Will hospital acquisitions save primary care? What the RI data shows

PROVIDENCE – When Rhode Island Attorney General Peter Neronha rejected the merger of Lifespan and Care New England in 2022, his 150-page decision said that melding the state’s two largest health care systems would create an “unprecedented” consolidation that would raise the cost of care without improving quality or access. His decision was buttressed by another lengthy report from an independent consultant.

Less scrutiny was given to Lifespan’s acquisition of Coastal Medical, one of the largest groups of primary care providers in the state, the year before. (Lifespan has since rebranded as Brown University Health.)

In fact, no one in Rhode Island seems to keep track of acquisitions of primary care physician groups by larger health systems – known as vertical integration – despite national evidence that they increase the cost of care and do not necessarily improve access or quality.

Yet these transactions have happened over the years, at times quietly, reshaping the nature and delivery of care in the state.

“Nobody is in charge [of health care in the state], and that means that the market gets to do kind of what it wants,” said Michael Fine, a doctor and former director of the Rhode Island Department of Health. “Essentially, we're left to market forces.”

Primary care doctors are often referred to as the quarterbacks of the health care system. Their job is to monitor patients’ health needs, manage chronic conditions and triage care to specialists when needed. At the heart of it is a deep, personal relationship of trust between patient and provider that leads to better health outcomes.

They also play a key role in keeping health care affordable. Primary care doctors intercept health conditions before they worsen, keeping patients – when not necessary – out of emergency rooms, which are overburdened and more expensive.

But Rhode Island has a shortage of these health care quarterbacks. There were about 122 primary care doctors per 100,000 people in the state in 2020, according to the Association of American Medical Colleges, which puts Rhode Island toward the top five U.S. states in terms of primary care supply. But this can be misleading, because the whole country is facing a physician shortage.

"We are kind of like the best of a really bad lot,” Fine said.

Rhode Island’s primary care workforce is also aging fast. Nearly one-third of primary care doctors are nearing retirement, and the state is not producing enough doctors to replace them. One assessment estimates that Rhode Island will be running a deficit of nearly 100 primary care providers by 2030. The General Assembly is exploring the possibility of opening a medical school at the University of Rhode Island, but such a possibility is years away.

Adding to their troubles is the lower pay range for primary care doctors compared with other specialties, and the state’s low reimbursement rates. Payment schemes tend to favor procedural services – surgery, for example – over cognitive services – such as family medicine and pediatrics, which are primary care specialties. Moreover, about 70% of Rhode Islanders are on Medicare and Medicaid, federal insurance programs that reimburse at lower rates than private insurance.

On top of all this is burnout from administrative burdens, such as prior authorizations, which require doctors to fill out paperwork and documentation before insurance approves treatment.

All of these – workforce shortages, low pay and burnout – have created a perfect storm for primary care shortages.

“If we keep torturing our primary care folks, they are going to burn out and quit,” Fine said.

Faced with these challenges, primary care providers have sought safety in numbers. One avenue has been banding together through an independent practice association (IPA). Not only does this give them more leverage when negotiating rates with insurance providers, but it also allows them to develop ancillary services, such as laboratory work and diagnostic technology such as CAT scans, which are profitable and help offset losses from low reimbursement rates.

But in the early 2000s, information technology – such as electronic medical record systems – added a layer of complexity and a financial burden to independent practices by requiring additional staff and installation and management of expensive software.

“Small primary care practices and even large primary care practices started to look for some way to offload the increasing overhead expenses and complexity of running a practice to an entity, whether it be a corporate entity or a hospital, that could take over all of that so that the physician could go back to more familiar services, i.e. the practice of medicine,” said Mark Jacobs, a retired doctor and former CEO of Coastal Medical.

Another problem facing primary care is access to capital to hire new physicians, who require salaries even though they may not immediately produce income for the practice.

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“You can't really go to the bank and say, ‘I'd like to borrow $150,000 so I can bring my new partner on board,’” Jacobs said.

Burdened with operational challenges and capital limitations, many practices see acquisition by larger health systems such as a hospital, or even private equity groups, as an attractive option.

There is no state database tracking the effects of vertical integration, and unless they are major transactions the acquisitions are not always announced.

But national trends provide a window into the shifting landscape: Between 2012 and 2022, the number of doctors working in private practices fell from about 60% to 46.7%, according to the American Medical Association. At the same time, the number of doctors working for practices at least partially owned by hospitals and health systems increased from 23.4% to 31.3%.

Peter Markell, chief financial officer of Brown University Health, said that bringing primary care practices under the umbrella of a hospital system is about creating a holistic ecosystem of health care.

“You’re basically getting the whole life under your management,” Markell said.

Markell breaks care down into three categories: primary care; what he calls episodic treatment, such as emergency room visits and unexpected health needs; and chronic and end-of-life care.

“When you have a primary care practice, they're managing the patient going through all those segments of the care. And if it can be a well-coordinated system, you know, the primary care providers are focused on keeping the patient well,” Markell said. “If they need episodic care, they refer them to the best specialists that take care of that episodic care. And then if they have chronic illness or end-of-life issues, they again refer them to those specialists who specialize in those areas. It’s about coordinating the care.”

Another perhaps more altruistic reason is that large health systems acquire physician groups to keep doctors from fleeing to neighboring states where they may earn more due to higher reimbursement rates.

“The absorption and the purchase of physician groups has been done by hospitals in order to ensure that we have access to care in the community,” said Lisa Tomasso, senior vice president of the Hospital Association of Rhode Island.

There are, however, other reasons why large health systems may want to acquire primary care practices.

“When a hospital purchases a practice, they think they're purchasing that patient referral base,” said Jacobs, the former Coastal Medical CEO.

Noah Benedict, executive director and CEO of the Rhode Island Primary Care Physicians Corp. (RIPCPC), a network of primary care providers, puts it more bluntly: There is “an inherent selfishness for why a hospital system would want to buy a primary care provider. It would be: Give me all the referrals.”

Two things should be mentioned here. The first is that Brown University Health already was the primary recipient of referrals for Coastal Medical – at least during Jacobs’ tenure as the primary care group’s CEO from 2001 to 2009. This begs the question of why the health system decided to purchase Coastal Medical.

The second is that, at first glance, Coastal Medical may seem like a poor investment. In 2023 the group reported operational losses of $5.7 million. Part of this may be explained by rising operational expenses: the hospital, for example, may have higher salaries and benefits for staff, and the primary care group may have to shoulder some of the hospital’s overhead expenses. But it also does not take into account revenue generated by referrals. In 2019, a primary care doctor generated about $2.1 million in downstream revenue for a hospital.

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Markell said Brown University Health does not “keep perfect track” of referrals.

But some worry that primary care providers employed by hospitals come under pressure to keep referrals within the health system – whether it is in the patient’s best interest or not.

“The provider loses a modicum of control over where they believe the best care should be provided,” Benedict said.

Rhode Island Primary Care Physicians Corp., in fact, was formed in 1994 by a group of primary care doctors who were concerned with how vertical integration was changing the delivery of care in Rhode Island. The group is one of the last remaining independent primary care organizations in the state, with about 160 providers.

The hospital systems in Rhode Island have approached RIPCPC before, according to Benedict, but the group has declined their entreaties. Instead last year they entered a partnership with Akido, a health care technology company that emerged out of the University of Southern California’s Digital Health Lab.

On paper, integrating primary care into hospitals makes sense. If all care is within a system, it should be more efficient and cost-effective.

However, studies have found mixed results. For example, one recent study on some surgical services using Medicare data found that vertical integration resulted in “an approximately 10% increase in referrals to higher-priced facilities instead of lower-priced providers.” Another found that prices for services by doctors acquired by hospitals increased, on average, by about 14%.

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Others have observed that while vertical integration can strengthen the bargaining power of acquired primary care practices, the inverse can happen for other practices, especially those that serve economically disadvantaged communities.

Markell is skeptical of such findings.

“The problem is when they do these studies they're kind of intoning that only one factor affects the cost of care. And that's just not true, OK?” he said. “Other things are going on, like, what's the cost of pharmaceuticals? How much is the cost of labor being driven up, et cetera? So I just have my doubts on how these studies can really isolate only one factor.”

For some, like Al Charbonneau, executive director of the Rhode Island Business Group on Health and a former hospital administrator, the damage already has been done.

Charbonneau thinks the state needs to move away from a system that incentivizes volume and perhaps toward one that would reward doctors for keeping patients out of the hospital, though he acknowledges that such a system may pose a fundamental conflict for hospitals.

“This pretty much is the classical example of the horses are out of the corral,” said Charbonneau. “You can close the gate if you want, but I think we really need to be thinking about … payment reform.”