Ch. 9 - Less Money, More Problems: Physician-Owned Practices
Christopher Clifford, MD; Vishnu Muppala, MD, MPH
Health care in America has become a booming business. As such, the practice of medicine is impacted by the same forces at play in the larger market: operating expenses, revenue rates, mergers, industry regulations, politics, inflation, public sentiment, and more.
Yet emergency care is also bound by government mandates, regardless of business concerns. Pricing is often set by lawmakers who can be influenced by third parties with conflicting interests. Insurance companies can retroactively choose not to pay for services provided. Treatment plans ultimately may be subject to oversight by consultants who aren’t required to have relevant medical experience.1 These situations often leave physicians caught in the middle.
The safety net is being stretched as patients give up on the byzantine insurance hoops and extended wait times for primary care and specialty appointments, instead either delaying care until chronic problems become acute or simply seeking primary care via the emergency department.
Why It Matters to EM and ME
Medicine – worldwide but especially in North America2 – is a popular sector for private equity (PE) investors. Mergers and acquisitions have accelerated, with PE driving approximately 70% of the transactions.2,3
Emergency medicine is directly affected through investors buying and consolidating EM groups, then changing staffing and payment models. The most concerning, for the specialty and also for patients, is the trend toward hiring non-physician providers with less training, at nominally lower salaries, to maximize profit.4 A study by the National Bureau of Economic Research, however, shows that emergency care delivered by NPPs may not be cost-effective in the long run, as “NPs significantly increase resource utilization but achieve worse patient outcomes,” including an 11% increase in length of stay and a 20% jump in the risk of readmission.5
The specialty is also affected indirectly, as PE investment in family medicine, nursing home care, and other specialties changes the way patients seek care. The safety net is being stretched as patients give up on the byzantine insurance hoops and extended wait times for primary care and specialty appointments, instead either delaying care until chronic problems become acute or simply seeking primary care via the emergency department.
How We Got to This Point
Emergency physician practice groups have been increasing their consolidation for many years. Small practice groups are often challenging to run due to a complex business environment as well as rules and regulations surrounding administration of business and compensation of physicians. For instance, startup costs are a substantial barrier to entry for small group practices. A new practice may accrue costs months prior to developing a reliable income. Large and established groups have the resources to absorb these expenses when entering into a new contract, giving them considerably more leverage in bidding for contracts. Initial expenses include administrative costs, recruitment, billing/ coding, malpractice insurance premiums, and compensation. Many of these are fixed costs, which will represent a higher proportion for lower volume versus higher volume contracts.
Physician compensation trends also create a challenging environment for small practice groups. Many models of payment reform have been proposed and implemented including some alternatives to the traditional fee-for-service model which are currently in use. Smaller groups may face more challenges in adapting to these new models, and some of the new models require integration with other specialties in order to utilize them, which thus requires a larger-sized, multi-specialty group. However, EM is unique among medical fields. Unlike other fields, emergency physicians manage and treat patients according to presenting symptoms rather than diagnoses. Frequently, there is not a definitive diagnosis made by the time of disposition. As emergency physicians do not provide chronic care, allowing long-term outcomes to be tracked by diagnosis, fee-for-service is a more natural fit for emergency medicine. This makes EM compensation very sensitive to rates set by insurance providers.
In a relative value unit (RVU) based system, EM is particularly sensitive to CMS adjustments of the Medicare “conversion factor” that converts RVUs into dollar amounts. While Medicare compensation rates may go down year-to-year, inflation has been going up, creating a challenging business environment due to decreased financial returns for work done by individual emergency medicine providers in a setting of increased costs. Advocacy on Medicare rate determination can combat this trend. By doing so, the business landscape may allow for easier entry for small, democratic groups and provide a better work environment for providers and better care for our patients.
Advocating for appropriate reimbursement from Medicare is crucial for emergency physicians. Medicare rates are set by Congress, with details of the fee schedule and payment program laid out by CMS in regulations. ACEP is constantly following and working on this issue, on a legislative and regulatory level, to ensure that emergency physicians are fairly compensated for their work.
- EM practice consolidation is accelerating.
- Consolidation can be problematic in the health care sector.
- Medicare rate determination is a top priority item for EM lobbying and helps to combat consolidation.
- Physician practices have many costs aside from physician salaries, and these practice costs have grown faster than payments, driving increased consolidation in an attempt to control these additional costs.
- Small group practices are challenging to run due to an increasingly complex business environment and a proliferation of rules around the administration of businesses and compensation of physicians (such as tax laws, benefit requirements, quality reporting).
- Federal budgeting, including Medicare rate determination, has a significant impact on physician reimbursement.
- Day J, McHaffie R. Global Healthcare Private Equity and M&A Report 2022. Bain & Co. New York, New York. 2022.
- Meindl J, Nasr T, Dinkel S. Annual Healthcare M&A Report 2022: 2021 Trends & 2022 Expectations. VMG Health. Dallas, Texas: 2022.
- Newitt P. ‘I don’t know how much longer I can continue to be a doctor’: Physicians fight pay cuts as operating costs soar. Becker’s Physician Leadership. Oct. 26, 2022.
- Kelman B, Farmer B. ERs staffed by private equity firms aim to cut costs by hiring fewer doctors. NPR. Feb. 11, 2023.
- Chan Jr. DC, Chen Y. The productivity of professions: Evidence from the emergency department. National Bureau of Economic Research. October 2022.