Medicare Cost and Utilization Across Physician Affiliation Models

Summary

An Avalere analysis assessing differences in Medicare expenditures and utilization across 4 models provides a new perspective on the evolving physician affiliation model landscape.

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Background

National trends in physician practice affiliation over the last decade show movement away from unaffiliated private practice toward models in which physicians align with a larger entity that can offer administrative and financial support. In addition to health system or corporate models, physicians may choose to align with an administrative organization, often referred to as a management services organization (MSO). MSOs vary considerably in the services they offer and often have financial capitalization, either from large groups of physicians, insurers, private equity (PE) sponsors, or other entities, such as retailers and distributors. Stakeholders demonstrate a high level of interest in the impact that the continued shift away from unaffiliated private practice has on the healthcare system—particularly the cost, utilization, and quality of healthcare services associated with these trends.

This study provides a more detailed understanding of the relationship between physician affiliation models and healthcare utilization and expenditures by looking at more specific definitions of four physician practice affiliation models: unaffiliated private practice (UPP), private equity-affiliated private practice (PEAPP), corporate, and hospital (Table 1). The analysis presented in this work focuses on five specialties: cardiology, gastroenterology, medical oncology, orthopedics, and urology. The specialties were chosen based on several criteria, including Medicare volume and utilization and current or expected PE investment.

These analyses are an important contribution to research on physician practice model affiliation as they consider all four physician practice models in a single study and focus on beneficiary-level measures of healthcare expenditures (total cost of care) and utilization (inpatient (IP) days and emergency department (ED) visits). They also consider differences in these measures (a) across physician affiliation models in a single year and (b) when physicians transition from UPP to an affiliated model. Together, these analyses provide a valuable perspective on the role of practice affiliation and inform an understanding of the evolving physician practice model landscape.

Study Research Questions

This study focuses on the following three research questions:

What are the trends in physician practice affiliation from 2019 through 2022?
Are there differences in Medicare utilization and expenditures for beneficiaries treated by physicians practicing under different affiliation models?
What is the impact of a shift from unaffiliated private practice (UPP) to an affiliated model (PEAPP, corporate, or hospital) on beneficiary utilization and expenditures?

Table 1. Physician Practice Affiliation Models
Model	Definition
Unaffiliated Private Practice (UPP)	Practices that are not affiliated with a hospital, corporate entity, or PE-backed management services organization (MSO)
PE-Affiliated Private Practice (PEAPP)	Practices affiliated with a PE-backed MSO (regardless of the size of the PE firm’s ownership stake in the MSO)
Corporate	Practices affiliated with insurers or other large corporate entities, including an MSO owned or operated by a corporate entity*
Hospital	Practices affiliated with a hospital or hospital system, including an MSO owned or operated by the hospital or health system

* Examples of corporate entities include Optum, Fresenius, Evolent, Permanente Medical Group Inc., etc.
Note: The definitions of UPP, corporate, and hospital correspond to categories of the owner type variable in the IQVIA OneKey data set: UPP corresponds to independent, corporate corresponds to corporate-owned practice, and hospital corresponds to integrated health system-owned practice. Because that data set does not distinguish PEAPP from corporate, Avalere performed additional segmentation of PEAPP (see below) in accordance with the definition of PEAPP above.

Analysis

Avalere leveraged several data sources to support the assignment of physicians to the four practice affiliation models. The starting point for this assignment was the IQVIA OneKey data set, which was used to identify UPP, corporate affiliation, and hospital affiliation. As IQVIA and other existing data sources generally recognize PE-backed MSOs as corporate, Avalere conducted a robust review of available financial transaction data from PitchBook (a data source that includes information on financial transactions), as well as press releases, investor websites, and publicly available lists of PE portfolio companies, to identify physician practices affiliated with PE-backed MSOs (PEAPP).

Following physician assignment to practice affiliation models, Medicare beneficiaries were assigned to a practice affiliation model based on analysis of physician claims in the 100% Medicare fee-for-service (FFS) data. Avalere conducted two primary analyses, both risk-adjusted to control for beneficiary and market-level characteristics. The first is a cross-sectional analysis that examines total healthcare expenditures, inpatient days, and emergency department visits for beneficiaries attributed to physicians practicing under the four practice affiliation models in 2022. The second is a pre-post analysis that examines total healthcare expenditures, inpatient days, and emergency department visits for beneficiaries attributed to physicians transitioning from UPP to one of the other three practice affiliation models: PEAPP, corporate, or hospital.

Key Findings

Trends in Physician Practice Model Affiliation

The proportion of Medicare-billing physicians in UPP decreased considerably from 2019 through 2022, representing only 12% of physicians in aggregate across the five specialties studied in 2022.

The share of physicians in UPP across the five specialties ranged from 5% in medical oncology to 16% in urology. In 2022, 6% of physicians across the five specialties were affiliated with the PEAPP model, 37% were affiliated with corporate entities, and 45% were affiliated with hospitals.

From 2019 through 2022, physicians shifted from UPP into the three other practice affiliation models. Generally, there was an increase in both corporate and hospital affiliation across the five specialties analyzed, except for a slight decrease in corporate affiliation among medical oncologists from 2019 through 2022. The number of physicians affiliated with the PEAPP model remains the lowest among the three types of affiliation in each specialty.

Comparison of Medicare Expenditures Across Affiliation Models

Beneficiaries attributed to physicians in the hospital affiliation model were generally associated with the highest Medicare expenditures, followed by beneficiaries attributed to corporate physicians, then PEAPP physicians, and finally UPP physicians.

Medicare expenditures for beneficiaries attributed to hospital-affiliated physicians had the highest percentage of expenditures in the facility setting (64% to 69%, with a weighted average of 67% across the five specialties) compared to other practice affiliation models.

Beneficiaries attributed to hospital-affiliated physicians had the highest number of IP days and ED visits.

Change in Expenditures Post Transition from UPP to an Affiliated Model

Compared to beneficiaries attributed to physicians who remained in UPP, total post-transition Medicare expenditures were lower for beneficiaries attributed to physicians who moved from UPP to PEAPP. The reduction in expenditures ranged from $231 to $1,423 across the five specialties assessed (weighted average reduction across the five specialties was $963).

For beneficiaries attributed to physicians who moved from UPP to corporate or hospital affiliation, the weighted average 12-month expenditures across the five specialties in the post period were $1,140 and $1,327 higher after the transition, respectively.

In the post period, beneficiaries attributed to physicians who transitioned from UPP to PEAPP utilized fewer IP days compared to the pre period. ED visits varied minimally in the post period across all models.

Discussion

The role of PE affiliation with physician practices has been an area of focus in recent studies and in the media. Our findings document that the share of physicians in PE-affiliated private practices is growing but remains a fraction of the share of physicians affiliated with hospitals or other corporate entities. The changing distribution of physician practice affiliation models will be important to monitor as physicians face ongoing challenges with practice operations and as the proportion of physicians in UPP continues to decrease.

While prior studies have focused on comparing PE, corporate, or hospital models to UPP alone, this study is the first to provide an understanding of the relative differences in expenditures and utilization across the full landscape of physician practice affiliation models, including PEAPP. We find that patients attributed to hospital-affiliated physicians are associated with the highest total Medicare expenditure – followed by beneficiaries attributed to corporate-affiliated physicians, then PEAPP physicians, and finally UPP physicians. Importantly, across all five specialties studied, beneficiaries attributed to physicians who transitioned from the UPP model to either corporate or hospital affiliation had higher 12-month Medicare expenditures when compared to the 12-month period prior to such affiliation. Conversely, expenditures for beneficiaries attributed to physicians who transitioned from UPP to PEAPP were lower in the 12-month period after affiliation when compared to the 12-month period prior to affiliation. Taken together, these results are relevant to policymakers and payers looking to understand potential drivers of expenditure in rapidly changing healthcare markets.