Healthcare Reform Drives Physicians Towards M&A and Hospital Buyouts

Last Updated Jun 14, 2010 4:19 PM EDT

The era of the independent doctor, running a quaint hometown practice as a small business, is coming to a screeching halt. About 2,910 physicians were involved in mergers or acquisitions last year -- nearly double the number in the previous year -- according to a new report from PricewaterhouseCoopers (PwC). Mergers and buyouts among physician practices is already at record numbers this year, and expected to balloon as the new health reform law is implemented.

Although some patients will likely mourn the loss of the Norman Rockwell family doctor, all this consolidation may actually be good for doctors and hospitals. It will free up capital, which providers will need to track quality, install technology for electronic health records, and implement other changes required under health reform. And it will give much-needed relief to doctors who have been increasingly squeezed by shrinking reimbursement rates.

"Physicians are seeking stability," Cliff Bleustein, a urologist and director at PwC, told me in an interview. "They're seeing cuts in everything from office fees to surgery reimbursements, and they're facing reform, which is going to have an impact on the administrative side."

Some specialties are particularly under the gun, and not just because of health reform. This year, the Medicare came down especially hard on cardiologists, cutting fees for nearly all the services they provide from 10% to 40% over the next four years. As a result, 60% of cardiology practices are planning layoffs and 39% are considering selling themselves to hospitals, according to a survey by the American College of Cardiology.

So here's the bottom line for patients: Higher out-of-pocket costs in the short run, but a potential boost in quality care over the long run. According to the PwC report, employers will face an increase in health costs of 9% in 2011. As a result, most workers will see their deductibles surpass $400 for the first time, PwC predicts, and they'll get hit with new out-of-pocket expenses like "co-insurance," where instead of paying a flat co-payment for an office visit, they'll have to cover a certain percentage of what the doctor charges.

That said, consolidation may pay off for patients. Health reform will reward doctors and hospitals for better alignment, which will lead to bundling of payments and accountable-care organizations. Doctors and hospitals will provide far more coordinated care than they do today, and they'll get bonuses for meeting quality standards. The resulting efficiencies will be passed along to payers and patients in the form of lower costs. And patients will have access to way more information about how their doctors and hospitals stack up against the competition in terms of the quality of the services they provide.

That's the dream, anyway. For now, dear patient, prepare to say goodbye to the folksy family doctor and hello to the extra bucks you'll have to pay to make health reform a reality.

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