With 73.9 percent of physicians employed by hospitals or corporate entities at the start of 2022, the sustainability of independent physician practices is being called into question. Factors such as declining reimbursements, rising staffing costs, site-of-service payment disparities and increased regulatory burdens make it difficult for independent practices to invest in technology, expand ancillary services or grow access to care. At the same time, hospital systems enjoy compounding payment increases, while physician payments from Medicare have declined by more than 25 percent over two decades when adjusted for inflation.
Independent practices are left with three options: remain independent and risk gradual decline, become employed by a hospital system or corporate entity, or partner with a financial entity (private equity or a corporate partner) in a Management Services Organization (MSO) to maintain clinical autonomy and physician ownership. Despite the skepticism surrounding private equity (PE), particularly claims that PE increases cost and lowers care quality, evidence shows this perception does not apply to independent physician practices that partner through an MSO. Therefore, is it fair to compare independent physician practices that partner through an MSO to PE purchases of hospitals and nursing homes?
A recent Avalere study examined Medicare costs and care quality across five medical subspecialties in different practice models: unaffiliated private practices, private equity-affiliated private practices (PEAPPs), corporate-affiliated practices and hospital-affiliated practices. The findings suggest PEAPPs deliver cost-efficient and quality care. Medicare expenditures for patients in PEAPPs were, on average, 9.8 percent lower than hospital-affiliated practices. Furthermore, beneficiaries transitioning from unaffiliated private practices to PEAPPs saw an average Medicare expenditure reduction of $963 per beneficiary in the 12 months following the transition. By contrast, those moving from unaffiliated private practices to corporate- or hospital-affiliated practices experienced expenditure increases of $1,140 and $1,327, respectively. When evaluating quality measures, PEAPP patients had 13.5 percent fewer inpatient days and 7.9 percent fewer emergency department visits, compared to hospital-affiliated patients. These data suggest that PE-affiliated independent practices optimize care delivery at a lower cost without sacrificing quality.
The financial entity within an MSO acts as a nonclinical partner, investing in operational efficiencies rather than interfering in clinical decision-making. PE investments are used to implement automation technologies that streamline revenue cycle workflows, reduce claim denials and improve collections. They also enhance the patient experience with self-scheduling tools, mobile payments and electronic communications. Beyond administrative improvements, financial investments help practices expand access to care by funding new clinics, ambulatory surgery centers, on-demand telehealth initiatives and expansion of ancillary service-line offerings in existing and previously underserved patient populations. These resources provide patients with increased access to comprehensive medical care closer to home and reduce costs by decreasing reliance on urgent care and emergency department services.
Steven Kaptik, MD, is the chief medical officer of Washington Gastroenterology and a member of GI Alliance.