Large independent orthopedic groups are becoming more prominent across the U.S. as small and solo practices continue to decline amid economic challenges that show no signs of slowing down.
Though the number of physicians joining hospitals and health systems is on the rise — almost 70 percent of physicians reported being employed by hospitals or corporate entities in 2020 — so too is the number of physicians in large, physician-owned groups.
According to the American Medical Association, 17.2 percent of physicians reported practicing in a group of at least 50 physicians in 2020, up from 14.7 percent in 2018, the largest two-year change for this bracket and an indicator of a potentially accelerating trend.
Since the pandemic, four orthopedic "supergroups" comprising more than 100 physicians have formed through mergers in Florida, Tennessee, Texas and New Jersey, with more practices likely to be weighing similar consolidation strategies.
As of Jan. 1, 2022, three physician-owned orthopedic practices will merge to form Golden State Orthopedics & Spine, which will be the third-largest specialty group in the western U.S. The group will begin operations with 60 physicians and 19 locations and may look to add more practices next year.
It's no secret why many independent physicians believe large specialty groups may be the way forward.
Over the past two decades, reimbursements for professional services have declined while reimbursements on the facility side have remained high. The move toward value-based care has increased downward pressure on cost of care while overheads — such as malpractice insurance, IT systems and compliance — continue to climb, with the COVID-19 pandemic exacerbating these existing trends.
All these factors contribute to the reduced margins that independent specialty groups operate under.
"I would not be confident if I were in a group of three or four physicians," Ed Hellman, MD, president and interim CEO of Indianapolis-based OrthoIndy, told Becker's. "I think they're going to find it really difficult to maintain their income level and to be competitive. I think there is a role for independent groups, but I think that size is going to be important."
Advantages that large groups have over smaller practices can be significant. Consolidation can provide opportunities for vertical integration through ASCs or other ancillary services as capital and additional practice resources become more readily available through large groups.
Patient volume will also be driven by larger contracts, and larger groups are typically able to leverage the commercial payers and negotiate more lucrative contracts from a reimbursement standpoint. There are also the economies of scale that may be realized operationally or through group purchasing of supplies, employee benefit packages and various insurance policies.
"Consolidation of [small to midsize] groups will probably become more mainstream. However, there are some merits to the model," according to Andrew Cordover, MD, of Andrews Sports Medicine & Orthopaedic Center in Birmingham, Ala. "The new, value-based payment models for both federal and private payers require sophisticated management and data analysis that most practices do not have available. Additionally, collective negotiating and maintenance of quality metrics may be easier to demonstrate."
Though recent years have seen a spike in the number of large orthopedic groups, many still cite maintaining independence as their toughest hurdle. While other groups choose to affiliate with health systems or corporate entities for added financial support, independent groups will need to capitalize on the migration of procedures to the ambulatory environment and expand their outpatient strategies.
"The successful groups have found ways to develop ancillary income streams, whether it's ownership of therapy or imaging centers or surgery centers," Dr. Hellman said. "In our case, we have a physician-owned hospital that's part of that as well, and that has allowed us to stay independent of the major health systems."