The disappearing primary care practice
Driven to sell out by financial woes during the pandemic and ever-increasing administrative tasks, independent clinics are being swallowed up by the behemoths.
When direct primary care provider (DPC) Everside Health in Denver signed an agreement in mid-July to acquire Pennsylvania-based DPC provider R-Health, anyone hoping for an expanded DPC presence in the U.S. took notice.
The merger places clinics in 33 states under the Everside Health umbrella, and creates a DPC presence with capacity for more—and larger—employer groups.
Related: Companies vying for their piece of the primary care market, but which model is best?
In a release, Everside, itself the offspring of several mergers, trumpeted the implications of the merger: “The acquisition of R-Health expands Everside’s presence in the Mid-Atlantic and is another step in its plans to provide better access to care, while also giving R-Health clients access to expanded direct primary care capabilities nationwide. … [Everside’s] tech-driven, value-based business model delivers quality outcomes and cost savings—typically reducing employers’ total health care costs by 17% in three years and 31% in five years, respectively.”
Exciting, indeed. However, is the Everside/R-Health news the exception that proves the rule, or merely the exception to the rule?
Far more common these days than unions of clinics are mergers like those involving UnitedHealth Group’s sprawling empire. In March, its OptumHealth unit swallowed Boston-based medical clinic Atrius Health, the largest independent doctors’ group in Massachusetts. Atrius was hit hard by the COVID pandemic, as were many independent medical clinics. But even before the lockdown, Atrius experienced financial challenges, and its practitioners were already facing administrative task burnout.
Now, Atrius physicians can concentrate on practicing medicine. Free of their administrative burden, they can focus on patient care.
Or so the theory goes. But all too often after a merger, clinicians find they are no longer in charge of patient care. Referrals are expected to be made within the new ownership entity, and the number of patients that must be seen per day actually increases for many as they race to meet the financial expectations of the new bosses.
“These mergers are never good for the plan member,” says Rachel Miner, founder of Thrive Benefits in Charlotte, North Carolina. “Anyone backing one of these systems is going to run it like a business, and it will never be a win-win for the member. The only person who wins is the one who invests in it.” Welcome to health care consolidation 2021. Behemoth insurers, health systems, and private equity investment groups are racing to ingest as many clinics as possible. Meanwhile, DPC groups like Everside are expanding through acquisitions or mergers as quickly as they can in an attempt to preserve independent medical practices.
Consolidation threatens plan design innovation
From an employer-sponsored plan perspective, the rapid consumption of clinics by huge players does not serve employees well. Just as new benefit models are emerging that emphasize ease of access to primary care and referrals to top-quality specialists and health systems, these mergers are forcing doctors to refer patients internally.
Brokers who have broken away from the traditional model are also troubled by the trend. Clinic consolidation puts more power in the hands of the major insurers and health systems that tend to resist changes in benefits plan design.
But for the independent medical clinic owner, exhausted by COVID and overwhelmed by ever-increasing administrative responsibilities, selling out often appears to be the only way to preserve jobs and get back to practicing medicine.
“Consolidation is a trend that will continue, because clinics are financially strapped, and that has made them more open to offers from private equity, insurance, and hospital companies,” says Wendell Potter, a former Cigna executive turned author and leader of the nonprofit Business Leaders for Healthcare Transformation. “COVID really accelerated the trend. I doubt that it is a preference for doctors to be an acquired practice. But if they receive an offer they feel they can’t turn down, they will sell.”
And that is exactly what many have been doing. The trend was already accelerating when COVID placed even more strain on the private practices. Now, clinic managers are rushing into the open arms beckoning them inside.
The physician’s dream of healing patients in a standalone clinic has increasingly become a nightmare of keeping the clinic lights on. As the financial pressure and administrative burdens of the independent practice manager continue to build, it can almost seem foolish not to sell out.
The big payoff
Most fee-for-service clinics are eventually owned by an insurer or a health system, says Nurse Deb Ault, president at Ault International Medical Management. “I don’t know any physician practices that are super eager to be bought by an insurance company,” she says. “The reason they sell to them: If you look at the multiples, it is always higher with an insurance company. Next best deal is from a private equity buyer, then a hospital system. But the private equity groups know they can consolidate clinics and then resell them to insurers for a higher price.” What’s driving this consolidation? The real payoff for the buyers isn’t clinic revenues, but referrals within the buyers’ systems and networks.
“The hospitals love small primary care clinics, not because they instantly make a lot of money from them. They don’t,” says Rhea Campbell, co-founder of ImagineMD, a Chicago-based DPC. “They generally lose money buying the clinic. But then they get the referrals to their system, which is worth millions over time.”
In addition, the hospitals can change billing codes for the clinic to match theirs, which are higher than the clinic’s. As a result, more money rolls in.
Insurers likewise insist upon referrals to networks they partner with. The doctor’s freedom to refer elsewhere still exists, but the new owner won’t cover the cost of treatment outside the network. The result is a more rapid movement toward ever-narrower networks.
“As health plans with narrow networks scoop up the independent clinics, moving from broad to narrow networks is the trend. When there’s a merger, the hospital is steering more patients to themselves,” says Mike Hill, corporate insurance consultant for business owners with Coldbrook Insurance Group LLC, Holland, Michigan. “But think about it: Can one health system be the best at everything? That’s just not possible. But if you want to merge, you have to give up the right to refer to the specialist or health system you think is the best.”
Can DPC expansion offset the trend?
The price of independence has simply become too high for most practices. “The independent fee-for-service clinics are going to disappear. They can’t make enough money, and it’s a really hard business to run,” says Campbell. “But there are enough alternative models out there that can make it. You just need another revenue stream model.”
The slow but steady growth of DPC practices offers one of those alternatives, primarily for employer groups. The DPC model markets itself to self-funded plan sponsors as a better way to control costs and to improve overall plan population health.
Fee-for-service is replaced by a per-member, per-month payment by the sponsor. With a focus on better utilization of primary care services at on-site or near-site clinics, the DPC model promises stronger patient-clinician relationships. Doctors are incentivized to spend as much time as they need with patients, rather than attempting to see four patients an hour, as dictated by the fee-for-service model. Referrals are made to specialists and medical centers with high outcomes ratings, as opposed to the internal referrals “preferred” by insurers and health systems that own clinical practices.
That’s the model ImagineMD offers to prospective clients. Founded in 2016, it initially served individuals. But Campbell and co-founder Alex Lickerman, M.D. always set their sights on employer-sponsored plans.
Today, they have two clients in Chicago, with a third coming on. Campbell says starting a DPC from the ground up has been a challenge. “Anyone who thinks they can do this had better have some deep pockets. The employer sale is a long one; it’s a mountain to climb. But Alex had worked in a hospital system and saw how broken it was for patients. This is our legacy,” she says. “We’re committed to making it work.”
Helping clinics remain independent
Another organization bucking the clinic consolidation trend is Clinical Wellness Network. Founded by Dan Thompson, the network is a national DPC that supports private practices by helping them find employer plans to serve.
Thompson envisions continual growth for his already nationwide enterprise, which serves individual and corporate clients.
“Our mission is to provide access to quality, affordable health care for as many people as we can. Our big audacious goal is to help 1 million people. The direct care model lowers financial risk to a participating employee of a health plan with a high deductible by removing the deductible that has become a barrier to care,” he says.
Ault serves as the company’s Medical Management Guru, and is in charge of a team of nurses who coordinate care for plan members. The model is designed to eliminate most of a clinic’s administrative burden while increasing its revenue.
“Hopefully, because we are driving so much business to clinics through subscription fees, we are making it lucrative for the clinicians to remain private,” she says. “None of them want to give up their independence, but most think they don’t have a choice.”
Can such new models for clinicians stem the tide of consolidation? Miner doesn’t think so—at least in the short run. She says employers are intrigued by DPC, but are still awaiting more evidence that it saves them money and improves plan member health. “It will still be a while before employers embrace direct primary care,” she says. “There isn’t enough data on cost-saving yet.”
So the consolidation won’t abate any time soon, she predicts. “There is light at the end of the tunnel, but not right away,” she adds. “The COVID pandemic scared a lot of small businesses, including clinics. Consolidation will continue for another three years. Then you’ll see a mass exodus back to private practice, as the doctors look to become independent again.”
In the meantime, benefits advisors like Miner and Hill will continue to push their clients to sign up for benefits plans that reward high-quality performers and encourage employers to question traditional health insurance models.
“There is absolutely no doubt that health systems push to minimize leakage of patients, and those with a health plan are designing health plans that push to keep more patients in the system,” Hill says. “Objective quality measures are completely missing from the discussion, which is why it is imperative that employers implement a plan that is hyper-focused on getting members to the highest quality providers, regardless of health system.”
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