Physician Practices in Rural Areas Being Acquired by Hospitals at Dramatic Rate

Within the past 3 years, hospital employment and hospital ownership of physician practices has increased in both urban and rural areas, but growth in the number of rural practices owned by hospitals has significantly outpaced that in the urban setting (102.6% growth among rural practices vs 77.8% growth for urban practices), according to an October 2016 report, “Physician Practice Acquisition Study: National and Regional Employment Changes,” written through a partnership between Avalere and the Physicians Advocacy Institute (PAI). The partnership is examining trends in physician employment and practice ownership in hospitals and health systems.

Increasingly, physicians practice in the context of employment arrangements with health systems and hospitals, according to the report. There has been continued growth in hospital and health system acquisitions of physician practices, typically involving multiple physicians and acquisition of the practice’s physical building/equipment; and sustained increases in the number of individual physicians entering into employment arrangements with hospitals and health systems.

Highlights of the report are as follow:

• There has been a significant, nationwide shift in the number of physicians leaving private practice and entering into employment arrangements with hospitals and health systems.
• There has been a dramatic increase in hospitals and health systems employing physicians and acquiring physician practices over a 3-year period from July 2012 to July 2015.
• From July 2012 to July 2015 the percentage of hospital-employed physicians increased b almost 50%, with increases in each 6-month time period measured over these years.
• All regions saw an increase in hospital-employed physicians at every measured time period, with a range of total increase from 75% to 114%. The number of hospital-employed physicians increased from 95,000 in July 2012 to more than 140,000 in July 2015.
• Hospital or health system ownership of physician practices grew by 89% from 2012 to 2015. In the 6 months from July 2014 to January 2015 alone, 13,000 physician practices were acquired.

Although there are differences across regions, there is a steady trend toward increased employment and hospital ownership of practices in every region of the nation.

Hospital ownership increased from 2011 to 2015. All regions have seen rapid growth in hospital employment and practice ownership. The share of hospital-employed physicians was greatest in the Midwest, where more than a third of physician practices were hospital owned in 2015.

The shift toward employment has significant implications for physicians, but also impacts patients and the system as a whole, the report notes. For physicians, the trend brings challenges but can alleviate certain burdens of independent practice, the report notes. Government and private payer-payment policies increasingly favor integrated health systems and make it challenging for physician practices to remain independent.

“For patients, this trend may impact where they receive care and also how much they will pay in cost sharing,” according to the report.

Finally, the report noted, the site of service delivery impacts spending because there is a differential in Medicare payment for services routinely performed in hospital outpatient department and physician office settings.