President Joe Biden's recent executive order promoting competition in the American economy acknowledges a long-known fact: Excessive healthcare consolidation has not and will not benefit our nation's patients. In fact, unchecked consolidation is drastically transforming healthcare delivery in this country and putting profit-driven corporate entities in the driver seat with regard to patient care. As consumers continue to grapple with higher prices and fewer choices, there are good reasons for policymakers to start paying closer attention.
Mergers and acquisitions in healthcare are nothing new. Whenever a healthcare business combination is announced, the message to policymakers and consumers rarely deviates from a carefully crafted script: the transaction will create efficiencies of scale that will improve operations and generate cost savings. Yet a growing body of research reveals that consolidation undermines competition and drives prices higher. For example, a study of California's hospital markets found an increase in the share of physicians in hospital-owned practices was associated with a 12% increase in premiums for private plans sold in the state's marketplace.
A recent study by Avalere for the Physicians Advocacy Institute shows significant nationwide growth in physician employment and practice acquisitions by hospital systems and other corporate entities throughout 2019, with accelerated growth in the last six months of 2020. At the beginning of 2021, Avalere researchers found that only 30% of physicians in the U.S. still practiced medicine independently. Hospitals and other corporate entities, including private equity firms and health insurers, now own nearly half of U.S. physician practices. COVID-19 exacerbated existing financial, administrative and regulatory burdens on independent physicians who were already struggling to keep their private practices afloat. Many physicians made the difficult decision to close or sell their practices.
Financial incentives make physician practices attractive acquisition targets for corporate entities looking to increase their profits. Hospital systems have a vested interest in "capturing" physicians' patient base to maintain a steady stream of revenue from tests, procedures and other specialty services. Payment policies favoring hospital-delivered services have also fueled hospital-driven consolidation.
Even in this highly regulated industry, acquisitions of physician practices by hospitals and other corporate entities occur with little regulatory scrutiny or oversight. These transactions make good business sense for corporations, but the longer-term impact on patients is much less certain. That is why there is a growing call for regulatory guardrails around these acquisitions to protect against anticompetitive repercussions–like less choice and higher prices for patients–that have been shown to accompany healthcare market consolidation. Greater transparency surrounding these changes in ownership is an important first step.
Federal and state policymakers should consider ways to protect against corporate owners' actions that might lead to insolvency or otherwise cause disruptions to patient care. Safeguards are needed to ensure that regardless of the type of practice ownership, physicians retain clinical autonomy and are able to continue to care for their patients according to their best medical judgment. Corporate owners' profit-motivated policies to cut costs must not result in policies that curtail patients' access to medically necessary services, specialty care or pharmaceutical treatments.
Policies that support physicians' ability to sustain independent practice and compete with larger entities are also critically important. For instance, Congress should lift the moratorium on physician-owned hospitals to encourage greater competition. State law limitations on the corporate practice of medicine should be strengthened. States should also rethink certificate-of-need laws that limit physicians from expanding services and encourage patients to seek care at pricey hospitals instead of physician practices.
Knowledge is power, and it is sorely lacking today. The more regulators and the public know about the entities purchasing physician practices, the better the checks and balances against a profit play that's leaving patients paying more for their care.