Published 9/9/2024
The American Association of Orthopaedic Surgeons (AAOS) authored a comprehensive white paper in April outlining consolidation trends in U.S. healthcare and providing mitigation strategies for Congress to address the issue. According to the white paper, the Physicians Advocacy Institute (PAI) found that consolidation is trending upward, with an estimated 70 percent of physicians now working for a hospital or corporation rather than in private practice, which is up 25 percent since 2019. Increasing administrative burdens, rising overhead costs, and declining physician reimbursements are all fueling consolidation in healthcare. This trend toward consolidation is driven by multiple factors, and its consequences are far-reaching and concerning for healthcare accessibility.
“As an orthopaedic surgeon in private practice, I’ve experienced firsthand the growing pressures to consolidate and have seen colleagues reluctantly sell their practices,” said Adam J. Bruggeman, MD, MHA, FAAOS, FAOA, chair of the AAOS Advocacy Council. “Although joining a larger system can offer financial stability, it often comes at a significant cost. The impact of a single surgeon joining a consolidated system can create downstream effects, driving up costs for employers and patients alike, and this is happening in communities across our entire nation. We need solutions that tackle consolidation and allow not just independent practices but all physicians to thrive, ensuring patients have access to high-quality, cost-effective care in their communities. This white paper, developed at the request of Congress, offers in-depth analysis and practical solutions to address the critical issues surrounding healthcare consolidation.”
Why is consolidation a problem?
Consolidation of independent practices with large hospital systems can lead to increased prices for patients and payers due to a lack of competition in the market. For example, the costs of knee replacement and lumbar spine fusion are approximately 30 percent higher in concentrated markets versus competitive markets. Other studies mentioned in the white paper reported similar findings, further demonstrating the extent to which consolidation drives up prices across the board.
Unfortunately, the factors driving consolidation disproportionately impact smaller, independent practices; rural physicians; and those serving low-income and marginalized communities. Access to care for the most vulnerable patients is jeopardized, as many practices have no choice but to consolidate with larger healthcare systems, which are better insulated from financial pressures and regulatory burdens.
What are the solutions?
The white paper outlines numerous solutions that would promote competition and tackle the rampant consolidation in healthcare that is unfolding across the United States. First and foremost, Congress must stabilize Medicare reimbursement for physicians. Although the cost of running a medical practice has skyrocketed, Medicare payments have not kept pace, forcing many physicians with independent practices to consolidate with larger healthcare systems.
Year after year, physicians grapple with yet another cut to the Medicare Physician Fee Schedule (MPFS). On Jan. 1, physicians faced a 3.37 percent cut to reimbursements. Although AAOS appreciated Congress’ efforts in March to reduce the cut by half for the rest of the year, short-term legislative fixes only kick the can down the road without addressing the underlying instability of the Medicare payment system. Providing physicians with a full inflationary update tied to the Medicare Economic Index (MEI) is a necessary first step to stabilize the MPFS. For this reason, AAOS urged Congress to pass the Strengthening Medicare for Patients and Providers Act (H.R. 2474), which would accomplish this goal.
Raising the budget neutrality threshold under Medicare Part B would also help stabilize Medicare reimbursements for physicians. The Omnibus Budget Reconciliation Act of 1989 contained a provision mandating that any upward payment adjustments or the addition of new procedures that would increase spending by $20 million or more must be offset by cuts elsewhere in the MPFS. Even worse, budget-neutrality requirements force the various medical specialties to be pitted against each other.
Congress must also examine site-neutral policies, which have long been woven into the fabric of Medicare and Medicaid and have bred inefficiencies and fueled a wave of physician practice acquisitions by hospital networks due to payment disparities. AAOS maintains that it is crucial for any cost savings generated from reforms to site neutrality to be reinvested into physician payment to provide an inflationary update to the MPFS (as measured by the MEI) to ensure long-term stability and address the inherent advantages that large healthcare systems have over independent physicians and smaller practices due to their sheer scale and resources. Bringing physician pay up to pace with inflation would not only reduce consolidation but also, and more importantly, level the playing field and allow physicians to practice in the setting that is best for them, their patients, and their broader community.
Another solution to tackle consolidation is to repeal the moratorium on building new or expanding existing physician-led hospitals. Physician-led hospitals are an important component and competitive force within the U.S. healthcare system and ensure that patients receive the highest-quality care at the lowest cost. In fact, a recent study found that, when examining the total cost of care for 20 of the most expensive health conditions, physician-led hospitals would have generated approximately $1.1 billion in savings in 2019 compared with traditional hospitals.
Finally, the United States must increase investment in the next generation of physicians to preserve a strong physician workforce and maintain patients’ access to high-quality care. The cost of medical education continues to rise, as does medical student debt. Congress must ease this burden on aspiring physicians to set them up for success. With less financial strain, future physicians will be empowered to choose practice settings that best suit their skills and interests, including private practice. This financial freedom not only promotes competition in the healthcare market but also enables physicians to focus on providing the highest-quality care to their patients. Ultimately, addressing the debt burden for medical professionals is an investment in better healthcare outcomes for all.
If implemented effectively, these proposed solutions, including a few additional legislative and regulatory remedies outlined in the white paper, can provide meaningful, long-term reform that will promote competition and drive down healthcare costs, ultimately allowing physicians to better serve their patients.
The AAOS Office of Government Relations continues to share this white paper with members of Congress and their staffs to educate them on the issue of consolidation and advocate for policies that not only preserve patients’ access to high-quality care but also empower physicians to practice in the setting best for them.
References
- Physician Advocacy Institute: COVID-19’s Impact on Acquisitions of Physician Practices and Physician Employment 2019–2020. Available at: https://www.physiciansadvocacyinstitute.org/Portals/0/assets/docs/Revised-6-8-21_PAI-Physician-Employment-Study-2021-FINAL.pdf?ver=K6dyoekRSC_c59U8QD1V-A%3d%3d. Accessed July 1, 2024.
- Robinson JC: Hospital market concentration, pricing, and profitability in orthopedic surgery and interventional cardiology. Am J Managed Care 2011;17(6):e241-8.
- Becker’s ASC Review: Physician-owned hospitals could save $1B per year. Available at: https://www.beckersasc.com/asc-transactions-and-valuation-issues/physician-owned-hospitals-could-save-1b-per-year.html. Accessed July 1, 2024.