MacKenzie is now ensconced in his role as a physician employed by the Lehigh Valley Physicians Group. He serves as senior vice chair of operations for the emergency department, which handles some 150,000 annual visits. The Allentown, Pa.-based group practice consists of some 500 physicians and, in theory at least, maintains an arm's length distance from Lehigh Valley Health Network, its three-hospital, 900-bed corporate partner. But in reality, "the group supports the mission of the health network. We have shared governance. On paper, it is a separate ownership. In reality, it's their group." Physicians are not contractually obligated to admit solely to Lehigh Valley, but the opportunities to work with competing hospitals are few, MacKenzie says. "As physicians get bought up, and allegiances form, there is no longer an opportunity to work at a competing hospital. If a doctor is bought up by Lehigh Valley, they declare themselves as a Lehigh Valley physician."
MacKenzie's got plenty of company industry-wide. During the last few years, physicians have been abandoning their once-cherished role as independent practice owners and opting for employment with medical groups owned by hospital-based health systems. At the dawn of the century, nearly 60 percent of the nation's physicians were independent, according to research by Accenture. Entering 2013, that figure had dwindled to just over 36 percent and the trend continued to accelerate even as the number of physicians increases overall.
Market expansion
Several factors are converging to entice physicians to trade their independence for W-2s. They have plenty of buyers, as health systems are seeking to expand their employed physician base-once the domain of a small group of hospitalists. Health systems are seeking to expand their market, if not shore up their referral base. And faced with the demise of fee-for-service reimbursement, they want tighter alignment with physicians than afforded by the conventional medical staff model.
Common information systems also are part of the new mix. Physicians are seeking to sell for similar reasons. In addition to reimbursement cuts, they face mounting practice management overhead-not the least of which is I.T. infrastructure which the government has for all intents mandated with its meaningful use program.
But the risks to both buyer and seller are considerable. I.T. figures prominently in the industry makeover, but it is also a potential landmine waiting to be stepped on. For that reason some observers have declared the death of the private practice-but others are not so sure.
The skeptics recall how the industry's first big wave of group practice dissolution did not end favorably. Back in the mid-90s, a spate of physician practice management companies sprung up, buying physician groups and offering employment. But the hospitals behind the arrangements quickly got a lesson in economics. Pay a productivity-driven, fee-for-service oriented physician a salary, and ambition often is a casualty. "The physician management companies went bust and dissembled," recalls JB Silvers, professor of health care management at Case Western Reserve University, Cleveland.
This time around the calculus has changed, as the industry eyes the demise of fee-for-service and is looking for a long-term strategy to accommodate its polar opposite, fee-for-value. At the same time, group practices and hospitals are depending on volume to keep the doors open during the transition. "The impetus for hospitals to buy physician practices is the need to capture referrals and any ancillary business that might come in, such as lab work and imaging," says Silvers.
Others describe the spate of acquisitions in almost Darwinian terms. "Health systems are seeking safety in size," says Kim White, a consultant with Numerof and Associates, St. Louis. "Hospitals are looking to acquire other hospitals and physician practices to become gigantic systems, and increasing referral reliability is a great benefit."
Hospitals have other economic incentives as well, Silvers points out. While their inpatient visits are reimbursed on the DRG system, their outpatient operations are not. Those are paid under the OPPS, Medicare's Outpatient Prospective Payment System, in which they are paid extra for maintaining the facilities. When hospitals acquire group practices, they reclassify them as outpatient services. "The hospitals get an outpatient facility fee in addition to the professional fee paid to the physician," says Silvers. "When hospitals do the analysis, they're looking at extra cash flow. That is the lubricant to make the acquisition work financially."
Physicians, on the other hand, have their own set of financial pressures. "The economic model is getting harder for private practices," says David Blair, M.D., president and chief medical officer at Grand Rapids, Mich.-based Advantage Health. The multi-specialty group practice of 200 physicians is owned by St. Mary's Health Care, a local hospital, which is itself owned by Trinity Health, a national hospital system. "The private practice is unsustainable and has caused physicians to seek employment. Primary care can get paid more in the employed model than a private model. Even specialists are seeing their referrals dry up. In five to 10 years, there will be little left of private practices."
Information technology ranks high as a financial pressure driving physicians into the arms of hospitals. "Physician need access to I.T. but they can't do it on their own," says Jeff Wasserman, vice president, Culbert Healthcare Solutions, a Woburn, Mass.-based consultancy which advises on EHR selection and clinical integration projects. "Practices realize they will be paid for performance. They will also be asked to assume more risk. You can't do either without state-of-the-art information systems."
