#healthcareinnovation Thursday

Building and maintaining strong and aligned working relationships with physicians are key responsibilities for hospital and health system leaders, and are essential in meeting the health needs of communities. In recent years, physicians increasingly have migrated away from smaller independent practices and into employment models. Driving this trend are the need for economies of scale, evolving consumer expectations and physician burnout, among other factors. Over the last three years, more nontraditional players have been acquiring and investing in physician practices.

With this shift in physician-practice ownership models, hospitals and health systems need to reassess their physician alignment strategies based on organizational goals, available resources, practice management competencies and market conditions.

Four emerging investor types and their impact

A new Market Insights report “Evolving Physician-Practice Ownership Models” from the AHA Center for Health Innovation discusses current trends and driving forces in physician-practice ownership models, lessons from nontraditional physician-practice arrangements, and implications for the hospital/health system organizational strategy, physician relationship strategy and provision of care to patients.

The report describes and gives recent examples of four major new investor types:

  • private equity
  • venture capital
  • health plans
  • large employers

Some physician practices may align solely with one investor type, and others may evolve their relationships over time.

As the Market Insights report notes, it is too early to assess the overall impact of these trends on the quality, cost and convenience of care. In the shift to value-based care, private equity firms and new investors can provide physician practices with capital for investments, streamline administrative tasks, use economics of scale for purchasing, improve billing practices, bring in new vendors and provide experienced leadership. What they promise to deliver is similar to what hospitals and health systems are trying to achieve.

While the growing investment in physician practices by nontraditional players may feel threatening to hospitals and health systems, this activity also can be a source of new opportunity and mutually beneficial partnerships. Physician-practice ownership models with a culture that respects physician input and leadership is a win for consumers and clinicians—and the importance of developing strong physician relationships will only grow in the current environment.

Strategic implications for hospitals and health systems

Though the impact of these trends in physician-practice acquisitions will be highly market dependent, they could potentially present both a threat and an opportunity for hospitals and health systems.

Organizational threats include:

  • Increased competition and costs for physician recruitment.
  • Patient care redirected away from hospitals and health systems, including surgeries and inpatient admissions.
  • Competitive physician-led alternative payment models developed directly with insurers rather than led by hospitals.
  • Fragmented care and barriers to health system-driven integrated care models, due to groups that target special populations, special services, and subacute and urgent care.

Evolving physician-practices ownership models also could present opportunities with potential benefits that would allow hospitals and health systems to:

  • Explore opportunities for joint ventures.
  • Explore clinical integration and affiliation models.
  • Expand sites of care.
  • Fill gaps in the care continuum.
  • Divest costly management services organization (MSO) functions.

These organizational threats and opportunities are described in more detail in the report.

Reassessing physician alignment strategies

As health system leaders look at the physician practice merger and acquisition activity in their local markets and reassess their own physician alignment strategies, they may offer a competitive value proposition or otherwise consider what may be more options for fruitful partnership than previously thought. Acquiring or affiliating closely with physician practices can allow health systems to create a network of providers who collaborate on population health initiatives through common care management systems and ensure sufficient scale and control along the care continuum to enter into alternative payment arrangements. Health systems also should consider how contracting with new providers, including virtual providers, may complement their network of physical clinic locations and physician-practice partners.

While the growing investment in physician practices by nontraditional players may feel threatening to hospitals and health systems, this activity also can be a source of new opportunity and mutually beneficial partnerships. Physician-practice ownership models with a culture that respects physician input and leadership is a win for consumers and clinicians—and the importance of developing strong physician relationships will only grow in the current environment.

Mital Patel is senior director, market research and intelligence, at the AHA Center for Health Innovation.

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