sheet with the nation's largest insurer. Monarch had to pay $2.5 million to Blue Shield of California in 2013 to resolve claims it breached its contract and turned Blue Shield Medicare patients away. Monarch denied the claims.

Monarch CEO Dr. Bart Asner, a pediatrician, doesn't view the deal as merging with an insurer. Optum is part of a company that also happens to own an insurer, and it provides the separate services, such as data analytics and predictive modeling that Monarch wouldn't have been able to develop independently.

“We were not, by any means, becoming part of an insurance company,” said Asner, whose group cares for 250,000 patients. “UnitedHealthcare is one of many health plans we work with. We are pluralistic.”

Optum executives maintain that they are separate from UnitedHealthcare's operations. “We're really trying to build a better solution that helps payers of all stripes in the long term,” Larsen said. He added that Optum will buy or invest in more clinical settings, such as urgent care and surgical centers, in the future. For instance, Optum bought MedExpress, an urgent-care clinic company, this past April.

But so far, insurers haven't shown interest in pursuing the thousands of small practices across the nation that represent—at least conceptually—an opportunity to improve care coordination and lower their medical-loss ratio.

Dr. William Fox runs his small internal medicine practice in Charlottesville, Va., with one other full-time physician and one part-timer. Though located between Sentara Healthcare's Martha Jefferson Hospital and the University of Virginia Health System's flagship hospital, which dominate the area, the practice remains independent even though both organizations want to buy the primary-care practice.

“They both made it really clear they are very open when and if we don't want to be independent,” Fox said. The practice has no plans of selling.

When asked if any health insurance companies have come knocking on his door with an offer, Fox said not only has it never happened, but the idea has never crossed his mind. “If I heard about it, I probably somewhat dismissed it,” he said.

The relationship between doctors and insurers is “kind of like a scorpion's dance,” he added.