Reigniting the physicians arms race, insurers are buying practices

In the turf war between hospitals and health insurers over physician practices, hospitals are winning by a long shot. But they'd be ill advised to get too comfortable.

A slew of recent activity shows that insurers are clawing their way back, whether by outright purchases of medical practices or targeting outpatient facilities that employ doctors.

UnitedHealth Group has long led the charge to buy medical practices, absorbing several a year into its OptumCare subsidiary. National insurers Centene Corp., Humana and, most recently, Anthem have also gotten into the game.

Why are insurers more engaged? Most see owning physician practices as a way to control spending. Others are defending their influence and revenue stream from rampant hospital-physician practice consolidation. Some, such as St. Louis-based Centene, are buying medical groups out of necessity to expand healthcare access to plan members.

"It's the provider that's in the catbird seat. From the payer side it's definitely a defense mechanism to have more of a relationship with the patient," said Sheila Talton, CEO of Gray Matter Analytics, a firm that uses data to help providers and payers reduce costs.

The uptick in deals is also part of a broader movement of health insurers seeking to better align with physician groups—particularly primary-care doctors—to closely manage patient care and improve quality and outcomes.

"Payers want to invest in making sure we have best access to primary care and management for our members with physician groups that are closely aligned with us contractually or through ownership," said Denise Hanna, co-chair of law firm Locke Lord's healthcare group. "The hope is that it makes it easier to implement best practices in primary care."

UnitedHealth's Optum in December 2017 agreed to buy dialysis provider DaVita's medical group for $4.9 billion. The medical group employs more than 750 primary-care physicians directly or through associated groups, but contracts with thousands more.

The same month, Humana and two private equity firms announced they would buy post-acute provider Kindred Healthcare for $4.1 billion. For $800 million, Humana gets a 40% stake in the company's home health, hospice and community-care division, which employs physicians and includes 40,000 caregivers who serve approximately 130,000 patients daily. The same trio in April moved to buy hospice operator Curo Health Services for $1.4 billion to combine with Kindred's home division.

Humana also acquired Orlando, Fla.-based Family Physicians Group, which owns 22 clinics serving Medicare Advantage and Medicaid patients, in April for $190 million. Humana is moving its health clinics and doctor practices in Florida and Texas under a new brand called Conviva.

Medicaid managed-care insurer Centene Corp. in March said it was buying Community Medical Group, a primary-care provider in Florida with around 200 doctors serving 70,000 patients. And in May, Indianapolis-based insurer Anthem got into the game when it announced a deal to buy Aspire Health, a non-hospice palliative-care company that employs about 700 people, including physicians and other clinicians.

Despite the seemingly high pace of activity, relatively few physicians are employed by health plans. The American Medical Association found about 2% of all physicians in 2016 were employed directly by a health insurer or worked in a practice that was owned by one. The American Academy of Family Physicians also said the number of its members employed by a health insurer has remained steady in recent years at 2%.

Since insurers still lag in the total number of employed physicians, most experts don't see the strategy as a threat to hospitals, which are buying practices at a much faster clip, acquiring 5,000 independent practices between July 2015 and July 2016, according to a study by the consulting firm Avalere Health and the Physicians Advocacy Institute. The number of doctors employed by hospitals grew by 14,000, or 11%, over the same time period, the study found.

And a 2017 AMA study showed that less than half of practicing physicians—47.1%—owned their medical practice in 2016. About 32.8% of physicians were in hospital-owned practices that year, according to the AMA.

Insurers are playing defense by buying doctor groups, some industry experts said. When hospitals buy physician practices, they are able to keep patients in their health systems and protect their revenue. Insurers that buy doctor groups are able to reduce their spending by exerting more control over how those physicians practice medicine, where they refer patients, and what medications they prescribe.

"Health insurers believe this is a defensive strategy to control the premium streams," said Paul Keckley, industry consultant and managing editor of the Keckley Report. "A doctor and an insurer can substantially ratchet down what's spent in hospitals."

But there are other reasons insurers eye physician practices, and they differ from health plan to health plan. Many aren't buying physician practices for the sake of employing doctors, but to further another goal. Humana's stake in Kindred's home health and hospicedivision is likely to help reduce costs for its large Medicare Advantage population of 8.6 million. Analysts have also noted that Aspire Health's medical providers are unlikely to be Anthem's motivation for buying the palliative-care operator. Anthem CEO Gail Boudreaux said in a statement that the deal furthers its strategy of providing integrated care to improve outcomes.

Large-scale deals between companies from different parts of the supply chain, including those between CVS Health and Aetna, and Cigna and Express Scripts, also aim for improved care integration.

Centene's bid for Community Medical Group, which owns 12 primary-care and specialty clinics in Florida, was a strategic move to improve access to care in an area where it was lacking, CEO Michael Neidorff said.

"I don't have interest in owning a lot of doctors," Neidorff explained. "I think patients get better care when the vast majority of physicians are independent. However, there are times where we need to ensure our population has access to high-quality care," and that's when an acquisition may make sense.

Some doctors who once balked at the idea of working for an insurance company have come around to the idea. Dr. Amir Bacchus, chief medical officer of Henderson, Nev.-based population health management startup P3 Health Group, was sought out by UnitedHealth to help manage a group of employed doctors several years ago when he was a regional chief medical officer at HealthCare Partners of Nevada. He turned them away. HealthCare Partners later was bought by DaVita Medical, which late last year agreed to sell the group to UnitedHealth.

Bacchus said there are both good and bad examples of managed-care organizations that employ physicians. Organizations like Kaiser Permanente that manage both sides of the healthcare equation have excelled because they treat their physicians like assets and allow them to lead, he said. But there's a danger in treating physicians like a commodity to leverage against hospitals.

"For places that do things like that, you see high physician burnout because autonomy begins to wane, and then physicians feel like they're cogs in the wheel," Bacchus said.

Patient choice could also dwindle in markets where insurers employ most doctors. In Nevada, for instance, Bacchus said UnitedHealth's Optum and DaVita Medical Group doctors, who must sign strong noncompete contracts, would together treat hundreds of thousands of patients in the state, whose population totals about 3.1 million.

Across the country in Connecticut, some insurers and money management firms have taken to buying just the administrative side of physician practices, including claims processing, billing and technology, and they leave the clinical side of the practice alone to focus on patient care.

Optum in December 2015 bought the administrative and back-end operations piece of ProHealth Physicians. The Connecticut primary-care group with 370 doctors at the time would continue to be physician-owned. That sort of arrangement can be a sweet deal for doctors, said Matthew Katz, president of the Connecticut Medical Society.

"If they have someone else doing the collection and management of the business, they see they're better off focusing on what they're good at," he said, adding that insurers are able to reap profits in such deals by streamlining billing and collecting more revenue. Physician practices, he said, have struggled with heavy debt loads as the number of patients enrolled in high-deductible health plans has grown.

Still, many insurers are looking to collaborate more closely with doctors but aren't interested in employing them. Dr. Michael Cropp, CEO of Buffalo, N.Y.-based not-for-profit insurer Independent Health, spent much of his career as a family physician practicing at staff model HMOs, including HealthPartners in Minneapolis. He decided the processes developed at staff models could be used in an environment where doctors kept their independence so long as some organization was able help with capital and infrastructure. Independent doctors have more room to try innovative things, he said.

"You'd get the best of both worlds," Cropp explained. "You'd have a sense of ownership in the practice with the drive to be patient-centered, and room to continue to improve, with the ability to invest in these new models of care."

Independent Health began collaborating with primary-care physicians to create, back in 2012, a new care and value-based payment model in which doctors were accountable for the whole continuum of care. That initiative led to better care coordination and cost savings. Later, once most primary-care doctors in the area received most of their payments through a value-based care model, Independent Health led efforts to include Buffalo in the CMS' Comprehensive Primary Care Plus program starting in 2018.

It launched a company called Evolve Practice Partners last year to help local physician practices succeed in that program, which aims to improve patient outcomes and lower costs. "If we don't have strong practices, we don't have a product to sell," Cropp said. "And if we don't make these investments, who will? They don't have capital, they don't have human resources or access to these new ideas without us."

For-profit insurer Cigna Corp. has also largely opted to take the collaborative route, as employing doctors tends to restrict patient choice, CEO David Cordani said. The Bloomfield, Conn.-based insurer has struck 500 accountable care arrangements under which it rewards physicians for meeting cost and quality targets when managing a group of patients.

"We don't want to design products that are proprietary to our access points. We think that restricts choice," Cordani said. "We would prefer to partner and afford broader choice and broader accessibility for the individuals and then partner and enable the physicians, as opposed to try to control them through ownership."

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