Below is an excerpt from a whitepaper that we recently published titled “Unlocking the Value of Integrated Physician Enterprises: Cross-Journey Patient Outreach Strategies to Build Loyalty and Drive Health System Growth.” To access the full text for free, click here.
For more than a decade, there has been unprecedented consolidation of provider organizations. Large health systems have expanded their service offerings through acquisitions and partnerships with providers across the care continuum, including hospitals, physician practices, ambulatory surgery centers, post-acute care providers, and even health plans.
In the midst of this flurry of growth activity, there has been a notable uptick in the number of physician practices acquired by health systems. Between 2012 and 2016, the number of hospital-owned practices doubled, and by 2016, less than half of physicians owned their medical practices.1
The strategy behind building out expansive physician enterprises varies amongst health systems, but is generally driven by one or more of the following benefits:
- Increased Market Share: Health system-owned physician practices help to ensure all services and testing remains within the health network and mitigates patients seeking ancillary care from other local systems. It also enables organizations to respond to the growing demand for outpatient services2 and hedge inpatient losses.3
- Improved Care Coordination: Consolidation promotes effective sharing of patient information and plans of care, which leads to better outcomes and reduces duplicative services. This also improves transparency amongst providers and narrows gaps when it comes to communicating pertinent information.
- Greater Payer Bargaining Power: Health systems that corner the physician market have more leverage at the negotiating table and can potentially enjoy more favorable rates and terms with health plans.
- Better Positioned for Value-Based Success: With employed physicians, health systems can better align value-based incentives across care settings. When the constraints of the fee-for-service system are no longer driving business decisions in the future, integrated networks can focus on value and quality, rather than revenue primarily linked to volume.
By leveraging these benefits, health systems with integrated physician networks can grow both their top and bottom lines by capitalizing on new sources of revenue, generating efficiency savings, and improving payer margins. However, not all organizations actually achieve these synergies as quickly as they might have hoped.
While health systems have seen a modest increase in gross revenue from their medical practices, net returns have decreased and the median operating loss per employed
physician has grown.4 For many organizations, high operating expenses and flat reimbursements, coupled with costs stemming from physician integration challenges, can make clinical consolidation an unprofitable venture.
In the face of underperformance, there is an opportunity for health systems to drive the organic growth of their physician enterprises with limited financial investment. One way to accomplish this is to shift focus from managing down loss to boosting revenue by proactively engaging patients and keeping them coming back. Forward-thinking organizations are waking up to this and taking proactive steps to increase patient loyalty and reduce out-of-network leakage.
To continue reading, click here to download the free whitepaper.
1. Physician Advocacy Institute. (2018). Updated physician practice acquisition study: national and regional changes in physician employment. Retrieved from: http://www.physiciansadvocacyinstitute.org/Portals/0/assets/docs/2016-PAI-Physician-Employment-Study-Final.pdf.
2. Abrams, K. Balan-Cohen, A., & Durbha, P. (2018). Growth in outpatient care: the role of quality and value incentives. Retrieved from: https://www2.deloitte.com/insights/us/en/industry/health-care/outpatient-hospital-services-medicare-incentives-value-quality.html?id=us%3A2el%3A3dp%3Amdrnhlth%3Aeng%3Alshc%3A111618&itx[idio]=4735915&ito=1157&itq=7cfda210-8222-4253-848d-569e3e78ac30.
3. Elixhauser, A., McDermott, KW., & Sun, R. (2017). Trends in hospital inpatient stays in the United States, 2005-2014. HCUP Statistical Brief #225. Agency for Healthcare Research and Quality. Retrieved from: https://www.hcup-us.ahrq.gov/reports/statbriefs/sb225-Inpatient-US-Stays-Trends.jsp.
4. American Medical Group Association. (2017). AMGA 2017 medical group operations and finance survey.