Changing times: As larger physician groups take the place of small practices, health industry ponders pros, cons

Dr. Daniel Varga shared a medical office with only his father when he got his start practicing medicine in a two-person practice in the late 1980s.

If he were getting his start today, the now-chief physician executive at Hackensack Meridian Health fully expects he would’ve had a couple hundred more colleagues to introduce himself to.

You can still find the last bastions of true small, independent medical practices scattered across the Garden State, like the one where he treated his first patients. That’s not true everywhere.

“In New Jersey, you can still find a one-doctor practice with maybe a wife running the front desk, located in a house along a residential street,” he said. “I’m not saying it’s not viable, but it is surprising to me that this has remained part of the practice environment in New Jersey so much longer than elsewhere in the country.”

The use of that model is on the retreat in the Garden State and everywhere else. Dr. Varga doesn’t expect it to stage a comeback.

Although the larger impact of that on health care prices and quality of care is still unclear, private equity and large health care system purchases have brought the promise of back-end improvements for small physician practices that few have been able to resist. Varga said there are holdouts, especially in New Jersey. With each year, there’s less.

“Am I worried for them? Yeah,” he said. “For one, you can’t recruit physicians to that model. No one wants to come out of medical school and join a one-person practice and make it a two-person group, even if you had the space and staff and everything else to accommodate it. So, people getting past retirement have no one to turn patients over to.”

Boasting better technological and compliance infrastructure, as well as more attractive landing spots for new physician recruits, larger entities have made a convincing argument when inviting small physician groups under their umbrella. Independent physicians have been brought into the fold through various arrangements, including co-managing agreements and clinically integrated networks.

And it’s not just traditional hospital systems and expanding physician groups participating in the trend of consolidation. In one of the most high-profile recent instances of aggressive deal-making, Berkeley Heights-based medical practice Summit Health was acquired for $8.9 billion by VillageMD, which is majority owned by pharmacy chain Walgreens.

Larry Downs.

Larry Downs, CEO for the physician trade organization the Medical Society of New Jersey, expects even more of those flashy deals might’ve transpired if not for the pandemic’s tabling of plans. He said that activity is picking up in a major way now, even with the current anxiety in the financial market.

“We spend a lot of time looking at this massive consolidation that’s happening among physician medical practices, with the insertion of hospital systems, venture capitalists and private equity into the physician practice world,” he said. “All over the country, there’s a rush to build scale — and it’s happening at a faster and faster pace all the time.

“Whether that’s ultimately good or bad for the overall system, we just don’t know.”

There has been a lot of conversation about physician employment by private equity and venture-backed groups, and the implications thereof, Varga said.

“It’s talked about as being the corporatization of medicine,” he added. “And questions have been raised about whether it’s turning physicians into factory workers and whether it’s contributing to physician burnout.”

From his industry-overseer role, Downs is paying close attention to how these new investment vehicles and large health systems absorbing small physician groups might lend itself to better services or lower prices — or just the opposite.

“It’s really, I think, too early to say anything about that,” he said. “Generally, studying this stuff is done with an analysis of Medicare data. And we’re usually years behind in terms of the freshness of that data.”

Dr. Thomas McCarrick.

Dr. Thomas McCarrick, chief medical officer for Vanguard Medical Group, which describes itself as a leading voice of independent primary care in New Jersey, said it could be many years until there’s data that speaks to those trends — even if it has been several years since New Jersey reached the tipping point at which a majority of physicians in the state were employed by large groups.

“There’s just nothing suggesting there’s better outcomes because of this consolidation, but no data says it’s inferior to independent practices, either,” he said. “There has been a lot of discussion about how vertical integration could reduce costs, but that hasn’t panned out.”

Despite struggling to keep up with competitive salaries in recruiting new physicians compared to hospital-based health systems and other groups, there remain some small practices that are content to continue treading water, McCarrick said. The prospect of recession doesn’t affect those plans, he added, given that health care isn’t a discretionary service.

Like most, McCarrick expects more of those practices will be snatched up over time. But he also believes there might be an overabundance of deals today that could slow future consolidation.

“I think things overheated right now in the marketplace,” he said. “A lot of organizations are spending money to grow for various reasons. As hospital systems expand to compete with adjacent health care systems, and as large companies are expanding out of business space into an adjacent one, that drives up the cost of acquisition of these practices.”

As much as physician group leaders anticipate the model of one- or two-doctor practices to become something of a relic of the past, they all tend to speak with admiration of the era of medicine in which that model dominated.

Stephen Brunnquell, president of the Englewood Health Physician Network, said it’s not the fax machine they have a reverence for, but the personal connections between doctors and patients.

“The challenge for us as we continue to consolidate is how do you get both,” he said. “How do you keep all the good parts of those small offices … where you knew the doctor, knew the receptionist, were friendly with the medical assistant? They felt like an extension of your own family.

“The goal is to preserve that kind of relationship while also layering on all the technology and all the excellent medical care resources people really expect and deserve. Because I like to think those things aren’t mutually exclusive.”

Finding physicians

Stephen Brunnquell, president of the Englewood Health Physician Network, said most New Jersey health care systems are dealing with a good problem. But it’s worsening one of those standard-fare bad problems.

Stephen Brunnquell.

“One of the things that’s happened during the pandemic is a lot of people who commuted to Manhattan and found it convenient to have a doctor close to their office there now get care in New Jersey, because they’re home several days a week,” he said. “That’s of course great for us.”

That’s led to the good problem: It didn’t have the staff already in New Jersey’s offices to meet that surging local demand, and it’s had to scramble for it. Brunnquell said that the sudden need for new hires is a challenge he gets excited about.

Then there’s the true problem: There are not a lot of physicians lined up for the new roles.

Larry Downs of the Medical Society of New Jersey said there’s a dearth of physicians in the state’s workforce that recent graduates aren’t on pace to replenish. That’s why his trade group is advocating to policymakers to make New Jersey a friendlier state for physicians to practice in.

“If you’re a free agent physician, with the tuition you have to pay for, when picking any state to work in — the truth is, you might look at lower-tax states,” he said. “New Jersey is an expensive place to live. And we’re repeatedly seeing people coming out of residencies moving to states such as Texas, where they have a licensing process that’s also comparatively quick and easy.”

In New Jersey, a physician might have to wait four to six months to acquire their license. In Texas, the process is completed in just about 50 days.

Downs said there’s a number of ways Garden State could help retain a much-needed physician workforce, including introducing loan restructuring programs to ease the profession’s high debt ratios.

“That’s not an area we’ve gotten real progress on yet, but it’s something that there’s hope is being considered,” he said.