UPDATE: On Tuesday, Feb. 5, 2019, Memorial Hermann Health System and Baylor Scott & White announced they had canceled their planned merger. "Ultimately, we have concluded that as strong, successful organizations, we are capable of achieving our visions for the future without merging at this time," Memorial Hermann President and CEO Chuck Stokes said in an email to the hospital's physician partners.
Original Story: Consolidation has touched just about every part of today’s health care industry. Hospitals, medical practices, pharmacies, insurance companies are all merging in various ways — a trend epitomized by the 2018 announcement that hospital systems Baylor Scott & White Health in Dallas and Memorial Hermann in Houston plan to become one big nonprofit.
But is this consolidation helping or hurting medicine? How physicians view that question depends a lot on their personal experiences.
Count John Flores, MD, among the skeptics. In 2014, Dr. Flores sold his internal medicine practice in Little Elm to what was then Tenet Healthcare (which Baylor Scott & White later bought). Dr. Flores and his wife, Jill Wolf, MD, had been facing pressures familiar to many independent doctors, namely longer hours and payments that did not keep up with expenses.
But both physicians quickly developed seller’s remorse. Turnover among the staff soared as bureaucracy increased. Tenet also required Dr. Flores and Dr. Wolf to move offices, costing them patients, and then did a poor job of marketing their practices to attract new ones, Dr. Fores said. Those same managers also tried to impose rules on them, such as where they could refer patients.
“Physicians seeking employment don’t realize they take all the decisions out of their hands and give them to somebody else, and typically it’s a middle manager,” Dr. Flores said. “In corporate models, [physicians] live and die by their managers, and that’s who’s making the health care decisions.”
On the flip side, count Robert Fine, MD, among the optimists about consolidation. When he started in internal medicine in 1981, he figured he would always be a solo practitioner. But over the course of more than a decade, the pressure to keep the business afloat mounted. His practice merged with one large practice and then another before it was finally absorbed into what is now Baylor Scott & White in 1994.
“I’d say all of us were skeptical about merging with each other and then merging with Baylor, but all of us are pretty … happy at this point,” Dr. Fine said. “I would say the reason we’re all happy is that we’re allowed to primarily focus on taking care of patients. We’re not having to run a business anymore.”
Whether physicians hate it or love it, consolidation in health care is unlikely to stop anytime soon. In 2017, there were 967 merger and acquisition deals in the health care industry nationwide, according to the PwC Health Research Institute. By 2018’s second quarter, the deal volume was up 9.4 percent from 2017. Overall, health care has had 15 consecutive quarters in which more than 200 deals were announced, PwC reported. Other data from Irving Levin Associates shows the pace of hospital mergers keeps accelerating. (See “Announced Hospital Mergers and Acquisitions, 1998-2015,” page 27.)
At press time, the Federal Trade Commission (FTC) and the Texas attorney general had yet to approve the merger between Baylor Scott & White and Memorial Hermann. But even if U.S. or state regulators slow down some of the big-dollar mergers — as they could with Baylor-Memorial Hermann — physician practices are likely to continue joining together financially.
Most physicians badly need capital to address new federal regulations, update their technology, hire more staff, and make improvements, says Kevin Wood, a lawyer with the Austin office of Clark Hill Strasburger, a law firm that specializes in business deals for health care organizations. Mergers and buyouts are a natural way to get that capital. (See “Capital Gains,” December 2018 Texas Medicine, pages 22-25, www.texmed.org/CapitalGains.) Also, physicians feel they need more clout when dealing with ever-growing hospitals and insurance companies.
“You just have better leverage if you are a bigger organization with more assets,” Mr. Wood said.
The urge to merge
Mergers and buyouts happen for a lot of reasons: reducing costs, eliminating competition, and offering more diverse services. Hospitals often merge to insulate themselves from losing patients and to boost their referral stream. And like physicians, they also want greater leverage to negotiate rates with insurance companies, says Robert Town, PhD, an economics professor at The University of Texas at Austin who studies the health care industry.
Over the past 40 years, health care has seen several waves of consolidation, typically because of a regulatory shift that makes practicing medicine more expensive or changes payment methods, Mr. Wood says. The latest round, triggered by federal health care reforms under President Barack Obama, prompted more private investors to buy or partner with physician practices.
For instance, the American Recovery and Reinvestment Act of 2009 encouraged the use of electronic health records (EHRs). The transition can cost practices on average $30,000 to $50,000 per physician upfront, plus maintenance fees. That price tag was definitely too high for Daniel Terwelp, MD, an Austin pediatrician who sold his practice in 2018 to Texas Children’s Pediatrics.
“With my small office, it was getting tougher to keep things going,” Dr. Terwelp said. “There were things in my practice that needed updating. For instance, we were still doing paper charts. I felt like I needed to join the 21st century and do [EHRs].”
Many practices also upgrade their quality reporting tools to comply with the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015 and its Merit-Based Incentive Payment System (MIPS). (See www.texmed.org/MACRA and “The Results Are In: Physicians Finally See How They Fared In First Year of MIPS,” September 2018 Texas Medicine, pages 36-39, www.texmed.org/FirstYearMIPS.)
These and other factors explain why Texas physicians are increasingly leaving individual practice — or not going into it at all. (See “Where Texas Physicians Work,” page 26.)
The Texas Medical Association 2016 Survey of Texas Physicians found that the number of Texas physicians in solo practice fell from 44 percent in 2012 to 26 percent in 2016. Over the same time period, those who became group practice employees rose from 13 percent to 24 percent, and those who became hospital employees rose from 4 percent to 8 percent. The survey also found that younger physicians may not prefer solo practice. Fifty percent of Texas doctors 40 and younger worked either for a hospital or group practice, twice the percentage of those 51 and older.
“Physician economics are pretty stark,” Dr. Flores said. “If you’re a new doctor coming out, just finished residency, typically you owe $150,000 to $300,000 in the U.S. right now. And it’s probably going to cost you [$275,000 to $375,000] for the first two years to set up a practice, to get paid what you feel like you should get paid so you can pay your debt.”
Also, many young physicians don’t see any problem with working for big companies, Mr. Wood says.
“The younger generation [of physicians] is of the mindset that, ‘All we see is bigger and bigger, so it really doesn’t frighten us. As long as they don’t tell me how to diagnose a patient, I really don’t care,’” he said.
But it is precisely that kind of corporate interference that many physicians fear about consolidation. Texas has some of the strictest laws in the country against the corporate practice of medicine. Those laws are designed to keep lay people and organizations from interfering in a physician’s medical judgment, especially for financial reasons. But there has been a steady erosion in the enforcement of those laws, which has led to conflicts between companies and physicians. (See “Corporate Encroachment,” July 2018 Texas Medicine, pages 36-41, www.texmed.org/CorporateEncroachment.)
Dr. Town, the economist, says direct interference by corporate managers is rare, except perhaps in very expensive procedures. However, larger companies and practices do control physicians in more indirect — but equally important — ways.
“The organizations are going to monitor,” he said. For example, they might say: “‘Hey, your patients are not getting enough of X relative to the benchmark, or they’re getting too much of Y relative to the benchmark. You’re not billing [enough], so you’re spending too much time with the patient, or your billing too [much] — that can’t be good.’”
Companies also influence some medical decisions directly, Dr. Flores says. For instance, referring to a specialist outside the network was frowned upon when he worked first for Tenet and then Baylor.
“Knowing that my reputation is based on how my specialists treat my patients, I want to know that these specialists know what they’re doing, know how to treat patients, and that they have staff that knows how to treat patients,” he said.
Bigger is better?
Is consolidation in health care good for patients? Numerous studies show the answer is “probably not,” Dr. Town says. Consolidation reduces competition, limits patient choice, and causes prices to rise on average, he says. This is especially true for hospital and insurance company mergers, but it is also true for mergers among medical practices.
Quality of care also suffers in many consolidations, according to a May 1, 2018, study published by the Journal of the American Medical Association. The study found that mergers can create three kinds of risks for patients because they often cause changes in:
• Patient populations, including an increase in patients with demographic characteristics and conditions that are unfamiliar to staff at the facility;
• Supplies, equipment, formularies, protocols and information systems, which increases the risk for staff errors; and
• Physician work sites. Physicians working at new facilities often get little or no training, forcing them to learn through trial and error.
Dr. Fine says he understands the drawbacks of consolidation in health care, and he has had “intense conversations” with other physicians about them. But over time, he’s come to believe that the pluses outweigh the minuses. One of the biggest pluses is that consolidation helps create more standardized care. In the past, he says, physicians were usually off in their own specialized silos.
“Nobody could read each other’s handwriting, nobody was on a digital platform, you could never read your colleague’s notes in the hospital or the office, you couldn’t get to other data, and it was a pretty disjointed way of practicing medicine,” Dr. Fine said. “I don’t think there’s a perfect EHR out there, but one of the things I’ve enjoyed about being part of this much larger group is all the doctors in the group are on the same EHR so we can all communicate with each other. … I know my patient care is better than it used to be because I can see everything going on with my patients.”
Dr. Fine said the 2013 merger of Baylor Health Care System with Scott & White Healthcare improved communication among physicians and patient care. For instance, as head of palliative care at Baylor Health, he was able to learn from a Scott & White hospital how to run an inpatient palliative care unit and spread that knowledge to other hospitals in the system.
“There have been wonderful opportunities for improvement,” he said. “I’d be lying if I didn’t say there’s also been [problems], but that’s true of any larger organization. I hope the Hermann merger goes through. I think it will advance the quality of care.”
Dr. Terwelp agrees that the sale of his practice improved his level of patient care. For instance, his new employer’s protocols required more extensive patient screening for depression and mental health issues.
“It’s a good thing for our patients, and it’s a good thing for me,” he said. “If I hadn’t done that, I probably would have missed kids, and I would not have gone that next step.”
Full speed ahead
Regardless of how physicians feel about consolidation, more mergers are widely seen as inevitable, and some experts are predicting a further decline in independent practices. A 2016 report by the Healthcare Financial Management Association reported that Deloitte, the financial services firm, foresees the health care sector reorganizing itself by 2024 into three broad categories:
• Huge national systems;
• Regional health systems with clinical integration throughout the continuum of care; and
• “Specialist” organizations such as academic medical centers, pediatric and other single-service systems, critical access hospitals, and post-acute providers.
There have been some efforts to put the brakes on mergers. The FTC has become more active in stopping them among hospitals and physician practices, according to a 2018 multi-agency U.S. government report on reforming health care. Also, the Centers for Medicare & Medicaid Services recently limited the ability of hospitals to charge facilities fees to patients who receive physician care at a hospital outpatient department, reducing an important source of hospital income. TMA will monitor whether this makes the physician practices that serve as these outpatient departments less attractive to keep or buy.
Perhaps the best check on consolidation may simply be the bad experiences of some people who’ve tried them, says Mr. Wood.
“[Our law firm has] helped groups and providers consolidate — and when they find out it doesn’t work so well, taking it back the other way,” he said.
That is exactly what happened to Dr. Flores. In 2018, he and his wife withdrew their practices from Baylor Scott & White and started over as independent physicians. It was difficult, he says. Many physicians who separate from a hospital are blocked from practicing in the same area and find their patient records controlled by the hospital. Dr. Flores and Dr. Wolf did not have that problem, but the process of joining the hospital group and leaving it had cost Dr. Flores’ practice about half its patient base.
“Being a 51-year-old doctor, it’s very daunting to say, ‘OK, we’re going to do this again,” he said.
For physicians who want to remain in independent practice, Dr. Flores says a better option is joining a strong, physician-led accountable care organization, where doctors can collectively pool their resources to improve patient care and reduce costs, and participate in value-based payment programs. (See “Joining TMA PracticeEdge,” page 24, and “Marriage Material: Independent Practices Find Success in Commitment to Accountable Care Organizations,” December 2018 Texas Medicine, pages 16-21, www.texmed.org/MarriageMaterial.) He also recommends hiring a firm to handle the business side of the practice.
Despite the difficulties of independent practice, Dr. Flores is glad to be back to it.
“Our patients welcomed us back, and the city welcomed us back,” he said. “We were glad we were back because there’s nothing that compares to taking care of patients and seeing them every day.
Tex Med. 2019;115(2):22-27
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