As the industry consolidates, health care networks scramble for control of primary care doctors and their patients
| Dr. Richard Dupee chats with a patient after an examination.
Dr. Richard Dupee is old school. Instead of rushing from one examining room to the next as fast as he can, the 68-year-old Dupee is the type of primary care doctor who does a checkup and then lets the patient get dressed and come into his office for a face-to-face chat.
Dupee is also unusual in another respect: His 8,000-patient practice in Wellesley is independent. He may have close ties to the Tufts University School of Medicine and supervise Tufts Medical students at work, but he owns his practice. He refers patients who need additional care wherever he wants. Some go to nearby Newton-Wellesley Hospital and those with more serious problems go to Tufts Medical Center and other Boston teaching hospitals.
Partners HealthCare approached Dupee in 2000 about buying his practice, and there have been many suitors since. Dupee turns them all down. “I’m stubborn and I’m not ready,” he says.
“It’s like professional sports,” says Dr. Ronald Dunlap, the president of the Massachusetts Medical Society, which represents physicians across the state. “The primary care doctors are like free agents in sports.”
The health care industry is consolidating rapidly into a collection of networks, or teams. There’s Partners, Steward, Beth Israel, Lahey, Atrius, Tufts, and others. Each team is trying to assemble a group of players that can work together to provide integrated care to patients at a cost that’s less than the lump-sum payments insurers are increasingly making to health care providers as part of the shift to so-called accountable care.
Each team needs players with different skills. They need community hospitals that provide fairly routine care close to the patient’s home. They need tertiary hospitals to provide more advanced care. They need support workers who can build and run electronic medical record systems for tracking patient care and accounting systems for monitoring revenues and expenses. And they need primary care doctors who provide the crucial link to patients and control where they go for specialty care and hospitalizations.
In many respects, primary care doctors are the quarterbacks of the new health care system, the marquee players that every team is scrambling to sign. Some work under contract, others under lease arrangements, and more and more are becoming employees of the teams. The financial details of these employment arrangements are tightly held secrets, but rumors abound of signing bonuses, lavish incentives, and big paydays. The health networks—the teams—scoff at such reports, but many of them quietly whisper that their competitors are offering physicians outlandish deals.
As the state’s health care industry consolidates, regulators and the media have focused most of their attention on high-profile hospital mergers and acquisitions. But the pursuit of primary care physicians may eventually have a more profound impact on health care. Those networks that control the most doctors will control the most patients, and with them will come more revenue, more referrals, and more leverage in negotiating reimbursement rates with insurers.
Most patients assume their primary care doctor works for them, an independent agent who treats their aches and pains and steers them to hospitals and specialists when their ailments become more severe. But increasingly doctors have other allegiances, and the question that’s starting to be raised is whether those other allegiances will affect how they care for their patients. No one really knows, but it’s clear the physician landscape is changing.
“In 10 years, there will hardly be a single independent primary care doctor left,” says Dupee. “They will be owned or employed by a hospital system. This business model is done.”
Partners HealthCare is the clear frontrunner in the primary care physician sweepstakes. According to 2012 data compiled by the Blue Cross Blue Shield of Massachusetts Foundation, the health care giant’s physician arm controls 1,165 primary care doctors. Its next closest competitors are Steward with 559 and Atrius with 518. Beth Israel Deaconess, Tufts, UMass Memorial, and Boston Medical Center are all in the mid-300s.
The numbers indicate the state’s primary care doctors are controlled—through affiliation agreements, contracts, or employment—by a relatively small number of health care networks. There are 7,440 primary care doctors licensed in Massachusetts, but more than 1,800 of them are in tiny one- or two-person practices or are no longer practicing. Of the remaining 5,580 primary care doctors, 71 percent are concentrated in just eight networks, which means the hunt for doctors is largely a zero-sum game. A network growing its roster of doctors must do so by snatching them away from competitors.
Steward garnered a lot of attention in 2011 and 2012 when it lured physician groups on the South Shore, in New Bedford, and in Newburyport away from Partners and Beth Israel. Beth Israel made news in March when it won back the Newburyport physician group it had lost to Steward.
As health care networks court physicians, they offer sales pitches and financial inducements. Most of the networks are happy to talk about their sales pitches, but they are not as forthcoming about the monetary incentives they offer.
In an email response to questions, Steward spokeswoman Brooke Thurston says the company pays nothing directly to the physicians it acquires. She also dismisses reports that the company offers doctors revenue guarantees. In its latest financial statement, Steward reported spending $6.8 million acquiring unnamed physician practices in 2012. Of the total, $2.6 million went for tangible assets such as office space and equipment. The remaining $4.2 million went for “goodwill,” an accounting term for intangible assets. In this case, Steward defined goodwill as “access to long-term patient, employee, and physician relationships.” Presumably the goodwill money went to the practices, which in turn funneled the money to individual doctors.
Most of the big health care networks in Massachusetts are dominated by hospitals. Partners, for example, owns Massachusetts General and Brigham and Women’s hospitals in Boston, a slew of smaller community hospitals around the state, and a physicians group called Partners Community HealthCare Inc. Steward, Lahey Health, Beth Israel Deaconess, and Tufts have similar organizational structures.
The big advantage of the hospital networks is that they own all the elements of a health care delivery system, which theoretically makes managing those elements easier. The hospital networks also offer stability, economies of scale, and highly visible brand names.
“In general, what motivates a physician right now is sustainability, an organization that will be around for the long haul,” says Lynn Stofer, the president of the Partners physician network.
The perceived downside of the hospital networks is the perception that they are more interested in filling hospital beds than delivering care in the most cost-effective setting possible.
Atrius offers a clear alternative to the hospital networks. Atrius is a doctor-run organization, a confederation of physician practices that has banded together to coordinate care for patients. Instead of owning hospitals, Atrius contracts with hospitals to provide the care its patients need. The approach means Atrius has less control over its network, but leaves doctors in charge of managing care.
Guy Spinelli, the chairman of Atrius, says the trust proposition in health care stems from the doctor-patient relationship. He says Atrius appeals to physicians because it puts them first. “Our doctors want to be in charge of their practices,” he says. “It makes us attractive.”
Insiders say Atrius has struggled to control costs. Its doctor-first approach was also undercut by merger talks it held with Lahey Health and Beth Israel Deaconess. Those talks ended in failure in February.
| Jeff Hall, the spokesman for Local 1199 of the Service Employees International Union, which
represents workers at Quincy Medical Center.
BIDCO, Beth Israel’s physician arm, offers a hybrid model, an approach that some hospital networks employ. Beth Israel owns hospitals and physician groups outright, but it also allows doctors and hospitals to affiliate with the organization without giving up their independence.
“BIDCO is an attractive model for physicians,” says Christina Severin, who heads BIDCO. “It gives them scale without sacrificing their autonomy.”
Free agency try-out
Pentucket Medical Associates, a physicians group with offices in Lawrence, North Andover, Newburyport, and Georgetown, still had a couple years left to run on a contract with Partners. But with the health care market changing rapidly, Pentucket decided to test free agency last year.
Dr. Thomas Fazio, the president of Pentucket, says the health care market over the next three to five years will be shifting from the old fee-for-service model to the new accountable care approach, where health care providers will have to shoulder more financial risk in caring for patients.
“Change in any business causes angst,” Fazio says. “We looked around to see what would be best for our patients and our doctors in this new world. We explored what would be the right fit for us.”
Sources say Pentucket aligned itself with Lawrence General Hospital and the two put themselves in play. Suitors, including Lahey Health, quickly began knocking on their doors, knowing full well they would have to pay Partners a fee if Pentucket withdrew from its contract early.
Pentucket’s best selling point was its dominance in the Merrimack Valley and its 100,000 covered lives, an insurance term that in this case refers to the patients under Pentucket’s control. “Having covered lives is where the action is,” says Fazio. “The more covered lives you have, the less risk there is.”
None of the parties would talk about Pentucket’s free agency, but sources say bidding for the physicians group was spirited. One source said the bids reached into the tens of millions of dollars. The source said the process ended with Pentucket agreeing to stay with Partners, but only after Partners agreed to buy the practice and make all of the doctors employees. Negotiations on the purchase are still ongoing, but one person familiar with the competition for Pentucket likened Partners’ winning bid to driving a Brinks truck up to the physicians group and unloading it.
Stofer, who heads the Partners physicians group, declined to discuss details. “We’re talking about ways to get closer,” she says of the negotiation between Partners and Pentucket.
Fazio says he is pleased with the outcome, but is tight-lipped about the financial arrangement. “The details of that are private and, frankly, they’re complicated,” he says.
An inherent tension
In January, a federal judge in Idaho issued a decision that highlighted both the pros and cons of physician acquisitions. Judge B. Lynn Winmill said the nation is moving away from a fee-for-service health insurance reimbursement model to one that rewards providers for keeping patients healthy and delivering care in less expensive settings. “Such a system would move the focus of health care back to the patient, where it belongs,” he wrote.
Winmill applauded St. Luke’s Health System of Boise for embracing the new model and acquiring physician groups to provide integrated patient care. Yet he nevertheless voided St. Luke’s acquisition of a 41-member physician practice in Nampa, Idaho, because he concluded the purchase would give the hospital system control of 80 percent of the primary care doctors in the area, an anticompetitive level of dominance in the market that would theoretically allow it to negotiate higher reimbursement rates from insurers and raise rates for services such as X-rays.
In essence, the judge concluded that physician acquisitions designed to improve patient outcomes and decrease costs could end up squeezing competitors and driving up costs. This inherent tension is present with nearly every physician acquisition. It makes sense to integrate care more effectively, but it can also be seen as anticompetitive, a move to seize market share and steer referrals.
Dr. Richard Nesto, chief medical officer at Lahey Health in Burlington, says referrals play an important role in physician acquisitions. He says hospital-dominated networks all want to provide care in the most cost-effective setting, but they also want to keep their hospitals full. Because they know there will be fewer referrals to more expensive tertiary hospitals in the future, Nesto says the hospitals need a larger patient base to compensate.
“You need many more primary care doctors to produce the same number of patients that need tertiary care,” he says. Nesto says this scramble for patients is the driving force behind most physician acquisitions. “It’s a feverish race out there,” he says.
Steward, a for-profit hospital chain owned by Cerberus Capital, a New York private equity firm, has been on both sides of the physician acquisition issue. In 2011, Steward made headlines by luring Compass Medical, a physician practice with 90 doctors scattered between Braintree and Taunton, away from Partners. In an email, Steward spokeswoman Thurston said the Compass acquisition has increased patient volume at Steward-owned hospitals and brought down health care costs overall.
“We are unable to confirm where that volume had previously been referred,” her email says. “Given our relative cost position to the eastern Massachusetts market (specifically in comparison to Boston academic rates), we believe that any increase in our volume resulted in marked decreases in total medical expenses.”
But Steward finds itself on the opposite side of that argument in Quincy. Granite Medical Group, a Quincy physician practice that is part of Atrius, is sending more of its 32,000 patients to Beth Israel Deaconess-Milton and South Shore Hospital in Weymouth and fewer to Steward’s Quincy Medical Center.
Local 1199 of the Service Employees International Union, which represents many of the workers at Quincy Medical Center, says data it obtained from Steward during labor negotiations indicate the number of admissions to the Quincy hospital from Granite declined 38 percent in the first six months of 2013 compared to the same period in 2012. Union officials worry the referral pattern could lead to the closure of the financially shaky medical center and leave the city of Quincy without a hospital or an emergency room.
While both sides agree Granite is sending fewer patients to Quincy Medical Center, they strongly disagree on why. Jeff Hall, the union’s spokesman, says the evidence suggests Granite is directing patients to more expensive hospitals in Milton and Weymouth because it has a financial incentive to do so. Hall says he doesn’t know the nature of Granite’s contractual relationship with the two hospitals, but he assumes there is one with at least the Milton hospital because Atrius has a contractual relationship with Beth Israel Deaconess. He says it’s nearly impossible to learn the nature of the financial ties between physician groups and hospitals. “It’s a regulatory black box,” he says.
Robert Calway, the chief operating officer of Granite, denies the physician group has a contractual relationship with either Beth Israel-Milton or South Shore Hospital. He says the contractual relationship Atrius has with Beth Israel is only for tertiary care at the system’s Boston hospital.
Calway says Granite is directing more patients to hospitals in Milton and Weymouth in part because patients prefer those hospitals over the one in Quincy. He noted that Quincy Medical Center has suffered a barrage of negative publicity, including a filing for bankruptcy, a nurse’s strike, and a state inspection last year that uncovered squalid conditions in a psychiatric unit for seniors. “Patient preference often drives where a patient is going to be receiving care,” Calway says.
Calway also says Granite’s physicians are directing patients elsewhere because the doctors are being shut out of Quincy Medical Center. In August 2012, he says, Steward ended Granite’s participation in the hospital’s employee health program, transferring more than 300 employees who had been using Granite doctors as their primary care physicians to Steward doctors. Later in 2012, Calway says Steward stopped referring consults for cardiology and gastroenterology patients to Granite doctors and redirected them to Steward physicians. Calway also says Quincy Medical Center won’t give Granite access to medical records of its patients there, which Calway says Granite doctors need to coordinate care.
Hall says the 300 Steward employees who left their Granite doctors did so to take advantage of an inexpensive company health plan that required them to use Steward doctors. He says the change in cardiology and gastroenterology referrals was done only after Steward became fearful that Granite’s new referral pattern was bleeding the hospital of patients.Hall stresses that he is not condemning all physician acquisitions or affiliations, just those that have a negative impact on the local community and result in higher overall medical costs. He says the conversations between a doctor and patient are confidential, but he believes patients have a right to know if a business deal between their doctor and another health care provider is affecting the nature of their care.
“Patients have a right to know about the larger business arrangements that may be influencing where they get referred,” he says.