The healthcare industry has experienced a significant increase in consolidation, with independent practices seeking alternative models to achieve economies of scale while maintaining clinical autonomy.
A report from the American Medical Association states that a key factor influencing physicians" decision to sell their practices is the ability to negotiate higher payment rates with insurance companies. This trend is driven by financial incentives and the growing complexity of regulatory and administrative requirements imposed by payers.
However, the consolidation trend in healthcare can lead to reduced competition, higher costs, and diminished access to care, which has implications for the overall quality of life and economic health of communities.
Hospital mergers and acquisitions have been on the rise for the past two decades, with a notable increase since 2010. Despite a temporary slowdown due to the COVID-19 pandemic, the momentum has rebounded, with cross-market mergers becoming more common as health systems aim to diversify their portfolios and strengthen their bargaining power.
Pennsylvania has seen a significant amount of merger activity, with seven hospital and health system deals announced or completed in 2023 alone. Major deals include Tenet Healthcare selling its majority interest in Brookwood Baptist Health for $910 million and Novant Health acquiring three hospitals and their affiliated physician clinics from Tenet for $2.4 billion.
The merger between Jefferson and Lehigh Valley Health Network aims to create a 30-hospital system with over 700 care sites, while BJC HealthCare"s merger with Saint Luke"s Health System has resulted in a 28-hospital system with $10 billion in revenue, serving more than 6 million patients across multiple states.
The Federal Trade Commission (FTC) has increased its scrutiny of healthcare mergers under the leadership of Chair Lina Khan, blocking several high-profile deals since 2020. This has prompted health systems to explore expansion opportunities beyond their traditional service areas.
As larger healthcare entities expand, smaller practices and ambulatory surgical centers (ASCs) often feel compelled to sell or merge to remain financially viable. The number of physician practices owned by hospitals and corporate entities has surged by 46% from 2012 to 2024, raising concerns about potential facility closures, especially in markets with overlapping services.
Consolidation in healthcare has consequences for the physician workforce, with increased consolidation often resulting in diminished autonomy for physicians. A survey revealed that 61% of employed physicians report limited freedom in making referrals outside their system, and 47% of physicians adjust treatment options to align with cost-reduction incentives imposed by their employers.
Independent practices are actively seeking alternative models that allow them to access economies of scale while preserving their clinical independence. The desire for greater negotiating power with insurance companies and the ability to manage regulatory burdens effectively are driving factors behind this search for new operational frameworks.
The future of healthcare delivery may depend on the ability of independent practices to adapt and thrive amidst the pressures of consolidation, ensuring that patient care remains a priority.