The Trends Shaping the Business of Healthcare

Chris Harrop, Senior Editorial Manager | Medical Group Management Association


The days of independent-physician practices focused on volume-based models in the American healthcare system are far from over, but the landscape looks drastically different from how it did just a few years ago.

Strong waves of consolidation via mergers, acquisitions, and new affiliation/partnership models have concentrated the ownership of healthcare delivery organizations (HDOs) in ways akin to megamergers seen in other industries.1 Similarly, major players across other areas of the U.S. economy—names such as Amazon, Apple, and Walmart—have made strategic acquisitions and investments toward securing space in the healthcare industry. 

However, this “corporatization of medicine” is not a blanket trend for all HDOs. Even among physician practices that will attract private equity (P.E.) interest, practice acquisition and arbitrage is being driven by size, with larger practices being valued at eight to 12 times earnings before interest, taxes, depreciation, and amortization (EBITDA) and smaller organizations at two to four times EBITDA.2 Those larger “platform practices” are often viewed by investors as safer bets to provide about 20 percent or more in annual returns to the P.E. firm, as well as providing an attractive home for physicians looking to sell a smaller practice, which increases the value of the new entity before a firm sells sometime in the following three to seven years. 

Medical specialists have been of particular interest to P.E. firms, including dermatology, anesthesiology, pain, radiology and eye care, as well as platform investments in orthopedics, gastroenterology, and urology.3

While this strategy for going after the metaphorical big fish—to then swallow up smaller HDOs—has been popular, there remain other strategic options that physician groups have considered amid the recent M&A craze, including:

  1. Join, or be acquired by, a hospital or hospital-afliated medical group: Particularly popular in primary care, cardiology and oncology, this change is not as lucrative for physician owners. Physicians often complain that hospitals do a poor job of managing acquired physician practices, and hospitals pay very little for medical-group acquisitions, due to regulatory limitations.4
  2. Join, or be acquired by, a “mega-physician group”: Mega-physician groups remain under the control of physicians, though valuations of practices are normally at book value.

As the big players carve out new efficiencies, thousands of HDOs remain significantly unchanged in governance and structure while facing the same pressures they have in the past decade in the wake of major healthcare-reform legislation, including:

  • Quality-reporting requirements from both governmental and commercial insurers
  • Securing the information-technology infrastructure to collect, track, and analyze metrics for payers and quality-of-care initiatives
  • Meeting the rising demands of increased patient consumerism and an aging population that requires higher-acuity care
  • Managing costs in an era of stagnating reimbursement and higher patient financial responsibility
  • Maintaining or replacing a provider workforce that reports growing levels of burnout and professional dissatisfaction


The grappling of independent-physician practices with the prevailing trends that medical groups have faced in recent years testifies to a space for the physician practice to move forward, despite larger trends toward consolidation.

This is one of the key messages presented recently at the MGMA 2018 Annual Conference by Michael Nachomovitz, MD, former senior vice president and chief clinical integration and network development officer at New York-Presbyterian Healthcare's Physician Services Division.

During his speech in Boston, he noted that the impending demise of the independent practice is greatly exaggerated. “I don’t think that this is an either/or [situation],” he said.

While physician-practice ownership lost its majority in the past few years,5 the same surveys that show growth in hospital employment of physicians and hospital ownership of practices also show that the average practice size has not drastically scaled up because of mergers, acquisitions, and other ownership/structural changes.6

While many longtime industry observers might lament the decline in the solo-practitioner model, Nachomovitz says that this is not a bad trend for independent medical practices. “I don’t think it’s in the physician’s best interests to be in solo practice,” he said. “I think in order to participate in the new healthcare, physicians need to learn to aggregate, to network, and to optimize their own situation.”

To that end, large, integrated physician groups have seen success in recent years, largely as a result of a flagship group (often primary care–dominant) bringing contracting, data, and administrative benefits to a smaller practice. This model allows practices to remain flexible on compensation and embrace quality care programs that would otherwise be difficult or impossible to manage without more robust analytics platforms made possible through shared data and IT infrastructure.7


The push toward boosting quality of care and securing cost savings along the way has been a major driver for HDOs, especially as more private commercial payers have embraced quality incentive programs in the wake of governmental payer programs, such as the voluntary Medicare Shared Savings Program (MSSP).

When it comes to the shifts between physician and hospital ownership of practices, a 2018 study that compared changes in Medicare spending for patients in accountable care organizations (ACOs) before and after MSSP participation found that:

  • Physician-led ACOs saved Medicare money incrementally
  • Hospital-led ACOs did not produce savings for Medicare, on average
  • Incentives to lower spending were stronger for physician-led practices8

This year marks the beginning of the third performance year of the Merit based Incentive Payment System (MIPS) and the reporting period for year two (2018) performance data. To help MIPS and Alternative Payment Model (APM)–eligible clinicians participate this year and report data from last year, the Quality Payment Program (QPP) website has been updated with additional resources and improved searchability.

The Centers for Medicare and Medicaid Services (CMS) have also rolled out a new account-management system for QPP called “HARP”—HCQIS Access Roles and Profile System. Previously, QPP participants would use their EIDM, (the acronym for CMS's Enterprise Identity Management system) accounts to access the system to report MIPS data, check eligibility, and review scores. Users with an existing EIDM account should already have a HARP account created automatically on their behalf.

In December, CMS published a final rule that redesigns MSSP, including an accelerated pace for participating ACOs to take on additional financial risk. 

The redesign, called "Pathways to Success," will generally take effect on July 1, 2019, and offers two participation tracks:

  1. A basic track with a glide path for ACOs to progressively move from a shared savings-only model to higher degrees of risk and potential reward
  2. An enhanced track for the highest levels of risk and potential reward While the new flexibilities introduced for ACOs are welcome news, CMS did not incorporate suggestions to allow ACOs to remain in shared savings–only models indefinitely. 

How providers are paid remains one of the biggest levers in healthcare today, influenced by M&A activity, physician shortages, and the growth of recruiting efforts and hospital employment of physicians.

To better understand the compensation landscape, MGMA’s 2018 Physician Compensation and Production Report—based on 2017 data from 136,000 providers across the country—yields some anomalies that stand out: 

  • Location. Practicing in a big city doesn’t always bring the biggest salary. For example, the median income for a metroarea anesthesiologist was $444,846, whereas in non-metro areas (comprisingpopulations of 50,000 or fewer) the median anesthesiologist income was $469,057.9 While this trend was true for most specialties, there are anomalies within the anomaly—rural cardiologists, for example, make about 10 percent less than their urban counterparts.10
  • Slow shift to quality. For years, healthcare leaders have thought value based care and quality incentives would become dominant forces influencing physician compensation. While that day may come, about four out of five compensation plans in 2017 did not include quality incentives, while productivity remained the core metric for pay.11 The inclusion of quality incentives in compensation plans depended on practice size: independent and smaller practices were much less likely to provide any kind of quality incentives.1 An October 2018 MGMA Stat poll with 1,195 responses found that, of organizations participating in value based payer contracts, two out of three report that value-based contracts make up 20 percent or less of their overall contracts.13
  • Productivity and Relative Value Units. Physicians are paid about $42 on average per RVU performed.14 One might reason that a physician who performs 3,000 RVUs in a year should make about $126,000.

But consider a new physician working with a guarantee of $200,000 per year. As that physician begins work, he or she might complete only 1,000 RVUs during the year, netting an average of about $200 per RVU. That same physician, now completing 10,000 RVUs a year after becoming more productive, might earn closer to $37 per RVU—below the average.15

In an industry with broad changes in ownership structures and demands to bend the cost curve, compensation—specifically salary figures—can influence a range of behaviors, from the medical schools 
students choose to a practice leader’s ability to successfully recruit.

At the same time, legislative efforts to push HDOs to provide transparency around the patient’s price for care may still have unknown effects, though the gradual increase in hospital employment of physicians will mean that the independent-practice space will be largely motivated to engage in similar efforts based on patient consumerism rather than governmental mandates.

The core of the healthcare experience remains the relationship between patient and provider, pushed and pulled by these numerous forces. The focus in the immediate future on nurturing that bond, or physicians and physician-practice leaders, is something Nachomovitz refers to as medical professionalism:
“The doctors are getting together and understanding that the patients are the primary concern. And if they can deliver quality, this is going to get everybody’s attention. If they can deliver quality at a lower cost, that’s going to get even more attention. The leverage of having engaged physicians is enormous. Physician centricity and patient-centricity today can be enormously leverageable, if you are smart about how you use [technology and care coordination.”



  1. Herschman, G. “Physician Groups Should Consider Strategic Options as Mergers, Acquisitions Boom.” MGMA Connection. May 2018, pp. 26–28.
  2. Casalino, L., Saiani, R., Bhidya, S., Khullar, D., and O’Donnell, E. “Private Equity Acquisition of Physician Practices.” Annals of Internal Medicine. January 8, 2019.
  3. Herschman.
  4. Ibid.
  5. Kane C. “Updated Data on Physician Practice Arrangements: Physician Ownership Drops Below 50 Percent.” American Medical Association, 2017.Available from:….
  6. Ibid.
  7. Harrop C. “It Takes a Village: IntegratedIndependent Practice Model Can Slow Tide ofDoctors Choosing Hospitals.” MGMA Connection.January 2019, pp. 108-111.
  8. McWilliams, J., Hatfield, L., Landon, B., Hamed,P., et al. “Medicare Spending After 3 Years of theMedicare Shared Savings Program.” New EnglandJournal of Medicine. 2018; 379:1139-1149.doi:10.1056/NEJMsa1803388.
  9. Fischer-Wright, H., and Evenson, T. “AnomaliesShed Light on Doctors’ Compensation.” STAT.December 4, 2018. Available from:….
  10. MGMA. 2018 Physician Compensation and Production Report. 2018.
  11. Ibid.
  12. Ibid.
  13. Jacobsen D. “MGMA Stat Poll: Most Practices Adding Value-Based Contracts but In Small Doses.” MGMA. November 1, 2018. Available from:….
  14. MGMA.
  15. Fischer-Wright and Evenson.