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Health System-Physician Alignment is Being Disrupted. What Does the Medical Group of the Future Look Like?

At their graduation, how many medical students look forward to working for Optum, CVS, Walgreens or private equity? Would we ever have predicted the massive realignment of physicians that’s occurring today? The shift from independent physicians to employment has been occurring over the past 20 years, but most expected those employers to be health systems. Now payers, retail, and private equity have been gobbling up primary care physicians to gain attributed lives and manage risk, or in the case of specialty groups, to carve out ancillary revenue. As some of these deals start to come apart, for example, Walgreen’s has closed 140 Village MD clinics with plans to close more and Walmart has recently announced plans to shutter 51 healthcare centers and its virtual care offering. On the flip side, One Medical appears to be pushing for more growth and more health system partnerships.

 

We now ask, what is the long-term role of the health system in physician employment? And with the recent FTC ruling on banning non-competes, will there be new opportunities or great instability?

 

For health systems, there is a compelling need to maintain alignment with primary care and specialty physicians, whether through employment or durable relationships with independent groups. But, without a specific strategy, don’t assume that your current physician relationships will remain stable. The big risk is that that payers and other physician acquirers are increasingly in a position to take margin and commoditize inpatient care – further threatening the long-term sustainability of already fragile hospital systems.

 

First, why the increased vulnerability of physicians to greener grass? Since 2001, Medicare Part B payments have trailed inflation by 26%. On top of that, the COVID-19 pandemic ushered in professional revenue instability as the lockdown reduced elective demand for physician services. Burnout is now endemic and not improved post-COVID. On top of that the growing requirements placed on physician practices for IT infrastructure, quality and outcomes reporting requirements, and widespread challenges recruiting and affording office staff make sustaining day-to-day operations increasingly difficult. Lastly, small to mid-size physician groups are rarely positioned to successfully negotiate favorable payer terms forcing then into a “do more with less” cycle.

Market Dynamics are Disrupting Models of Physician Alignment

  • Payers, retail and private equity aggregators are aggressively swooping in to acquire primary care physicians to gain attributed lives and manage risk, as well as specialists to capture ancillary revenue.

  • New trainees favor the predictability and work-life balance of employment over independent practice.

  • COVID-19 income instability is driving physicians to seek more stable revenue models.

  • It is increasing difficult for small to mid-size physician groups to negotiate favorable payer terms. In addition, medical groups rarely have the infrastructure to successfully manage risk.

  • Shortages of staff and higher labor costs are making day-to-day operations difficult. Available staff are attracted to more lucrative health system positions.

  • Burnout is continuing to increase post-COVID.

  • Clinical care models are shifting and therefore require broader infrastructure (for example, virtual care, digital engagement).

  • IT and analytics infrastructure to support patient care, quality and outcomes reporting, and population health management require scale and funding that is cost-prohibitive for most independent groups.

So, as a health system, are you doing enough? What should be the guiding principles? As medical group leaders focusing on the important work of advancing clinic operations, we shouldn’t forget these important strategic goals. 

 

  • Focus on restoring the joy of clinical practice by keeping clinicians and patients at the center of everything!

    • Eliminate unnecessary administrative burdens wherever and whenever possible.

    • If you haven’t yet, move forward with implementation of AI-based point of care documentation solutions. They are the single most transformational changes occurring to advance the experience of the PCP.

    • Recognize that an organizational culture in which physicians are engaged, with meaningful voice, is not just desirable, but essential. We must reverse the feeling of loss of control, one of the drivers of burnout.

  • Review, challenge and redesign relationships with employed and independent physicians:

    • Establish joint planning that spans health system and physician practices.  There needs to be a deliberate approach that considers health system M&A, related practice acquisition, and traditional recruitment strategies.

    • Align operating goals across service lines.

    • Develop new funds flow models with aligned incentives around key priorities.

    • Proactively assess the potential impact of the non-compete ban – it will surely be challenged but be prepared in any case.

  • Be bold in developing stronger and more tightly clinically integrated physician networks.

    • Growth through mergers and acquisitions.

    • Explore next level clinically integrated alignment models. It’s no longer about the structure of a CIN, it’s about achieving strategic alignment and high performance.

    • Consider mergers of existing networks to form super CINs to benefit from operational efficiencies across a broader patient service area.

  • Ensure long term financial viability for physicians through a coordinated payer contracting strategy.


Lastly, a comment that academic health systems, often with large faculty practices, have increasing risk due to these market disruptors. Most academic systems rely on a community network of primary care physicians and specialists to support their specialty-focused departments. Those PCPs and specialists are at risk of being realigned – so act now, while opportunity still exists to stabilize and strengthen those relationships.

 

In summary, the medical group of the future holds great promise if you:

 

  • Restore the joy of clinical practice

  • Address the long-term financial viability of the medical group

  • Ensure strategic alignment with health system partners through shared planning

  • Minimize administrative burden

  • Focus on growth of attributed primary care lives

  • And of course, continue to streamline operations

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