Hospitals are snapping up physicians: Who wins?

COVID-19 spurred a sharp increase in mergers and acquisitions, accelerating a trend of consolidation. By the end of 2020, nearly 70 percent of physicians reported being employed by hospitals or corporations. 

The potential for CMS pay cuts this year alongside other financial stressors for physicians points to the continuation of consolidation and private equity roll-ups throughout 2022. 

"The pandemic severely affected the sole-practice physicians, as many of them sold to hospital systems to cut their losses and sustain their careers," Trey Sampson III, administrator of Newport Beach (Calif.) Surgery Center, told Becker's

As hospitals continue to acquire practices, physicians often end up earning less despite the hospital employment's reputation of stability. 

On average, independent physicians earn 0.8 percent more than those in hospital-owned practices, according to an article in Health Affairs. The study also reported an average $2,987 drop in physician income after their practice was acquired.

And when physicians sell their practices, the cost of care increases. The most concentrated markets where physicians are employed by health systems charge fees 14 to 30 percent higher than in the least concentrated markets, according to a study published in The Journal of Law & Economics

Regional industry consolidation, where large health systems buy up most competition, can also curb competition, James Parmele MD, co-CEO and president of iSpine Clinics in Maple Grove, Minn., told Becker's.

"These systems ultimately drive care into often high-cost, self-contained delivery systems," he said. "This consolidation continues to put significant pressure on lower-cost alternatives and smaller, private practices."

Consolidation also often means physicians lose autonomy, and despite being high-quality, low-cost providers, the shrinking market can make it tougher for independent physicians to compete with large organizations for referrals and payer contracts.

However, some leaders view consolidation as a positive. 

"The key to growth for orthopedics, for the U.S. Orthopaedic Partners, is we believe that consolidation is here. We're stronger together," Meredith Warf, vice president of ASC operations at U.S. Orthopaedic Partners in Madison, Miss., told Becker's. "[It means] partnering with payers and health systems and whatever it takes to make sure we can create that ASC environment of quality patient care at the very lowest cost possible. It's being agile in an environment where everything is changing."

Other ASC leaders champion physician independence and collaboration. 

"One of our goals at Duly is to maintain physician independence from both hospitals and insurance companies," Paul Merrick, MD, co-chair and chief physician executive at Downers Grove, Ill.-based Duly Health and Care, told Becker's. "That doesn't mean we don't want to take a very collaborative, strategic approach in engaging these other entities, but the old fee-for-service system … is much more focused on a reactive approach." 

Although more physicians are choosing hospital employment right out of training, there is still a push for independence among surgical specialists. 

"The major driving force in healthcare is consolidation of healthcare to competing hospital systems and the consumption of physician practices by these systems, which escalates the cost of healthcare, limits patient choices, limits physician independence and limits negotiating power," Judith Gorelick, MD, assistant clinical professor of neurosurgery at Quinnipiac University's Frank H. Netter School of Medicine in North Haven, Conn., told Becker's.

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