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Thursday, January 24, 2013

Physician Practices: Background, Organization, and Market Consolidation



Suzanne M. Kirchhoff
Analyst in Health Care Financing

A growing number of U.S. physicians are combining their practices; affiliating with hospitals, insurance companies, and specialty management firms; or going to work directly for such organizations. The moves are part of a broader trend toward consolidation in health care, with the overall number of mergers and acquisitions in the sector at the highest level in a decade.

Alterations in physician practice appear to be a response to a number of factors. Younger doctors are more eager than their predecessors to work for an outside institution, such as a hospital, to secure a set schedule and salary. Private practices have become more complex to manage, even as physician compensation has been declining. Doctors see financial advantages to building larger practices, in terms of ability to control expenses and negotiate higher fees with insurers. Further, not all trends are toward consolidation. A small but growing number of doctors are reacting to market incentives by moving in a different direction: creating concierge practices in which they see a limited number of patients who pay an annual retainer.

According to experts, physician practices also may be affected, in part, by provisions of the 2010 Patient Protection and Affordable Care Act (ACA, P.L. 111-148, as amended), designed to spur closer financial and clinical affiliation among health care providers. For example, the ACA creates health care delivery systems called Accountable Care Organizations (ACOs), under which providers contract to oversee a patient’s total course of care in a bid to manage costs and improve quality. A number of physician practices, insurers, and hospitals have announced affiliations to qualify as ACOs. In another move partly spurred by the ACA, hospitals and health plans have been hiring physicians to ensure they will have adequate staff to treat the millions of Americans projected to gain insurance during the next few years. Several major studies have warned of a looming shortage of physicians, particularly primary care doctors.

Congress is playing dual roles regarding the consolidation. On the one hand, the ACA was designed, in part, to prompt affiliation among doctors and other health care providers in order to reduce fragmentation and help control government and private health spending. At the same time, lawmakers are monitoring the health care system for signs that consolidation is having negative effects on consumer access, prices, and competition. The health care sector went through a similar round of restructuring during the 1980s and 1990s, including mergers and acquisitions of physician practices, ultimately prompting a backlash from some consumers who complained they were being blocked from specialists and procedures. The ACA envisions a different system of “patient-centered care,” where doctors and other providers are given incentives to improve quality and efficiency, rather than to limit services. Still, it remains to be seen how the current round of changes will play out as physicians and other providers form larger organizations. This report provides background on factors contributing to changes in physician practice organization, including physician supply, sources of revenue, operating costs, and government incentives. It also examines the different types of integration, the legal intricacies of affiliation, and the possible implications for consumer and federal policy.



Date of Report: January 2, 2013
Number of Pages: 27
Order Number: R42880
Price: $29.95

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