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By Heather Johnson, Senior Analyst

The COVID-19 pandemic is fundamentally changing healthcare delivery in the United States, from the acceptance of virtual physician visits to payment reform, and from the consolidation of integrated delivery networks to the very survival of independent physician practices. The resultant healthcare environment will be one that is more integrated into daily life with provider reimbursement tied to value-based, patient-centered care.

To assess how these changes are playing out, we examine the following topics in a series of three blogs: physicians (below), telehealth and IDNs. 

So many of the country’s physician offices are in a financial bind due to COVID-19-related losses that the United States may face a dilemma when it comes to healthcare access. It’s likely current physician ownership models will morph into greater corporate ownership, with national payers, private equity firms, and retail chains absorbing practices or offering alternatives.

Physicians consider acquisitions to shore up revenue    

Left with several months of lost income, physicians must turn to viable financial models for the future. Small and single-physician offices face the highest financial burden, leaving many to either close, file for bankruptcy, or adopt a more creative reimbursement strategy. Federal funding from the Coronavirus Aid, Relief, and Economic Security Act largely went to hospitals, while upfront Medicare/Medicaid payments doled out in the spring acted as temporary loans. The possibility of more federal aid is in question as Congress debates the issue.

Physician offices in less-populated areas or within underfunded urban areas likely have concerns about the future. Within a market-driven system, help commonly comes from private equity firms or insurers and integrated delivery networks looking for employed physicians.

Similarly, IDNs based in metro areas may not have the incentive to acquire struggling rural practices. Insurers like UnitedHealthcare and Humana, which have also been acquiring physician practices at a rapid clip, have the most incentive to support groups in areas with limited access to keep members healthier and avoid more expensive care interventions.

Value-based contracts offer consistent income

Meanwhile, the number of physicians willing to accept capitated rates through HMO-style products, such as the expansive care coordination payments offered by Blue Cross Blue Shield of Michigan, could increase significantly as physicians seek the security of consistent monthly revenue based on an attributed patient base instead of fee-for-service, which can vary based on pandemic-related shutdowns.

Concierge medicine appeals in wealthy areas

Subscription model offices could see growth as well, and give physicians added patient volume, as long as enough patients are willing to pay out-of-pocket for extra attention. Umbrella organizations like Direct Primary Care Coalition, Iora Health, and MedLion coordinate concierge practices across the country. This model offers even more potential when tied to a sought-after health system. San Francisco-based One Medical partners, for example, works with integrated delivery networks to grow its volume and revenues, including systems like MedStar Health in greater Washington, D.C.; Providence St. Joseph Health in Portland and Orange County, California; UCSF Health in San Francisco and San Diego; Mount Sinai of New York in New York City; Dignity Health in Phoenix; Advocate Aurora in Chicago; and Emory Healthcare in Atlanta.

Retail clinics bring competition

Just as physicians face greater financial pressure, they also face more competition from clinics staffed with advanced practice providers, including an expansion planned by CVS, which plans to open 1,500 HealthHUB locations by the end of 2021. The HealthHUB clinics pave the way for a narrow network for the company’s Aetna members, possibly reducing more revenue from physician offices.

Other clinic expansions from Walmart and Walgreens include physician-led clinics, but with lower-cost services that could limit physician reimbursement. Walmart plans more stand-alone health centers— which include primary-care, labs, and imaging services—in Florida, adding to locations in Georgia and Arkansas. Meanwhile, Walgreens has partnered with Illinois-based VillageMD to open 500 to 700 primary-care clinics, another source of competition for stand-alone practices.

Consolidations could enter rapid phase

Physician practices may emerge as a prime acquisition target since many of these small groups are not subject to merger reporting and anti-competition requirements. IDNs and insurers may target unconsolidated markets first, acquiring physician practices as a way to increase control over healthcare delivery. Federal regulators, including Federal Trade Commissioner Rohit Chopra, warned these power grabs could increase healthcare costs in an August 5, 2020, hearing in front of the Senate Commerce, Science and Transportation Committee.

Key takeaway: Watch for increased consolidation of physician office ownership in 2020 and 2021. Payers and providers want to ensure widespread access and avoid the long-term health consequences of avoiding care. And, the wave of consolidations sweeping through IDNs and insurers won’t stop at the physician office, especially when primary care is essential to achieving population health goals and success with value-based contracts.