From The Editor | June 5, 2012

Vanishing Practices & The Impact On Health IT

Ken Congdon, Editor In Chief of Health IT Outcomes

By Ken Congdon, Editor In Chief, Health IT Outcomes

Follow Me On Twitter @KenOnHIT

During a recent HIMSS Tweet Chat with Aneesh Chopra, industry blogger Hospital EMR and EHR (@HospitalEHR) asked the former US Chief Technology Officer, “We’re seeing a trend of hospitals buying practices. Do you see this trend being cyclical or more permanent?” Chopra responded, “A trend for hospital/practice acquisition? We've seen this movie before. Success requires reform to reward value-based care.” This response leaned toward the trend being cyclical and was a bit too dismissive for my tastes.

True, we have seen this movie before. The 1990s, for instance, saw a wave of efforts to integrate hospitals with physicians. The impetus for this shift was the belief that managed care—in which insurers negotiate with a limited panel of hospitals and physicians—would be the prevailing model of coverage. When demand for managed care ebbed in the late 1990s, many of these partnerships disbanded due to a lack of commitment from physicians and/or a lack of management expertise from hospitals.

However, unlike the managed care movement of the ’90s, the current trend of hospital/physician acquisition is much more profound and is being influenced by multiple drivers instead of just one. We need take notice of this trend this time around because it has the potential to not only impact health IT, but forever change the landscape of healthcare delivery in the United States. 

The Statistics

Let’s start by taking a look at a few eye-opening statistics that illustrate the current hospital/physician acquisition trend:

  • In 2005, more than 66% of medical practices were physician-owned. In 2009, this share dropped below 50%. Over the next three years, this percentage is expected to drop below 33%.1
  • Nearly half of all physicians hired out of residency are opting for hospital employment, while less than 1% would consider starting an independent practice.2
  • 74% of hospitals plan to employ more physicians in the next 12 to 36 months. 70% have received increased requests from physicians groups for employment, and 61% plan on acquiring medical groups in the next 12 to 36 months.3

These statistics show a sharp decline in the number of independent physician practices over the past seven years, and it appears this trend will only continue to accelerate because new physicians to the field seem uninterested in opening independent practices.

The Drivers

Several factors are coming together to create a “perfect storm” for hospitals to acquire physician practices.

  1. Health IT Mandates — As we all know, in 2009, the federal government established a stimulus program — known as the HITECH (Health Information Technology for Economic and Clinical Health) Act — to encourage the adoption and “Meaningful Use” of EHRs by 2015. This program includes stimulus payments for adoption and successful implementation of EHR software, but also includes penalties for failure to successfully leverage EHR technology by specified deadlines.

    The push toward EHR adoption in this short time window has placed significant financial and administrative strain on several private practices. Most physicians would rather focus on treating patients than implementing IT systems — an area in which many doctors lack expertise. As a result, many physician practices are opting to become affiliated with neighboring hospitals or health systems that already have much of this technology infrastructure in place. In this scenario, the hospital typically accepts the burden of getting the practice up and running on an EHR, freeing up physicians to practice medicine.

    This was the motivating factor for Dr. Domingo Ngo, when he decided to sell his gastroenterology practice to Martin Health System last year. The administrative requirements associated with running a practice and implementing an EHR became too extreme for Dr. Ngo to handle. He found himself working nights and weekends simply to get to all of the tasks on his plate. Through hospital employment, Dr. Ngo was able to relieve himself of the financial burden of implementing an EHR and reclaim valuable family time. You can read more about Dr. Ngo’s tough decision in this American Medical News article.
  1. Healthcare Reform — A key provision of PPACA (The Patient Protection and Affordable Care Act), also known as healthcare reform, is the shift from the current fee-for-service reimbursement model to a pay-for-performance model based on patient outcomes. As part of the law, stakeholders in the ongoing care of a patient (i.e. hospitals, physicians practices, clinics, insurance companies, long-term care facilities, etc.) will form ACOs (Accountable Care Organizations) that will share responsibility for providing care to patients. These ACOs will have to work together to maximize reimbursement.

    Healthcare reform is influencing the trend of hospital/physician alignment in a similar fashion to the managed care wave of the 1990s. Hospitals are looking to build their accountable care networks by acquiring physician practices. And, although they can become part of an ACO without being acquired by a health system, many practices simply find it easier to align themselves with a hospital during the ACO formation process. The key difference between PPACA and the managed care wave of the ’90s is that it seems this payment model change will stick because it is being driven by a federal reform law. That is, of course, if healthcare reform in its current state isn’t deemed unconstitutional or repealed.
  1. Hospital Financial Viability — The flurry of healthcare mandates and reform can make it easy to forget that hospitals are businesses that need to be financially stable in order to keep their doors open to patients. In fact, demands for IT adoption and organizational overhauls have placed increased financial pressures on hospitals in recent years. Adding physicians to a hospital roster can be a quick and easy way to inject revenue into the facility. In fact, a recent Merritt Hawkins & Associates survey indicates that each affiliated physician leads to an average of $1.5 million in annual revenue for the hospital. Physician acquisition has become a popular strategy for hospitals looking to build a foundation for long-term financial sustainability.
  1. Reimbursement Changes — Not all reimbursement changes are tied to healthcare reform. For example, in 2009, CMS (The Centers for Medicare and Medicaid Services) decided to cut reimbursements to cardiologists by 27% to 40%, depending on the type of practice. Similar cuts have since been levied on other medical specialties. This decision caused specialty practices across the country to start selling out to hospitals. In fact, Dr. Jack Lewin, chief executive of the American College of Cardiology, estimates that the share of cardiologists working in private practice dropped by more than half as a result of the CMS reimbursement changes. This is all happening with or without reform.

What Does The Future Hold For The Physician Practice?

I’m not the first author to write an opinion column on the trend of hospitals acquiring physician practices. There have been several, and many paint a picture of a healthcare system where private practices will soon become extinct. I won’t go that far. I talk to the readers of Health IT Outcomes every day, many of whom are physicians with practices of their own. Through these conversations it becomes clear that there is a contingent, an albeit shrinking contingent, of physicians that desire to remain independent at all costs.

That being said, I do feel that the hospital/physician practice acquisition trend won’t be cyclical this time around. It will continue, and it will forever change the landscape of healthcare delivery in the United States. Will independent practices disappear? No, but they will likely become the decided minority in a healthcare system focused on providing coordinated care.

What Does This Mean For Health IT?

As discussed earlier, health IT is one element driving hospitals to acquire independent practices. At the same time, I believe this trend will help shape the future landscape of health IT. Remember those subscriber conversations I mentioned? The more discussions I have with hospitals and physicians practices, the clearer it becomes that hospitals are either driving or heavily influencing IT implementations at the practice level. Obviously, practices affiliated with hospitals are either implementing EHRs handed down by the hospital, or the hospital is working to integrate the practice’s existing ambulatory EHR with inpatient systems. However, even independent practices stress that their EHR implementation decisions are influenced by the hospitals in their area. These practices want to ensure their data is interoperable with hospital systems for future care coordination, and are either contacting these hospitals directly or reaching out to RECs (regional extension centers) for advice on which systems to implement.

This dynamic will likely trigger a dramatic shift in the EHR market. At last count, there were nearly 1,000 EHR/EMR software platforms in circulation. The vast majority of these software systems are aimed at independent practices or niche specialties. Given the fact that this target market is shrinking on a daily basis, it becomes clear that most of these platforms won’t survive. The market is ripe for significant consolidation. The vendors that thrive will be those with a keen eye toward care coordination and an understanding of all influencers of a practice EHR implementation.

1 MGMA and Accenture
2 Merritt Hawkins & Associates
3 Merritt Hawkins & Associates