Physician Practice Acquisitions

U.S. hospitals acquire physician practices in order to expand their networks, which they hope will in turn boost their revenues. However, in doing so, they also incur the costs associated with physician (and employee) salaries, benefits, office space, and necessary upgrades to IT infrastructures. Nevertheless, hospital systems across the country continue with diligent searches in attempts to acquire physician practices. Their goal of doing so is to be better prepared with healthcare reform that reimburses based on quality of care, outcomes and cost control rather than the traditional fee-for-service system.

Recently, Avalere Health conducted a study on behalf of the Physicians Advocacy Institute (PAI) analyzing hospital ownership of physician practices. In looking at data from 2012 – 2015, the study showed that the number of physician practices owned by hospitals/health systems rose 86% during this timeframe. Other key facets of the study include:

  • By mid-2015, 38% of U.S. physicians were employed by hospitals and health systems.
  • There were 95,000 hospital-employed physicians in 2012 and more than 140,000 hospital-employed physicians in 2015.
  • As of mid-2015, one in four medical practices was hospital-owned.
  • From 2012 to 2015, hospitals acquired 31,000 physician practices.

Unfortunately this is extremely bad news on many fronts, including the cost of healthcare.  Call it misaligned incentives or unintended consequences, but the influence of the Affordable Care Act which drives such acquisitions is impacting healthcare costs. As Kelly Kenney, PAI executive vice president, correctly states:

“Medicare spends less when patients receive treatment in a physician’s office, yet the number of physician-owned medical practices is rapidly shrinking. The shift toward more physicians employed by hospitals could mean higher costs for the entire health care system.  For patients, it impacts both where they receive and how much they pay for care.”

The study also showed that hospitals’ employment of physicians rose approximately 59% in the South; 58% in the Northeast; 49% in Alaska and Hawaii; 44% in the Midwest; and 33% in the West.

Recently however, from what I have seen across the U.S., it appears that this frenzy has slowed some. In its place, I see much activity in the form of mergers amongst private practices (either same specialty or multispecialty).

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