Healthcare in the United States continues to undergo significant restructuring with unprecedented consolidation and provider integration. Similar to the changes in the hardware industry in the 1990’s when the expansion of Home Depot and Lowes displaced local hardware stores, and the changes in the pharmacy industry in the 1980’s and 1990’s when the growth of Walgreens and CVS eliminated most local pharmacies, consolidation in the healthcare industry is decreasing the number of small physician-owned medical practices.
In 2009, 57% of all physicians in the United States were employed by an independent physician-owned practice. By 2012, that number plummeted to 39%. Accelerating consolidation and provider integration is also very apparent in our local healthcare market. Most primary care physicians in Manatee County, Florida, now are employed by or have collaborated with one of the major hospital systems present in the region. As another example, most of the cardiologists in Naples, Florida, are employed by a hospital system. Further, independent medical practices that have not joined with a hospital system are facing great pressure to merge with other area practices to form regional “super-groups.” In Sarasota, Florida, nearly every gastroenterologist is now part of one large super-group.
So what is driving this change? Three major factors leading to healthcare consolidation are: (i) the Medicare sustainable growth rate (“SGR”) formula, (ii) the proliferation of electronic medical records, and (iii) and the emphasis on “accountable care” under the Patient Protection and Affordable Care Act of 2012 (the “Affordable Care Act”).
The Medicare SGR formula has entered the public’s consciousness through Congress’s annual “doc fix” discussions. The formula originated with the Balanced Budget Act of 1997. The idea was to create a formula which automatically reduces Medicare spending on an annual basis. As initially intended, the formula would have resulted in across-the-board payment cuts to Medicare payments in the range of 1% to 2% each year. However, Congress each year has taken action to suspend the implementation of the Medicare SGR formula to avert the steep cuts. In the recent “fiscal cliff” negotiations, Congress again delayed the formula, the implementation of which would have triggered a reduction in Medicare reimbursement of approximately 27%. Despite the acts of Congress, the persisting Medicare SGR formula has led to great uncertainty for physicians each year. The continuous threat of reimbursement cuts has pushed many physicians to consolidate with hospitals and large practice groups.
The proliferation of electronic medical records has also driven the healthcare industry toward consolidation. The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and the Affordable Care Act have, through financial incentives, encouraged healthcare providers to switch to electronic medical records. One impact of the electronic system is the extensive amount of data now available to the Federal Government and private insurance companies. Electronic information has been especially valuable to insurers because it allows them to analyze outcome data to evaluate quality of care and cost of care. Insurance companies are seeking ways to expand their access to greater amounts of outcome data and, at the same time, reduce administrative expenses by interacting with fewer physician groups. This has made large groups that can consolidate large amounts of data appealing. Insurers are offering higher reimbursements and preferential managed care contracts to larger groups, and, as a result, providers are consolidating.
The Affordable Care Act’s focus on “accountable care” has also increased consolidation and provider integration. Accountable care works by permitting the Federal Government to analyze outcome data and promote cost savings. The thought is for Medicare, through a shared savings program, to encourage providers to adopt the techniques used by the lowest cost provider (in situations where there is no appreciable difference between the outcomes of a treatment by different providers). Private insurance companies also have implemented the accountable care model of payment for certain services. This model of payment has accelerated consolidation because a larger practice generally is necessary to access accountable care contracts and realize cost savings. Accordingly, more and more physicians are leaving their small medical practices to become salaried employees of hospitals or members of larger groups.
The healthcare landscape in the United States is undergoing a sea change. Staying up to speed on trends and new developments, as well as on the accompanying legal and regulatory changes, will help providers plan for the future and make strategic decisions in a rapidly changing health care marketplace.
For additional information regarding this article, please contact John Moore at (941) 329-6620 or firstname.lastname@example.org.