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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

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Congressional Research Service (CRS)

 

Physician Practices: Background, Organization, and Market Consolidation

Suzanne M. Kirchhoff, Analyst in Health Care Financing

January 2, 2013

http://www.fas.org/sgp/crs/misc/R42880.pdf

[full-text, 27 pages]

 

Summary

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 (ACO), 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.

 

Contents

Introduction ...................................................................................................................................... 1

Physician Supply ............................................................................................................................. 4

Supporting Practitioners ............................................................................................................ 5

Practice Consolidation ..................................................................................................................... 6

Market Trends ............................................................................................................................ 9

Larger Group Practices and Physician Organizations ......................................................... 9

Hospital Affiliation and Employment ............................................................................... 10

Affiliation with Insurers and Other Payers ........................................................................ 13

Delivery Reforms .............................................................................................................. 14

Concierge Practices ........................................................................................................... 15

Legal Issues ................................................................................................................................... 16

Issues for Congress ........................................................................................................................ 17

Medical Spending .................................................................................................................... 18

Access ...................................................................................................................................... 19

Coordinated Care/Quality ........................................................................................................ 20

 

Figures

Figure 1. Physician Medical Staff Arrangements with U.S. Community Hospitals ...................... 11

 

Tables

Table 1. Changes in Physician Practice Over Time ......................................................................... 8

Table A-1. Median Compensation for Select Physician Specialties .............................................. 23

 

Appendixes

Appendix. Physician Income and Practice Costs ........................................................................... 22

 

Contacts

Author Contact Information........................................................................................................... 24

 

 

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