Buyer's market: Physicians are weighing the best pitch

Doctors are leveraging a competitive market as more leave their private practices behind.

Health systems, insurers, private equity firms, large physician groups and growing for-profit primary-care practices are making their best pitch to lure physicians and their referral networks.

"We have to think about all of the choices they have and be competitive," said Renee Buckingham, segment president of Humana's care delivery division. "Most of the doctors expect compensation to be competitive; it is the clinical culture and support capabilities inside our practice that resonates—salary is kind of a given."

Many of the pitches look similar. They promise a better work-life balance, the flexibility to pursue alternative payment models as well as the autonomy and tools to practice how they prefer. But depending on the market, industry observers are concerned that unrivaled size and power could drive up costs.

"We are losing independent practices," said Dr. Gerald Harmon, president of the American Medical Association. "We would argue that the less expensive source of quality care appears to be in an independent practice."

Almost 7 in 10 U.S. physicians are employed by hospitals or other corporations, according to a new study from Avalere Health. More than 48,000 physicians quit private practice from 2019 through 2020 to take jobs at hospitals or other companies, a 12% increase. Fewer doctors—49.1%—own their own practice than ever before.

More than 18,000 of those doctors joined a hospital over that span, representing a 5% increase, the study found, which was commissioned by the Physician Advocacy Institute, a not-for-profit group that advocates for fair and transparent payment policies. The majority joined hospitals after the onset of COVID-19.

That trend shows no sign of abating based on Modern Healthcare's 45th annual Hospital Systems Survey, which revealed that 80% of 40 health systems surveyed said they planned on hiring more doctors next year.

Building out an IT infrastructure to transition to new payment models featuring downside risk, efficiently manage electronic health records, keep tabs on revenue cycles and roll out a telehealth platform can be daunting. The pandemic's throttling of non-urgent procedures pushed doctors who were already learning toward retirement.

"Doctors didn't go to medical school to figure out payer contracting, a tech stack and reimbursement changes," said Parth Mehrotra, president and chief operating officer of Privia Health, which helps manage physician groups. "Many independent practices don't have the scale."

Hospitals can relieve that administrative burden, but they are essentially locked into the system, said Glenn Melnick, a health finance professor at the University of Southern California.

"If dominant systems get control of local physician markets or dominant specialty groups, then doctors face a very concentrated monopsony market that they are selling their time and services to," he said. "In theory, dominant companies can raise prices while keeping payments to doctors low since they have market power on the selling side and on the input side."

Health systems increased their collective employed physician network by about 6% from 2019 to 2020, according to Modern Healthcare's survey.

Some of this vertical integration was supported by the government through the formation of accountable care organizations and the Affordable Care Act, said Richard Scheffler, a health economics professor at UC Berkeley.

"Studies continue to come out that show that has had (an upward) price effect," he said. "The question is if the price effect is compensated by a quality effect. We don't have a clear answer yet."

In highly concentrated markets throughout California where hospitals employed more doctors, there was an associated 12% increase in ACA premiums, a 9% hike in specialist prices and a 5% boost in primary-care prices from 2013 to 2016, Scheffler's research shows.

Part of that is related to facility fees charged in hospital-owned outpatient departments, increased bargaining leverage with insurers and referral patterns that shifted care into higher-cost health systems.

"When you buy a primary-care practice, you are buying up referral networks that give you a competitive advantage," Scheffler said. "It's one way to get market power, and as soon as you buy a physician practice you can bill through the hospital and get higher reimbursement."

But now that the Supreme Court declined to take up a lawsuit that aimed to reverse site-neutral payment policy, HHS can level payments between hospital-owned outpatient departments and independent clinics.

"I don't care how big of a health system you are, you can't employ enough (physicians). It gets cost prohibitive," said Privia CEO Shawn Morris, adding that subsidizing a primary-care doctor can cost between $100,000 and $200,000.

Atrium Health hired 36 doctors last year from Holston Medical Group, an independent practice in Charlotte, N.C., that closed 11 of its offices during the shutdown. About a year prior, some of those doctors had left Novant Health, claiming that they didn't fit into the "corporate structure."

Atrium, which has around 3,000 employed physicians, launched an initiative about two years ago to improve workflow, clinical operations and the organization's culture. It also created a management services organization that allows doctors to operate independently via a joint venture.

That helped reduce electronic health record emails by about 3.2 million a year and boost physician engagement, which rose from the 45th to 75th percentile, said Dr. Scott Rissmiller, chief physician executive for Atrium.

"We provide the infrastructure for their practice, including the electronic medical record, real estate, etc., so they are able to remain independent and make day-to-day decisions for their group," he said, adding that Atrium's population health company Chess allows them to pursue risk-based contracts. "One of the advantages of partnering with independent groups is that they can test new models and learn quickly, sometimes faster than larger employed groups."

Private equity groups continue to invest in specialties like radiology, anesthesia, emergency, dermatology and ophthalmology. The more doctors they add, the lower the operating costs.

"Where private equity roll-ups start to look attractive again is when they can bring cash to the table to fund some of those big expenses related to administration and electronic medical records," Jennifer Breuer, a partner at Feagre Drinker Biddle & Reath, previously told Modern Healthcare.

On one hand, it is appealing for a private equity firm to invest and provide additional resources, said Dr. Peter Angood, CEO of the American Association for Physician Leadership.

"On the other hand, the productivity pressures are pretty damn high," he said. "If physicians are worn out, getting a little time and personal choice back could be more valuable than more money."

There has been some resistance to the private equity model from state medical associations, Scheffler said. "I suspect some doctors, rather than get bought out by a private equity firm, will ask why they couldn't group together some small practices and replicate the model to make some money for themselves," he said.

Meanwhile, for-profit primary-care companies also are growing rapidly, often with the backing of private equity, venture capital and insurers.

VillageMD is one of which that aims to use wraparound, team-based primary care to improve patient outcomes and the overall patient experience while reducing costs. UnitedHealth Group's Optum, Humana and other insurers have also invested heavily in coordinated primary-care groups.

Paul Martino, co-founder and chief strategy officer of VillageMD, described it as a multipayer, physician-led business model. When the company employs or affiliates with doctors, it keeps them in the community they serve with their full patient panel, he said.

"Unlike our competitors who hang a shingle and recruit a resident to a new community, we find doctors who are well known in their community. Doctors don't like when someone comes in and recruits their patients," he said. "Last I checked, doctors don't want to be employed by a payer only looking for their members—we're not asking them to lose a subset of patients."

VillageMD often welcomes doctors who are wary about taking on risk on their own, Martino said. It often takes on physicians who were tired of hospitals' focus on their specialty groups rather than clinical models, he said.

"We are looking for physician leaders who believe value-based care is here to stay," Martino said. "We're not looking for 63-year-old doctors who want to gin up fee for service and retire."

Many of the for-profit primary-care practices use capitated payment models, the Medicare Shared Savings Program and other risk-based arrangements. Atrium, Rissmiller said, can match those incentives and back them with a well-known system that has a full continuum of care.

Optum, the provider division of UnitedHealth Group, leads the market with its 56,000 employed doctors. It is on pace to grow by more than 10,000 physicians over the next year.

"We continue to evolve and employ doctors who are really actually quite attracted to our model of value-based primary care," OptumHealth CEO Dr. Wyatt Decker said on a recent earnings call. "We eliminate much of the clerical burden in our physicians' and advanced practitioners' practice.

"Why has the system around us created an environment where the most highly paid member of the team typically is doing data entry for two hours a day per hour of patient care? It's an absolutely absurd business model and doctors hate it," he continued. "So there's just an enormous opportunity for us to get this right."

Humana has been building out its primary-care offerings for commercially insured seniors. It has 171 CenterWell and Conviva facilities and plans to double the number of CenterWell locations from 2020 to 2022.

"It's good to see that primary-care physicians have more choices than solely selling their practices to a large integrated delivery network," Humana's Buckingham said. "There is a resurgence around the role a primary-care physician plays in helping slow down disease progression and helping people take control of their own health."

Buckingham emphasized its integrated model that offers seamless handoffs as patients move through the system. Doctors also have the opportunity to earn more money based on clinical outcomes and patient satisfaction, she said.

"We include social workers, behavioral health specialists, dispensing and clinical pharmacists who can all help manage what patients' acute or chronic needs are," Buckingham said. "Our patients can spend time with a care coach to understand the lifestyle changes required or social workers to help them address social determinants of need."

When it comes to recruiting physicians and asking them to narrow their patient panel, Buckingham said they work closely with the doctors to make sure their pre-65-year-old patients have a good landing spot.

"There is usually a transition period of 60, 90 or 120 days to make sure the patients are transitioned appropriately," she said.

As the large insurers build out their primary-care teams, some startup insurance companies are wading into home health and virtual care.

The Federal Trade Commission has committed to cracking down on mergers across industries and increasing competition in one-sided markets. Federal regulators have been eying vertical consolidation, with a focus on physician consolidation across healthcare.

The agency voted in June to prioritize investigations into healthcare, tech and digital platforms over the next decade and authorized the use of subpoenas to obtain information.

In January, the FTC asked six health insurers for claims data as they study the impact of physician consolidation.

Regulators hope a revamped merger retrospective program can determine whether the agency's threshold for bringing an enforcement action in a merger case has been too permissive.

"There is a concern at medical societies that there is a disappearance of the practice of medicine, particularly in small groups," Berkeley's Scheffler said. "All the small groups are getting bigger, and affiliation will continue to be a massive trend."