In late February, Crystal Run Healthcare, a Middletown, NY-based physician group with nearly 400 providers, became part of UHG’s Optum division.
A local paper broke the news after obtaining an email from Crystal Run’s CEO, as neither company issued a press release, though UHG has since confirmed the acquisition. In addition to pandemic-related financial difficulties, Crystal Run recently shuttered its health plan after large losses, and its Medicare accountable care organization failed to earn savings in 2021.
Crystal Run expands Optum’s footprint in the Hudson Valley region north of New York City, following the acquisition of Mount Kisco, NY-based Caremount Medical in 2022. The company’s broader New York metro area footprint includes Connecticut-based ProHEALTH and New Jersey-based Riverside Medical Group, the three of which Optum has since integrated into a single tri-state medical group.
The Gist: Optum continues to secure its place as the country’s largest aggregator of physicians, now employing or aligning with over 70,000 doctors nationwide.
Not only does every new deal by UHG bolster its vertical integration strategy, but they also shine a light on gaps in federal antitrust regulations. UHG must only disclose deals that comprise a “significant” portion of its business, a threshold that excludes physician groups as large as Crystal Run—making it difficult to fully examine transactions that are subscale according to regulations, but may be significant for healthcare delivery in a local market.
Some state governments, including New York, are exploring ways to increase state antitrust scrutiny of provider acquisitions. But inmulti-state markets where only the federal government has the authority for full oversight, UHG’s acquisition strategies are proving difficult to even monitor, much less intervene.
Walgreens’ growing U.S. healthcare segment is continuing to bolster the retail health chain’s financial performance. The business, which includes value-based provider VillageMD, recorded $1.6 billion in sales in the second quarter, an increase of $1.1 billion from last year.
VillageMD sales were up 30%, including a boost from its recent acquisition of medical group Summit Health. Specialty pharmacy Shields Health Solutions grew sales 41%, while at-home care provider CareCentrix’s sales were up 25%.
Thanks in part to a jump in revenue in its healthcare segment, Walgreens’ results beat Wall Street expectations even as profit declined more than 20% amid lower COVID-19 vaccine volumes and test sales, higher salary costs, opioid litigation charges and costs associated with its $3.5 billion investment in its Summit acquisition.
Dive Insight:
Walgreens has been working to expand its business scope beyond pharmacies to more consumer-centric healthcare, and has acquired a number of companies to build out its growing U.S. healthcare division.
In its earnings results for the second quarter ended Feb. 28, the business reported gross profit of $32 million, as income from Shields and CareCentrix was offset by VillageMD expansion costs. VillageMD added 133 clinics compared to the second quarter last year.
“With the closing of VillageMD’s acquisition of Summit Health, [Walgreens] is now one of the largest players in primary care,” CEO Roz Brewer said in the company’s earnings release on Tuesday.
VillageMD also acquired a Connecticut-based medical group in March for an undisclosed amount. That group, called Starling Physicians, operates more than 30 primary care and multi-specialty practices across the state.
Starling “will contribute heavily to revenue and EBITDA growth in the second half of 2023,” said Walgreens CFO James Kehoe on a Tuesday morning call with investors. “Overall, the primary care business and the specialty care business is doing really, really well.”
Despite the recent deals, Walgreens is moving beyond its peak investment period in healthcare, management said on the call. VillageMD, for example, plans to concentrate growth and investments in specific markets where it can be “hyper-relevant” moving forward, according to Walgreens President John Standley.
The long hours, stressful conditions, and labor shortages brought on by the pandemic have done serious harm to the physician workforce. The graphic above tracks physician burnout, a combination of emotional exhaustion, loss of agency, and depersonalization that has become the primary measure of the pandemic’s toll on workers, to reveal that physicians are demoralized like never before.
Physician burnout levels had been decreasing since 2014, in part due to practice consolidation and the expansion of team-based care models. Burnout reached its lowest levels in 2020—perhaps explained by a pandemic-induced sense of purpose—but 2021 then saw a dramatic spike in every measure of physician dissatisfaction, as the heroic glow of the early pandemic faded, and an overtaxed and understaffed delivery system became the new norm.
In explaining how the pandemic has impacted their career decisions, surveyed physicians list unsustainable burnout and stress as their top concern, and 11 percent say they have exited the profession, either for retirement or a non-clinical job, in the past two years.Four in ten surveyed physicians report changing jobs since 2020, mainly within similar or different practice settings, citing a desire for better work-life balance as their primary motivation. (It should be caveated that these data are from a smaller survey of 534 physicians, 40 percent of whom identified as “early career”.)
While the solutions here aren’t new, they are challenging: we must continue to implement team-based care models that provide physicians top-of-license practice and improved work-life balance, remove administrative tasks wherever possible, and ensure that we are communicating and engaging physicians—employed and independent alike—in organizational strategy and decision-making.
Radio Advisory’s Rachel Woods sat down with Advisory Board’s Sarah Hostetter and Vidal Seegobin to discuss the good and bad elements of private equity and what leaders can do to make it a valuable partner to their practices.
Private equity (PE) tends to get a bad rap when it comes to health care. Some see it as a disruptive force that prioritizes profits over the patient experience, and that it’s hurting the industry by creating a more consolidated marketplace. Others, however, see it as an opportunity for innovation, growth, and more movement towards value-based care.
Radio Advisory’s Rachel Woods sat down with Advisory Board‘s Sarah Hostetter and Vidal Seegobin to discuss the good and bad elements of PE and what leaders can do to make it be a valuable partner to their practices.
Rachel Woods: Clearly there are a lot of feelings about private equity. I’m frankly not that surprised, because the more we see PE get involved in the health care space, we hear more negative feelings about what that means for health care.
Frankly, this bad guy persona is even seen in mainstream media. I can think of several cable medical dramas that have made private equity, or maybe it’s specific investors, as the literal enemy, right? The enemy of the docs that are the saviors of their hospital or ER or medical practice. Is that the right way we should be thinking about private equity? Are they the bad guy?
Sarah Hostetter: The short answer is no. I think private equity is a scapegoat for a lot of the other problems we’re seeing in the industry. So the influx of money and where it’s going and the influence that that has on health care. I think private equity is a prime example of that.
I also think the horror stories all get lumped together. So we don’t think about who the PE firm is or what is being invested in. We put together physician practices and health systems and SNPs, and we lump every story all together, as opposed to considering those on their individual merits.
Woods: And feeds to this bad guy kind of persona that’s out there.
Hostetter: Yeah. And like you said, the media doesn’t help, right? If the average consumer is watching and seeing different portrayals or lumped portrayals, it’s not helping.
Vidal Seegobin: Private equity, as all actors in our complex ecosystem, is not a monolith, and no one has the monopoly on great decisions in health care, nor do they have a monopoly on the bad decisions in health care. And so if you attribute a bad case to private equity, then you also have to attribute the positive returns done from a private equity investment as well.
Hostetter: Agree with what Vidal’s saying, but bottom line is that every stakeholder is not going to have the same outcomes or ripple effects from a private equity deal. It really depends on the deal itself, the market, and the vantage points that you take.
Woods: I want to actually play out a scenario with the two of you and I want you to talk about the positive and the potentially negative consequences for different sectors or different stakeholders.
So let’s take the newest manifestation that Sarah, you talked to us through. Let’s say that there is a PE packed multi-specialty practice heavily in value-based care. That practice starts to get bigger. They acquire other practices, including maybe even some big practices in a market and they start employing all of the unaffiliated or loosely affiliated practices in the market.
I am guessing that every health system leader listening to this episode is already starting to sweat. What does this mean for the incumbent health system?
Seegobin: So I think one thing that’s going to be pretty clear is that size does confer clear advantages and health care is part and parcel that kind of benefit. What I think is challenging is when we’re entering into a moment where access to capital is challenging for health systems in particular and we’re going to need to scale up investments, health systems could see themselves falling further and further behind as private equity makes smart investments into these practices to both capture and retain volume. And as a consequence of that, reduces the amount of inpatient demand or the demand to their bread and butter services.
Hostetter: And I think it’s really important that you phrase the question, Rae, as health system. Because we so often equate health system and hospital.
But a health system includes lots of hospitals, it includes ambulatory facilities, a range of services. And so I think for systems to equate health system and hospital, it’s really hard when any type of super practice or large backed practice comes into the market.
Whether we are talking about a plan backed practice, a PE backed practice, or just a really large independent group. There are pressures on health systems who think of their job or their primary service as the hospital. And there is a moment where the power dynamics can shift in markets away from the health system, if they aren’t able to pivot their strategy beyond just the hospital.
Woods: Which is exactly why health systems see this scenario as, let’s just say it, threatening. Sarah, then how do the physicians feel? Do they have the opposite feelings as the incumbent health systems?
Hostetter: There’s a huge range. Private equity is incredibly polarizing in the physician practice world, the same way that it is in other parts of the industry. So I think there is a hope from some practices that private equity is a type of investor that is aligned with them.
Physicians who go into private practice historically tend to be more entrepreneurial. They are shareholders in their own practice, so there are some natural synergies between private equity, business minded folks, and these physicians.
Also, even though I go into a small business, it takes a lot to run a small business, so there are potentially welcome synergies and help that you can get from a PE firm. On the flip side of that, there are groups who would never in a million years consider taking a private equity investment and are unwilling to have these conversations.
Woods: There is a tendency, especially in the conversation that we’re having, for folks to think about private equity as being something that primarily impacts the provider space, at least when it comes to health care. But I’m not sure that that’s actually true. So what consequences, good or bad, might the payers feel? Might the life sciences companies feel?
Seegobin: So one common refrain when talking about private equity and their acquisition or partnering with traditional health care businesses like physician practices is that they are immediately focused on cutting costs. So they are going to consolidate all of the purchasing contracts, they are going to make pretty aggressive decisions about real estate, all the types of cost components that run the business.
Now, if you are a kind of life sciences or a diagnostic business for whom you would depend on being an incumbent in those contracting decisions, you’re worried that the private equity is either going to direct you to a lower cost provider, or in many cases, another business that the private equity firm owns as well, right?
They would love to keep synergies within the portfolio of businesses that they’ve acquired and they partner. So if you were relying on incumbent or historical purchasing practices with these physician practices, it can be disrupted, depending on the arrangement.
Hostetter: And then I think there’s a range of potential implications for payers. So you have some payers who themselves are aggregating independent practices, and they’re targeting the same type of practices that the PE firms that are betting on value-based care are targeting. They are targeting primary care groups who are big in Medicare Advantage. So there’s some inherent competition potentially for the physician practice landscape there.
Woods: Well, and I think they’re trying to offer the same thing, right? They’re trying to offer capital. They’re trying to do that with the promise of autonomy. And they’re coming up against a competitive partner that is saying, “I can do both of those things and I can do it better and faster.”
Hostetter: Yeah. And both of them are saying we can do it better and faster than hospitals. That’s the other thing, right?
Woods: Which, that part is probably true.
Hostetter: Yeah. Their goals are aligned and they believe they can get there different ways. And I think autonomy is a big sticking point here for me or a big bellwether for me, because I think whoever can get to value-based care while preserving autonomy is going to win. You have to have some level of standardization to do value-based care well. You can’t just let everyone do whatever they want. You need high quality results for lower cost. That inherently requires standardization. So who can thread the needle of getting that standardization while preserving a degree of autonomy?
It’s fascinating, as we’ve had this call, it was suggested multiple times that payers actually might be the end of the line for some of these PE deals. That there’s a lot of alignment between what payers are trying to do with their aggregation and what PE firms who are investing in primary care do, and hey, payers have a lot of money too. So could we actually see some of these PE deals end with a payer acquisition? Because they’re trying to achieve similar things, just differently.
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.
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 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.
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.
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.
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 involvedprimary 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.
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.”
HENRY KOTULA 