Hospitals scooping up physician practices increases health care prices

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This week’s contributor is Aditi Sen, the Director of Research and Policy at the Health Care Cost Institute. Her work uses HCCI’s unique data resources to conduct analyses that inform policy to promote a sustainable, accessible and high-value health care system.

High health care prices in the U.S. make it hard for people to access care, difficult for employers to provide insurance, and challenging for policymakers to balance health care spending with other budgetary priorities. That’s why it’s important to understand what drives prices higher and identify policies to keep prices from getting so high.

In a new paper in Health Affairs, Vilsa Curto, Anna Sinaiko and Meredith Rosenthal examined whether hospital and health systems’ acquisition of and contracting with physician practices – two forms of what is often called vertical integration – has led to higher prices for physician services. The researchers combined four sets of data from Massachusetts from 2013-2017 for their analysis.

They found that: 

  • The percent of physicians who joined health systems grew meaningfully: The percent of primary care physicians who remained independent dropped from 42% in 2013 to 31.5% in 2017, and the percent of independent specialists fell from 26% to 17%.
  • Over this same period, prices for physician services rose. Price increases were especially large – 12% for primary care physicians and 6% for specialists – when physicians joined health systems that had a high share of admissions in their area. 

This study stands out for several reasons. First, it shows vertical integration drives up health care prices. Second, the authors highlight actions states can and are considering taking to monitor and curb vertical integration, including antitrust enforcement and enacting laws to promote competition.

Finally, the Massachusetts data allow the public to better appreciate what’s happening across the state. Many earlier studies on health care consolidation have been limited to a subset of insurers, physicians or patients. Massachusetts is a leader when it comes to creating and sharing its data thanks to its all-payer claims database, which pulls together all the health care bills from private insurers and public programs like Medicare and Medicaid in the state. This critical information helps to illuminate patterns of care and prices and connect them to issues like consolidation and competition. Neither the federal government nor most states track how vertical integration mergers influence health care prices.

As these findings demonstrate, acquisitions and other forms of vertical integration impact what people pay for health care services. Given that prices in this sector continue to climb, this paper underscores the need for more state and national data to understand the downstream effects on all of us who use and participate in the U.S. health care system.

Private equity-backed buyouts have physicians concerned

The Federal Trade Commission and the Justice Department are seeking comments on ways merger guidelines should be updated, and physicians are raising concerns about private equity-backed buyouts of provider practices. 

The FTC and the Justice Department announced in January that they’re seeking to revamp merger guidelines for businesses. Comments on how to “modernize the merger guidelines to better detect and prevent anticompetitive deals,” can be submitted to the agencies through April 21. 

Comments are pouring in from physicians. Many of the comments are anonymous, but the commenters self-identify as physicians. 

The physicians’ top concern are private equity-backed buyouts, according to an analysis by Law360. They’re also concerned by the profit-first attitude of healthcare and consolidation in the industry, according to the report. 

The commenters raised many concerns with private equity groups, saying theyput profits over patients” and “stifle the voices of physicians.”

The comments are coming in as private equity firms continue to buy up physician practices. 

Private equity firms acquired 59 physician practices in 2013, and that number increased to 136 practices by 2016, according to a research letter published in JAMA

CVS wants to employ doctors. Should health systems be worried?

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HealthHUB | CVS Health

We recently caught up with a health system chief clinical officer, who brought up some recent news about CVS. “I was really disappointed to hear that they’re going to start employing doctors,” he shared, referring to the company’s announcement earlier this month that it would begin to hire physicians to staff primary care practices in some stores. He said that as his system considered partnerships with payers and retailers, CVS stood out as less threatening compared to UnitedHealth Group and Humana, who both directly employ thousands of doctors: “Since they didn’t employ doctors, we saw CVS HealthHUBs as complementary access points, rather than directly competing for our patients.” 

As CVS has integrated with Aetna, the company is aiming to expand its use of retail care sites to manage cost of care for beneficiaries. CEO Karen Lynch recently described plans to build a more expansive “super-clinic” platform targeted toward seniors, that will offer expanded diagnostics, chronic disease management, mental health and wellness, and a smaller retail footprint. The company hopes that these community-based care sites will boost Aetna’s Medicare Advantage (MA) enrollment, and it sees primary care physicians as central to that strategy.

It’s not surprising that CVS has decided to get into the physician business, as its primary retail pharmacy competitors have already moved in that direction. Last month, Walgreens announced a $5.2B investment to take a majority stake in VillageMD, with an eye to opening of 1,000 “Village Medical at Walgreens” primary care practices over the next five years. And while Walmart’s rollout of its Walmart Health clinics has been slower than initially announced, its expanded clinics, led by primary care doctors and featuring an expanded service profile including mental health, vision and dental care, have been well received by consumers. In many ways employing doctors makes more sense for CVS, given that the company has looked to expand into more complex care management, including home dialysis, drug infusion and post-operative care. And unlike Walmart or Walgreens, CVS already bears risk for nearly 3M Aetna MA members—and can immediately capture the cost savings from care management and directing patients to lower-cost servicesin its stores.

But does this latest move make CVS a greater competitive threat to health systems and physician groups? In the war for talent, yes. Retailer and insurer expansion into primary care will surely amp up competition for primary care physicians, as it already has for nurse practitioners. Having its own primary care doctors may make CVS more effective in managing care costs, but the company’s ultimate strategy remains unchanged: use its retail primary care sites to keep MA beneficiaries out of the hospital and other high-cost care settings.

Partnerships with CVS and other retailers and insurers present an opportunity for health systems to increase access points and expand their risk portfolios. But it’s likely that these types of partnerships are time-limited. In a consumer-driven healthcare market, answering the question of “Whose patient is it?” will be increasingly difficult, as both parties look to build long-term loyalty with consumers. 

Hastening the demise of independent physician practice

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Physician Practice Sales to Private Equity Doubled in 3 Years

A new report from consulting firm Avalere Health and the nonprofit Physicians Advocacy Institute finds that the pandemic accelerated the rise in physician employment, with nearly 70 percent of doctors now employed by a hospital, insurer or investor-owned entity.

Researchers evaluated shifts to employment in the two-year period between January 2019 and January 2021, finding that 48,400 additional doctors left independent practice to join a health system or other company, with the majority of the change occurring during the pandemic. While 38 percent chose employment by a hospital or health system, the majority of newly employed doctors are now employed by a “corporate entity”, including insurers, disruptors and investor-owned companies.

(Researchers said they were unable to accurately break down corporate employers by entity, and that the study likely undercounts the number of physician practices owned by private equity firms, given the lack of transparency in that segment.) Growth rates in the corporate sector dwarfed health system employment, increasing a whopping 38 percent over the past two years, in comparison to a 5 percent increase for hospitals.

We expect this pace will continue throughout this year and beyond, as practices seek ongoing stability and look to manage the exit of retiring partners, enticed by the outsized offers put on the table by investors and payers.

Private equity accelerates its push into physician practice

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As we reported recently, healthcare M&A hit record highs in the first quarter of 2021—with deal activity in the physician practice space surging 87 percent. The graphic above highlights private equity firms’ increasing investment in the sector over the last five years. Both the number and size of PE-backed healthcare deals have increased substantially from 2015 to 2020, up 39 and 45 percent respectively.

In 2020, physician practices and services comprised nearly a fifth of all transactions, with PE firms driving the majority. One in five physician transactions involved primary care practices—a signal that investors are banking on profits to be made in the shift to value-based care models. 

Meanwhile, PE firms are still rolling up high-margin specialty practices, with ophthalmology, orthopedics, dermatology, and anesthesiology groups all receiving significant funding in 2020. PE investment in physician practices will likely continue to accelerate, as investors view healthcare as a promising place to deploy readily available capital.

But we remain convinced that private equity investors have little interest in being long-term owners of practices, and will ultimately look for an exit by selling “rolled-up” physician entities to health systems or insurers.

Another kind of surprise medical bills

Kaiser Health News’ latest edition of its “Bill of the Month” series features a patient who was charged a “facility fee,” which drove up what she owed to more than 10 times higher than what she’d previously paid for the same care.

Why it matters: Facility fees — which are essentially room rental fees, as KHN puts it — are becoming increasingly controversial, and patients often receive the bill without warning.

  • Hospitals aren’t required to inform patients ahead of time about facility fees.
  • Hospitals say they need the revenue to help cover the cost of providing 24/7 care.

What they’re saying: “Facility fees are designed by hospitals in particular to grab more revenue from the weakest party in health care: namely, the individual patient,” Alan Sager, a professor at the Boston University School of Public Health, told KHN.

  • The practice is becoming more popular as more private provider practices are bought by hospitals.
  • “It’s the same physician office it was,” said Trish Riley, executive director of the National Academy for State Health Policy. “Operating in exactly the same way, doing exactly the same services — but the hospital chooses to attach a facility fee to it.”

From insurer to diversified services business

https://mailchi.mp/3e9af44fcab8/the-weekly-gist-march-26-2021?e=d1e747d2d8

Large health insurers no longer just provide coverage, but are instead repositioning themselves as vertically integrated healthcare organizations that span the care continuum.

The graphic above shows five-year total revenue growth by segment for the top five health insurance companies.

Some, like Anthem and Humana, are still in the early stages of revenue diversification, leveraging partnerships and investments to fill service gaps—in Humana’s case, these are mainly centered on the Medicare Advantage population.

On the other hand, the insurance revenue of Cigna and CVS Health is already dwarfed by pharmacy benefit management (PBM) revenue (as well as retail clinic revenue for CVS).

UnitedHealth Group (UHG) is clearly leading the pack, with a robust revenue diversification and vertical integration strategy. 

Its Optum subsidiary grew 62 percent over the last five years, nearly double the rate of its UnitedHealthcare insurance business. Already the largest employer of physicians in the country, Optum recently announced plans to acquire Massachusetts-based 715-physician group, Atrius Health. It also announced its intent to acquire Change Healthcare, one of the largest providers of revenue and payment cycle management solutions.

Given the outsized role of the Optum division in driving UHG’s growth and profitability, it may soon face a dilemma that other publicly traded, diversified companies have had to confront: shareholder demands to unlock value by spinning off the business into a separate company.

Central to fending off that kind of activism by shareholders: demonstrable steps to integrate the myriad businesses the company has acquired into a functional whole. Just as Amazon’s hugely profitable Web Services business has become a target of spin-off demands, so too, eventually, may UHG’s Optum.