“An estimated 80% of physicians are now employed by hospitals, health systems, and corporations. Many factors have contributed to this shift away from independent practices, including rising administrative burdens, changing employment preferences, greater capital demands for health information technology, and favorable financial incentives (eg, site-differential payments). However, underappreciated among these factors is another important accelerant of corporate consolidation: the shift from fee-for-service to value-based payment models.
[..] Evidence suggests that, on average, they [independent practices directly owned by clinicians] exhibit lower per-patient spending, fewer preventable admissions, and lower readmissions compared with their hospital-owned counterparts. [..] However, independent practices are often less equipped to participate in value-based contracts because participation requires technology infrastructure (eg, electronic health records), human expertise in population health management (eg, coding practices, quality measures, and reporting), and relationships with delivery system segments (eg, post–acute care providers). Under value-based financial incentives, these levers of control can be contained within the (often risk-bearing) organization.
[..] Medicare ACOs [Accountable Care Organizations] require participating providers to have 5000 attributed traditional Medicare beneficiaries—an onerous threshold for smaller independent practices, particularly as more beneficiaries shift to Medicare Advantage. Practices with fewer attributed patients are often reluctant to assume financial risk, making corporate partners who will backstop or fully mitigate potential losses more attractive. Indeed, ACOs that are larger, affiliated with a supporting organization, and are not physician-owned are more likely to move to 2-sided risk.
These demands on smaller independent practices create a buyer’s market for corporate owners who can leverage capital, management, and scale. For example, insurers, retail chains, and private equity firms have rapidly acquired or affiliated with provider groups expressly to participate in value-based contracts. [..]
“Softer” forms of corporatization have also emerged. Most well-known is the clinically integrated network or the ACO network, in which independent practices affiliate with a health system but do not change ownership. Insurance companies are building analogous forms of aggregation. [..] From 2019 to 2021 alone, private capital invested in value-based care companies increased 4-fold.
Such capital infusions might increase the chances of success under value-based payment through newer technology, intensified population health management, or improved management of the spending target. However, they also carry potential risks, including aggressive and potentially fraudulent coding practices and other forms of gaming that increase spending or are untethered to clinical outcomes. Medicare Advantage beneficiaries now cost substantially more in this program than they would in traditional Medicare, with 1 estimate indicating that diagnostic coding—a core competency of risk-based corporate primary care companies—accounts for $54 billion of the $88 billion in Medicare Advantage overspending annually. More broadly, lawsuits have alleged that insurer-led vertical consolidation may enable collusion to squeeze out independent providers, whereas hospital consolidation and private equity ownership have increased prices without convincing evidence of quality improvement.
[..] The paradigm of “physician-as-insurer” may always tend toward corporatization, given the nature of actuarial risk and factors described above. As evidence suggests, it is also a challenging way to contain health care spending, as waste stemming from high prices, administrative costs, profits, and fraud remains largely unaddressed—often “baked in” to the spending target. Along these lines, reforms like greater fraud enforcement and site-neutral payments could further dampen incentives to consolidate, saving Medicare substantial amounts.”
Full editorial, H Rooke-Ley, Z Song and JM Zhu. JAMA, 2024.8.22