An Argument for Hospital-Physician Consolidation: Costs Could be Worth It

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Hospitals and health systems nationwide are acquiring physician groups and integrating with them at a faster pace than in the past. This trend has left very few independent physicians in the U.S. — in fact, about 39 percent of physicians were independent in 2012, compared to 57 percent in 2000.

Since the Patient Protection and Affordable Care Act was upheld by the Supreme Court in 2010, these acquisitions can be seen as strategic for all parties in order to succeed under healthcare reform. "The government has been pushing for this consolidation," says Max Reiboldt, CPA, president and CEO of the Coker Group. "[The government] promoted it through Obamacare and, like it or not, we're going down that road."

However, that consolidation could have a negative impact on healthcare prices. According to a recent American College of Physician Executives survey, about one third of surveyed physician executives said costs went up after their hospital or health system bought a medical group or practice. Just 5 percent said costs decreased after an acquisition.

"It certainly has some validity because you take away the competitive element [when groups] join together," Mr. Reiboldt says. However, the future fruits of hospital-physician consolidation may be worth a slight initial cost increase. "Consolidation of hospitals and physicians into more of a seamless provider base…would lend itself to better efficiencies," he explains. "It eliminates duplicative [care] and leads to a more efficient delivery [system] and saves expenses."

In other words, hospital-physician consolidation, if done to achieve coordinated care, will eventually bend the healthcare cost curve in the right direction. "I would say…consolidation with appropriate checks and balances is needed in our healthcare industry," says Mr. Reiboldt.

Alternatives

Even though hospitals' acquisitions of medical groups could eventually lead to lower costs in healthcare, Mr. Reiboldt is quick to say acquisition and employment is not the only strategy hospitals can deploy for success under healthcare reform. Instead, more hospitals and health systems can consider a clinically integrated organization or network with physicians.

"If you leave the physicians… [as] an independent practice entity, they're probably going to have a little more consciousness of cost control in their practice and get better results," Mr. Reiboldt explains. However, he also points out that every hospital has to look at their own metrics and situations when evaluating a physician alignment strategy.

If hospitals and health systems continue to pursue physician group acquisition as their alignment strategy of choice, then healthcare costs may indeed increase in the short term, but the increases may be one of the most effective ways to cut healthcare costs for good. "If we're ever going to get cost under control, consolidation is a pretty reasonable thing."

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