When consumer health technology leapfrogs medical science 

At a recent health system physician leadership retreat, two cardiologists presented a fascinating update on the electrophysiology (EP) service line. Electrophysiologists use advanced heart mapping and ablation technologies to diagnose, pinpoint, and treat abnormal heart rhythms, and the field has made dramatic advances over the past decade. The success rate of interventions has risen, and procedures which used to take hours in a cath lab are now performed in a fraction of the time—with some patients even able to go home same-day. 

This increased efficiency has expanded the EP program’s capacity, but the system still finds itself overwhelmed with demand. The system is located in a high-growth market, and demand is also fueled by shifting demographics, with more aging Baby Boomers seeking care. But a key driver of growth has been the spread of “smart watches” like the Apple Watch and Fitbit, which tout the ability to detect abnormal heart rhythms like atrial fibrillation. With “half of the community walking around with an EKG on their wrist”, the number of patients seeking evaluations for “a-fib” has skyrocketed: at this system, over 50 percent growth in patient volume, leading to 25 jump in procedures during the pandemic. 
 
While the doctors were excited about growth, they also stressed the need to rethink care pathways to make sure that electrophysiologists’ time was prioritized for the patients who needed it most. The system should look to develop care pathways and technology that enable other physicians to readily triage and manage routine atrial fibrillation.

But smartwatch-driven self-diagnosis raises larger questions about how doctors and hospitals must adapt when consumer technology outpaces the science evaluating its effectiveness, and the health system’s ability to meet new demand. With private equity firms now focused on acquiring cardiology practices, this massive spike of demand, coupled with the ability to move more heart rhythm procedures outpatient, is seen by investors as a significant profit opportunity—making it even more critical for doctors, researchers, and hospitals to ensure that sound clinical guidelines are developed to drive high-quality, appropriate management.  

Optum looks to acquire Houston-based Kelsey-Seybold Clinic

According to unnamed Axios sources, UnitedHealth Group’s Optum has signed a deal to acquire the independent 500-physician multispecialty group, which operates more than 30 clinic locations and one of the largest ambulatory surgery centers in Texas. With more than 41,000 enrollees, Kelsey-Seybold controls 8 percent of the lucrative Medicare Advantage market in the Houston metro area.

In January 2020, private equity firm TPG Capital made a minority investment in the 73-year-old group, valuing it at $1.3B, to help expand its footprint. Should the current deal come to fruition, Kelsey-Seybold’s physicians would join the ranks of over 60K physicians owned by, or exclusively affiliated with, Optum.

The Gist: Fresh off last year’s acquisition of 700-physician, Boston-based Atrius Health, Optum is continuing its buying spree of large physician groups with a history of managing risk. It will be interesting to see how quickly UnitedHealth Group can combine its Optum-owned physician assets with its commercial insurance platform to create a compelling, lower-cost option for employers and Medicare Advantage enrollees—building on the model of its Harmony network in Southern California.

Of note, Kelsey-Seybold and United Healthcare have offered a co-branded insurance product for years, and UHG executives have said they plan to roll out Harmony in Texas and Seattle next. 

Kelsey-Seybold is one a dwindling number of very large, independent multispecialty groups, and its sale to Optum may have other groups wondering about their ability to remain independent in an increasingly concentrated healthcare market.  

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

Is it the beginning of the end of CON? 

We’re picking up on a growing concern among health system leaders that many states with “certificate of need” (CON) laws in effect are on the cusp of repealing them. CON laws, currently in place in 35 states and the District of Columbia, require organizations that want to construct new or expand existing healthcare facilities to demonstrate community need for the additional capacity, and to obtain approval from state regulatory agencies. While the intent of these laws is to prevent duplicative capacity, reduce unnecessary utilization, and control cost growth, critics claim that CON requirements reduce competition—and free market-minded state legislators, particularly in the South and Midwest, have made them a target. 
 
One of our member systems located in a state where repeal is being debated asked us to facilitate a scenario planning session around CON repeal with system and physician leaders. Executives predicted that key specialty physician groups would quickly move to build their own ambulatory surgery centers, accelerating shift of surgical volume away from the hospital.

The opportunity to expand outpatient procedure and long-term care capacity would also fuel investment from private equity, which have already been picking up in the market. An out-of-market health system might look to build microhospitals, or even a full-service inpatient facility, which would be even more disruptive.

CON repeal wasn’t all downside, however; the team identified adjacent markets they would look to enter as well. The takeaway from our exercise: in addition to the traditional response of flexing lobbying influence to shape legislative change, the system must begin to deliver solutions to consumers that are comprehensive, convenient, and competitively priced—the kind of offerings that might flood the market if CON laws were lifted. 

The who’s who of funders: 3 key relationships to watch

https://www.advisory.com/blog/2021/09/physician-group-funders

We recently shared an updated perspective on the independent physician landscape. Notably absent from this map, but an important player in this space, are entities, like health plans, private equity, and health systems, who partially or wholly fund some independent physician groups.

We intentionally left these funders off the map because they don’t work in a uniform way with all physician groups. The reality is that funders have their handprints all over this map—and just knowing what type of funder you’re working with doesn’t necessarily tell you how they work with physician groups.

Funders work across the physician landscape because they recognize two things:

  • First, in order to play in today’s physician market, funders need to be flexible in how they work with physicians in order to appeal to the wide variety of groups and build a bigger market presence.
  • Second, building or buying these physician group archetypes outright is not the only way to work with them. Many funders instead opt to invest in them—either through dollars or resources.

Key funders to watch

There are three key funders we track the closest: private equity, health plans, and health systems. Below are brief overviews of how they commonly work with independent groups and our predictions for where you might see them go next.

Private equity (PE): Consistent approach with still to be proven outcomes

The goal of PE firms is to make money on their investments. To do this, these firms buy shares of practices in order to have partial ownership. In return, physician groups get the capital they need to make investments—investments that in theory drive profits for both the physician shareholders and the PE investors. Unlike other funders, PE is rarely associated with full acquisition.

Two of the places we’ve seen the most private equity investment are in consolidation of specialty practices (usually at the national level) or value-based care investments in primary care practices (across all archetypes).

Private equity is gaining traction as a physician group partner because they often try to preserve some degree of physician autonomy and they’ve learned to nuance their investments and pitches based on the group they’re seeking to work with.

We predict: PE will continue to back the full range of archetypes on this map—investing in both independent groups directly and the national archetypes.

What we’ll be watching:

  • What will happen to the handful of major PE investments in the independent physician group space that will be reaching their 5-7 year mark
  • What level of physician autonomy will PE firms continue to preserve as PE gains stronger footholds in the physician landscape

Health plans: The most eager to transform (incrementally)

Health plans are often predominantly associated with a single physician archetype for a given plan. For example, when you think about UnitedHealthcare, you might think of their sister company, OptumCare, and an aggregation strategy. Or, you might think of Blues plans most commonly as service partners.

However, when you dig deeper, the story is much more nuanced. Plans and their parent companies like UnitedHealth Group do often aggregate practices, but they also sell and integrate services via service partner models. And several Blues plans are now building practices from the ground up. To top it off, some plans are even adopting an investment strategy like Anthem with Privia.

Perhaps more than any other funder, health plans often adopt a range of strategies to develop their physician strategy and maintain their existing networks. And even cases where plans aren’t funding entities themselves, they’re thinking of new ways to work with the growing range of physician groups.

We predict: Health plans will move away from a uniform approach to physician practice partnership and towards more multifaceted approaches to appeal to a wide range of providers.

What we’ll be watching:

  • Will health plans diversify their suite of approaches based on the groups they’re pursuing
  • Will health plans tailor their value proposition for each partnership approach

Health systems: Playing catch up to evolve

We often tend to think about health systems as aggregators—they buy independent physician groups and add them to their employed medical groups. But we’re seeing two physician market shifts that are causing health systems to move away from a one-size-fits-all approach.

One, the remaining independent groups are growing in size and, two, they are less willing to be acquired. On top of that, as private equity firms and payers continue to diversify their strategies, health systems must adapt to keep pace—or risk being seen as the least attractive partner.

As a result, more health systems are telling us about their new approaches to physician partnerships, like starting an MSO to act as a service partner or convening coalitions between themselves and independent groups.

We predict: Health systems will face increasing pressure to diversify how they are operating with physician groups. Similar to health plans, we expect to see a pivot away from an aggregation-only approach. To learn more, read our take on how health systems and independent groups should think about partnership.

What we’ll be watching:

  • How quickly will health systems stand up additional partnership approaches
  • Will health systems in markets where they’re the dominant partner proactively adjust their partnership approach versus wait for the market to shift first

Your checklist to work successfully with today’s physician groups

As you evaluate your partnership strategy, here’s our starter list of questions to ask yourself:

  1. Clarify your partnership goals:
    • What are my organization’s goals for physician partnership broadly?
    • What are the archetypes I currently fund or partner with?
    • Do these archetypes serve my organization’s stated goals? 
  2. Identify the right partnership approaches for your organization
    • What new archetypes should I build or work with to advance my organization’s goals and target new physician groups?
    • Do I need to build this archetype myself or is it better to fund one that exists?
    • If funding, should I wholly own or invest in the archetype? 
  3. Define your value proposition to physicians
    • Have I adjusted my value proposition for each of the archetypes I fund or partner with?
    • Am I clearly articulating my value proposition in a way that speaks to physicians’ needs and wants?
    • Does my value proposition align with what I’m actually delivering? For example, if I say I’m preserving autonomy, how am I doing that?
    • How does my value proposition compare and compete with others in the market? 
  4. Map out the power dynamics of the archetypes you want to work with
    • Who has the ultimate decision-making power in the organization? (Hint: Decision-making power gets more diffuse as you move from right to left, national chain to service partner.)
    • Who are the key stakeholders who influence decision-making?

Private equity as an enabler of Boomer doctor retirements

https://mailchi.mp/13ef4dd36d77/the-weekly-gist-august-27-2021?e=d1e747d2d8

How Much Money Does a Doctor Need to Retire? — Finity Group, LLC

There’s been a lot of hand wringing over the ongoing feeding frenzy among private equity (PE) firms for physician practice acquisition, which has caused health system executives everywhere to worry about the displacement effect on physician engagement strategies (not to mention the inflationary impact on practice valuations).

While we’ve long believed that PE firms are not long-term owners of practices, instead playing a roll-up function that will ultimately end in broader aggregation by vertically-integrated insurance companies, a recent conversation with one system CEO reframed the phenomenon in a way we hadn’t thought of before. It’s all about a demographic shift, she argued.

There’s a generation of Boomer-aged doctors who followed their entrepreneurial calling and started their own practices, and are now nearing retirement age without an obvious path to exit the business. Many didn’t plan for retirement—rather than a 401(k), what they have is equity in the practice they built.

What the PE industry is doing now is basically helping those docs transition out of practice by monetizing their next ten years of income in the form of a lump-sum cash payout. You could have predicted this phenomenon decades ago.

The real question is what happens to the younger generations of doctors left behind, who have another 20 or 30 years of practice ahead of them? Will they want to work in a PE-owned (or insurer-owned) setting, or would they prefer health system employment—or something else entirely?

The answer to that question will determine the shape of physician practice for decades to come…at least until the Millennials start pondering their own retirement.

Physician employment continues to gather pace

https://mailchi.mp/b5daf4456328/the-weekly-gist-july-23-2021?e=d1e747d2d8

The number of independent physician practices continued to decline nationwide as health systems, payers, and investors accelerated their physician acquisition and employment strategies during the pandemic.

The graphic above highlights recent analysis from consulting firm Avalere Health and the nonprofit Physicians Advocacy Institute, finding that nearly half of physician practices are now owned by hospital or corporate entities, meaning insurers, disruptors, or other investor-owned companies.

This increase has been driven mainly by a surge in the number of corporate-owned practices, which has grown over 50 percent across the last two years. (Researchers said they were unable to accurately break down corporate employers more specifically, and that the study likely undercounts the number of practices owned by private equity firms, given the lack of transparency in that segment.

It’s no surprise that we’re seeing an uptick in physician employment, as about a quarter of physicians surveyed a year ago claimed COVID was making them more likely to sell or partner with other entities, and last year saw independent physicians’ average salary falling below that of hospital-employed physicians. 

We expect the move away from private practice will continue throughout this year and beyond, as physicians seek financial stability and access to capital for necessary investments to remain competitive. 

Hastening the demise of independent physician practice

https://mailchi.mp/bfba3731d0e6/the-weekly-gist-july-2-2021?e=d1e747d2d8

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

https://mailchi.mp/bfba3731d0e6/the-weekly-gist-july-2-2021?e=d1e747d2d8

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.