Health systems reap big rewards by acquiring practices, but physicians aren’t sharing in those benefits, study finds

While the increasing acquisition of physician practices is profitable for hospitals and health systems, a new study indicates that doctors may not derive higher earnings from relinquishing ownership.

The study, published in the December issue of Health Affairs, combined national survey data on physician practice ownership with information on their income to explore whether hospital or health system integration correlated with income differences from 2014 to 2018.

During this time, hospital and health system ownership of physician practices rose by 89.2%, from 24.1% to 45.6% of all doctors in the study’s sample. Among physician practices overall, vertical integration with hospitals or health systems corresponded to 0.8% lower income on average compared with independent physicians after adjusting for multiple variables.

“Vertical integration is a dominant trend in healthcare,” lead author Christopher M. Whaley, Ph.D., a healthcare policy researcher at the RAND Corporation, a nonprofit and nonpartisan think tank in Santa Monica, California, told Fierce Healthcare.

RELATED: Doctors make revenue, productivity gains in Q3, but expenses also tick up, report finds

“There has been a wave of hospitals acquiring physician practices, and that leads to a lot of additional revenue for hospitals and health systems,” he added. “But we find that from a pay standpoint, it doesn’t seem like physicians share in those benefits.”

In a breakdown by physician specialty, vertical integration of physician practices with hospitals or health systems was associated with lower income for nonsurgical specialists, no difference in income for primary care doctors and slightly higher income for surgical specialists.

Hospitals and health systems appear to benefit more from vertical integration than physicians, senior author Anupam B. Jena, M.D., Ph.D., an economist and the Ruth L. Newhouse Associate Professor at Harvard Medical School, told Fierce Healthcare.

“As with any business transaction, there is the question of who wins or loses and by how much,” Jena said. “There are clearly financial and clinical benefits that could accrue to physicians when they are acquired by hospitals, but this research suggests that the financial benefits may be limited.”

The study is significant, the authors highlighted, because “for the first time, more physicians now work for a hospital or a practice in which they do not have an ownership stake than own their own practice.” Hospital or health system ownership of physician practices escalated swiftly between 2007 and 2017, with 10-year growth spanning about 7% for dermatologists to more than 50% for oncologists.

Speculating on the reasons for this growing trend, the authors pointed out that “physician practices may integrate with hospitals or health systems because of concerns about losing referral privileges, difficulty implementing electronic health records (EHRs) or other administrative challenges.”

RELATED: Physician productivity, revenues fell steeply in 2020 due to COVID-19 volatility, Kaufman Hall says

They noted that “in these cases, physicians might not capture much, if any, of the increases in system profits that occur after integration. Under these alternative scenarios, notwithstanding increases in hospital or health system profits after integration, physician compensation could increase, remain stable or decrease.”

Physicians may be “willing to take a pay cut” not only to offload administrative burdens but also to “have a better work-life balance,” Whaley told Fierce Healthcare.

To examine the link between hospital-physician integration and physician compensation, the researchers used three sources of data. They obtained data on physician compensation from the Career Navigator Survey administered by Doximity, an online social network for physicians and other healthcare providers that includes more than 70% of U.S. physicians.

Additional data from Doximity encompassed physicians who have and have not registered for the platform. It was derived from multiple sources, including the Centers for Medicare & Medicaid Services (CMS), state licensing boards, specialty societies and medical schools.

Information on practice ownership during the 2010–18 period came from the SK&A Office-Based Physicians Database provided by IQVIA, a commercial database of healthcare providers, which includes a nearly complete sampling frame of U.S. office-based physicians.

As “the landscape of physician practices” undergoes a rapid evolution from independent ownership toward large multispecialty groups and employment by hospitals and health systems, the authors concluded that “understanding the reasons for and consequences of changes in physician employment is important for both physicians and the broader U.S. health system.”