Editor’s Note: It should be noted that overly intrusive government intervention in the healthcare market has a number of unintended consequences like forcing physicians to give up their individual practices and thus join hospitals in order to survive:
“What really drove us to this decision was that the health care business has become so complicated.”
“New payment structures and care models in the Affordable Care Act will make it increasingly difficult for private practices to remain profitable, according to a 2011 paper published by the New England Journal of Medicine.”
Medical Mergers
By Jennifer Johnson Backer Daily News (Memphis)
They aren’t alone in their decision to align with a large hospital system.
Jim Boswell, CEO of Baptist Medical Group and vice president of physician services for Baptist Memorial Health Care, estimates BMG has added about 100 physicians to its pool of 490 health care providers in the last year.
A new set of economic realities is driving local hospitals to buy up private physician practices at a pace not seen since the last wave of consolidation in the 1990s. The last time around, the hospital-led buying spree ended in a subsequent sweep of divestitures. But experts are convinced the current cycle of physician-practice acquisitions is here to stay.
While local private physician practices that have chosen to remain independent contacted by The Memphis News declined to be interviewed, national experts have said increased costs associated with electronic medical records, lower reimbursement payments from both private insurers and Medicare and Medicaid, difficulty recruiting new physicians and uncertainty about health care reform have led more private physician practices to sell to larger organizations.
“The days of the individual practitioner are probably numbered because of the changes in health care,” Castellaw said. “What really drove us to this decision was that the health care business has become so complicated. We felt we needed a larger organization to guide us through this and to provide us with resources we wouldn’t have as individual practitioners.”
He said the practice now has access to a pool of Baptist’s personnel when it needs more nurses, technicians and physicians, in addition to better technology.
“It will allow us, as physicians, to be freer to do what we are trained to do, which is taking care of patients, rather than worrying about extraneous things,” Castellaw said.
The last time around, the hospital-led buying spree ended in a subsequent sweep of divestitures. But experts are convinced the current cycle of physician-practice acquisitions is here to stay. New payment structures and care models in the Affordable Care Act will make it increasingly difficult for private practices to remain profitable, according to a 2011 paper published by the New England Journal of Medicine.
That same paper found that more than half of practicing U.S. physicians are now employed by hospitals or integrated health care delivery systems, a trend fueled by the creation of accountable care organizations – groups of doctors, hospitals and other health care organizations who come together to give coordinated and quality care to Medicare patients. In Memphis, the region’s three major hospital systems, Baptist Memorial Health Care, Methodist Le Bonheur Healthcare and Saint Francis Healthcare, are rapidly acquiring both primary care physicians and specialists – in a fierce bidding war to woo the best physicians and practices.
Bill Breen, senior vice president of physician alignment and physician relations for Methodist Le Bonheur Healthcare, said consolidation in the 1990s was fueled by the entrepreneurial efforts of for-profit health care companies, rather than the organic forces leading hospitals to purchase private physician practices today.
“There were poor models developed to compensate physicians,” he said. “This time around it is very different – you have good reasons and a different model for why employment and integration make sense.”
Local hospital and health care leaders say an economic model in which doctors are directly employed by hospitals will streamline costs and place a greater emphasis on preventative care. Under the old fee-for-service model, physicians were compensated per test or procedure – rather than for keeping patients healthy, said Dr. Steve Schwab, chancellor of The University of Tennessee Health Science Center.
Schwab said a long-term move toward bundled payments, rather than the old fee-for-service model will drive cost savings for patients and allow hospitals to hold physicians accountable.
Physicians will be paid the same amount whether they do 20 computerized tomography scans or 10, he said.
“In the old system, if you focused on preventative care, you didn’t get paid,” Schwab said. “What we have are a series of intermediate steps. There are going to be winners and losers … but in general, we are moving slowly towards prevention.”
Local hospital administrators are optimistic about the current consolidation trend, but there is a general consensus that it’s going to take time for true cost-savings and integration to occur.
It hasn’t happened immediately. And at least some early reports point to higher, not lower overall costs when hospitals purchase private physician practices.
In June, a federal Medicare advisory panel warned that the same services delivered on an outpatient basis at a hospital-affiliated practice cost Medicare much more than when performed at a private physician’s practice. The panel recommended that Congress move to immediately cut payments to hospitals for services that can be provided at a lower cost in private doctor’s offices. The Medicare Payment Advisory Commission said the current payment disparities had created incentives for hospitals to buy physician practices, which has driven up the costs for Medicare and beneficiaries. The same June report found hospital buyouts of physicians also has led to higher spending by private insurers and higher co-payments for policyholders.
The report highlighted payment disparities in a common type of echocardiogram for which Medicare reimburses $188.31 when the procedure is performed in a private doctor’s office. But when the procedure is performed in a hospital setting, Medicare reimburses $452.89 – a more than two-fold increase.
The panel found leveling the playing field could save Medicare about $1.8 billion per year but also warned the cuts could have a negative impact on rural hospitals and disproportionate share hospitals that provide large volumes of unreimbursed care to the poor and uninsured.
Derrick Herrick, a senior fellow for the National Center for Policy Analysis, said patients could theoretically get a bill from a hospital at nearly triple the rate they were paying six months earlier for the same service. In general, that only applies to services that are billed as hospital outpatient services, not services delivered by clinics and other physician practices affiliated with hospitals, he explained.
“It’s a quirk that should be changed,” he said. “It could be the same service and the same doctor, and the patient could be oblivious to the change.”
But local experts like Pat Lloyd, market operating director for Tenet Practice Resources, and Schwab at the UTHSC think that view is short-sighted. Ultimately, they believe there will be a global shift in reimbursement that will help align physician, hospital and patient goals and bring down costs – even if that means a little pain in the transition.
“If truly the steps are being taken towards true clinical integration, it has to equal better value and better outcomes – and an overall better bang for the buck,” Lloyd said. “We put our physicians through periodic audits for that reason.”
Lloyd said Tenet, which also owns and operates Saint Francis Healthcare locally, is seeing some leveling off here in terms of private physician practices that decide to sell.
“There is still maneuvering to get into practice relationships, but the numbers are dwindling down,” he said.
Lloyd estimates about 51 physicians are currently aligned and employed by Tenet in the Memphis market, the majority of which have been acquired in the last two years.
Hospitals that successfully design the right kinds of incentives for both patients and physicians will better be able to manage care through electronic health records and other tools, Baptist’s Boswell said. That includes increased demand for preventative services and access to primary care physicians that will keep patients out of emergency departments, he explained.
Earlier this month, Baptist Medical Group announced it will convert the former post office building on Union in Midtown into a primary care clinic staffed with up to five physicians.
“The changes in health care are putting more and more emphasis on our ability to manage care,” Boswell said. “We will have millions of people that are newly enrolled (in insurance plans), and that creates more pressure on primary care access. This is a challenge for this entire country.”