Rae Woods (00:02):
From Advisory Board, we are bringing you a Radio Advisory, your weekly download on how to untangle health care's most pressing challenges. My name is Rachel Woods. You can call me Rae. If you've been paying attention to Radio Advisory, if you've been paying attention to the things that we've been publishing through Advisory Board, you know that one of the biggest trends in healthcare over the last say five to 10 years has been the explosion of investment in physicians and in medical groups. In fact, in the past, we've actually called this an arms race over physician practices because everybody seems to want to get their hands on doctors. Because of that, we've actually seen huge growth in corporate owned medical groups, meaning corporate employed physicians. If I'm honest, so far things have looked pretty good for these capital rich organizations but I think things are starting to change. I think the tides are actually turning and that in 2024, these corporate owned groups are going to face some of the same challenges as incumbents. And that's what I want to talk about on today's episode. To do that, I've invited two Advisory Board physician experts, Sarah Roller and Eliza Dailey. Sarah, Eliza, welcome back to Radio Advisory.

Sarah Roller (01:25):
Hey Ray.

Eliza Dailey (01:26):
Thanks for having us.

Rae Woods (01:29):
You know this, our audience may or may not know this, it depends on how well they're paying attention to our titling format, but this is our 200th episode of Radio Advisory.

Sarah Roller (01:41):
I don't know if you can hear my clap.

Eliza Dailey (01:44):
Yay.

Rae Woods (01:44):
Thank you for joining me for episode 200. I will say this feels like a big milestone for the podcast and I cannot imagine a better topic to have as our 200th episode, at least for me selfishly, than to be talking about physicians which has a very special place in my heart. You two have been on the podcast a bunch, and Eliza, you specifically came on Radio Advisory last year to give our listeners an update on the state of the physician landscape. We talked about things like physician consolidation, we talked about the corporate employment of physicians. Give us an update. Where do things actually stand in 2024?

Eliza Dailey (02:23):
We're working off of the same data that we brought to the podcast last year that basically showed that over half of physician practices are now owned or employed in some way. And the big trend we talked about last year is actually when you look at it a level deeper by funder, we see that corporate ownership of practices is growing 10 times faster than health system employment.

Rae Woods (02:47):
And not everyone is as nerdy about the physician landscape as the three of us. I feel like we need to define some terms here. What do we actually mean when we say corporate owner, corporate medical group?

Eliza Dailey (02:59):
So it's conversation we've been having on the podcast with you for a couple of years, is really what does the physician landscape look like? And in the past, it was very black and white, you're either employed or independent, and we've talked about all the shades of gray over the last couple of years on the pod. Today, we can say that there's really three different types of medical groups. You have your health system employed medical groups, your corporate employed medical groups, and then your physician owned medical groups.

Rae Woods (03:26):
Which we would consider the independent medical group, is how we used to refer to them.

Eliza Dailey (03:30):
Exactly. Your independent, your shareholder owned groups. For corporate medical groups specifically, like the others, they are operating ambulatory practices, they're managing a physician network in some way either through an employed or affiliated relationship. But really the thing that sets them apart is these corporate medical groups have an affiliation with a larger parent company. That parent company can be a health plan, a retailer, private equity, some other type of practice aggregator.

Rae Woods (04:00):
But I have to believe that there's something that's different about them besides just the entity that owns them, that requires us to really think about them and put them in this different category in between shareholder, independent physician and hospital employed physician.

Eliza Dailey (04:17):
So besides owner, I would say the main way that these corporate medical groups differ from your incumbent players, your health system employed groups, your physician owned groups is many of them are really going after a scoped ambition. So the traditional medical group of the past really tried to be the medical group to everyone. The corporate medical groups today, many of them are betting on a more scoped ambition. However, there are a subset of them that really are betting on diversification of the path to growth looking more similar to some of those incumbents. So I would say we're split. Some of them are betting on scope, some of them are betting on diversification.

Sarah Roller (04:58):
We are not talking about the corporate owner here. We're talking about the medical group, right?

Rae Woods (05:02):
Yes.

Sarah Roller (05:03):
So we are thinking about corporate groups. We're going to look at organizations like Oak Street, not CVS. We're going to talk about the Village MD ambition, not the Walgreens ambition. In the same way that if I was talking about health systems right now, I'd be talking about the employed medical group, not the hospital. So that's the specific subsection of these entities that we're talking about. I think the other caveat I'd want us to think about is that the two of the groups that Eliza pointed out, the shareholder owned independent groups and the hospital employed groups are almost defined by their employment model. One of the things that's really important about these groups is it's not necessarily just an employed model. There's a range of physician relationships and percentages stake that corporate owners may have in these groups.

Rae Woods (05:58):
And by the way, this is why this is actually really confusing. It used to be that we could get away with mostly talking about these black and white categories and we can't do that anymore. And the question that our listeners have is, what do I do with this information? How do I even go about understanding what's happening in the physician landscape? Because they know that a lot is changing, and the word that you just used, Sarah, was the ambition of the medical group, and that's something that the two of you have taught me is really, really important to keep at the center of our mind. How do you want us to organize the different kinds of goals, the different kinds of medical groups that fit into this new category that's different than the incumbents?

Eliza Dailey (06:44):
So to Sarah's point, there are many things that actually don't matter when we're talking about these corporate medical groups. It doesn't necessarily matter if they're employing their doctors or they're partnering with their doctors. It also doesn't necessarily matter who their funder is.

Rae Woods (07:01):
I think our audience's ears just perked up when you told them to ignore the funder. I'm not sure that that is intuitive for the people who are listening to this podcast. Why is it that we should or that we can ignore that part of the equation?

Sarah Roller (07:15):
You're totally right. I mean, whenever I get an organization coming to ask us questions like, "How do I think about my physician partnership strategy? How do I sell to these different groups?" They always come to us and say, "How do I talk to a health plan backed group versus a private equity backed group?" You cannot put all of the groups from one funder type in the same category of ambition. My favorite example is private equity. So it's really easy to look at a private equity transaction and assume that it means what we are going to do is do roll ups and cut costs. Yes, that is probably true, but if you are doing a roll up in primary care versus a specialty care roll up, you are going to approach that differently. If you're doing a roll up of MA practices, you are going to approach that differently than a roll up of an ortho group.

Rae Woods (08:10):
And by the way, we talked about that exact principle in an episode that we just did about the big headline of a private equity firm general catalyst in this case actually buying a hospital, and one of the big points that we made is that general catalyst is taking a different approach than what we would think of as the standard for PE, which is also what you're describing here, Sarah. We can't just assume that that standard is always the way that PE firms practice.

Sarah Roller (08:37):
And the same plays out with health plans. Each of the health plans have slightly different ambitions. You actually just can't say every health plan is doing the same thing with its medical group and it tells you something to know who the funder is, it doesn't tell you everything.

Rae Woods (08:53):
Then let's get back to what do need to understand and know in order to not just categorize these groups because I don't want to make the case that we're making some kind of academic exercise here, but so that we can understand how power dynamics are changing and how the leaders at organizations who are listening to this podcast need to react to this rise in corporate ownership.

Eliza Dailey (09:15):
The most important thing that matters when we're talking about corporate medical groups is how they're growing. They each are defining growth differently and they're each trying to grow in different ways, and that really is the defining factor. So we've landed on four different models of the way that these corporate medical groups are structured, how they're growing, how they're pivoting their strategy. First we have our MA utilization manager, so these are your senior focused primary care clinics that are all about MA utilization management, trying to manage that population. Growth to them is cost savings, growing attributed lives. Then we have our single specialty platforms. These are really aggregated practices that have scale and shared resources. These are orgs like private equity and specialty care. These are also some of your specialty MSO and aggregators, like your [inaudible 00:10:08] Oncology's. To them, it's really about volumes. Third category here is our consumer focused front door.

(10:16):
Here, corporate groups are really betting on these clinics as being the accessible way for patients to come in and then drive business to other healthcare services. So these are your one medicals. These are your Village MDs. Here, growth is all about downstream revenue. And then lastly, we have your regional multi-specialty networks. So these are regional practices that have an affiliated independent network around them. These are orgs like Privia. These are orgs like Optum Care, where the ambition really is about regional market share, regional growth.

Sarah Roller (10:53):
I'd put a pretty firm line between the first three groups that Eliza mentioned and that last one. So when I think about that fourth category, the regional multi-specialty group, their ambitions are the most similar to what health system ambitions are, except without hospitals. We call it the hospital less IDN model, that they are trying to build everything and own everything except for the hospital, and that's really different from the other three types.

Rae Woods (11:22):
I almost want to take a step back and acknowledge not just that the strategies for growth are different, but the pace of growth. The first thing that you said at the start of this episode, Eliza, is that these groups have grown, what was it, 10 times more?

Eliza Dailey (11:37):
In health system.

Rae Woods (11:38):
My question is then what has allowed these corporate medical groups to succeed so rapidly such that we're calling everyone else, we're calling the shareholders, we're calling the hospital groups the incumbents.

Eliza Dailey (11:51):
I would say it's two things. One is capital, that because they're affiliated with some type of parent company, these corporate medical groups have more capital to invest in resources and scale that you need to grow. I'd say the second thing too is because so many of them have gone after a really niche scoped ambition, they've been able to play in the sandbox a little bit, fairly protected from other market forces. That is starting to change. We really think 2024 is the year where they're going to have to leave the sandbox and really start competing against these other incumbent players now that they have reached critical scale, critical mass.

Sarah Roller (12:37):
Yes, sure, they have acquired practices at a higher rate than hospitals across the last few years. That doesn't mean that those practices have necessarily given the ROI that they acquired them for. So when I look at this year and when I think about these practices, that's the make or break piece is, we've acquired all of these practices, we've spent a lot of money acquiring these practices. Hospitals know it's not cheap to buy up physician practices.

Rae Woods (13:09):
Boy, did they know that.

Sarah Roller (13:10):
Yeah, and so that's the phase that I think we are in now with these groups is they're saying, "Wait a minute. I have all of these physician practices. I have grown very intensely in a short amount of time. Now I have to use them and I have to get ROI out of them, or I don't know if I want to keep them under my umbrella anymore."

Rae Woods (15:23):
The picture looks pretty good for these corporate owned medical groups, things could look like smooth sailing moving forward. But Sarah, you're making me think that that is not the conclusion that we should have at this point in the conversation, at least when we're thinking about 2024 and beyond.

Sarah Roller (15:39):
Yeah. I think this year is a make or break year for these corporate medical groups. We've actually already started to see some seeds of strategy shift. If you look at the Walgreens closures that we've already seen this year, that to me is a real reckoning of we have these assets. Are these assets going to do what we wanted them to do or not? And I think it's going to be that make or break year for a lot of the other corporate medical groups that we're talking about.

Rae Woods (16:08):
Why are the tides turning and why are they turning now?

Eliza Dailey (16:12):
We're also at a point where these corporate medical groups aren't disruptors anymore, and we can debate whether they were disruptors in the first place. Just to put some numbers to it, when you look at the ownership landscape today, about a quarter of practices are owned by health systems and a quarter are owned by corporate medical groups, so they are very much at the same scale as health system employed groups today. Because of that, they're going to start facing some of the same market pressures as incumbents.

Sarah Roller (16:44):
Rae, you and I worked in the physician space for a long time. I mean, 10 years ago it was, "I bought these doctors, now I can't get them to do what I want." That is the challenge that physician practices and medical groups face, is how do I get my docks rowing in the same direction? That doesn't have to just change because you have a lot of money.

Eliza Dailey (17:06):
It's actually, I would say the exact same or very similar evergreen challenges that these corporate groups are facing, that health system employed groups, that physician owned groups have been working through for a long time. How do I integrate these medical groups that I've acquired? How do I manage referrals and leakage? How do I actually see ROI from all of these physicians that I now acquired or employ? How do I balance physician autonomy? These are not new challenges that corporate medical groups are facing, but they are now having to contend with them for the first time.

Rae Woods (17:42):
And I would've expected that if we were only having this conversation about that fourth category of group that you mentioned, the group that you called the hospital less IDN, because they are trying to be much of what a health system is minus the hospital, so it makes sense that they would then have some of the similar challenges that a health system has. But it's interesting to me that you're saying even when there is a more scoped ambition and there is a more specific growth strategy, because of the size of the group, because of the pressures to succeed in an economic environment that is tenuous at best, that they are going to face some of the exact same headwinds that health systems face.

Eliza Dailey (18:19):
I think it really comes down to the doctors. We know that employment doesn't guarantee loyalty. It doesn't guarantee behavior change, and that is true regardless of if you're a health system employed group, a corporate medical group, a physician owned medical group, these new players aren't immune to that, and I think many went into it thinking, "Okay, we'll acquire these medical groups and then they'll do the things that we want them to do and they'll support our ambitions," and incumbents realized that over a decade ago that that does not work, that acquisition does not guarantee physician behavior change. I think the corporate players are just starting to realize that.

Rae Woods (19:03):
And we've been talking about why it is important to not look at even corporate owned medical groups, all of it as one big bucket, and we've talked about some of the different ways that we can categorize them. I guess my question for you is, given this shift towards having to deal with some of the longest standing challenges in the physician space, who do you think is actually best equipped, who's maybe worst equipped to handle some of those challenges?

Sarah Roller (19:25):
Specialty care aggregation has just been a solid strategy for quite some time now. When you think about private equity, you think about specialty care acquisition. I also think if you look at some of the research that Eliza has done and some of the rest of the team has done around the next frontier of utilization management, we are looking at specialty care. It is a ripe opportunity for both growth in the traditional fee for service sense, but also for really effective utilization management and cost control if we're thinking about more of a value-based care side. The flip side of that and the archetype that I'm the most skeptical of are the MA utilization managers, which might've just caused some jaw drops.

Rae Woods (20:11):
I was going to say, I'm... Tell me more.

Sarah Roller (20:14):
Whenever you say Medicare Advantage, there's going to be jaw drops, but I think the pressures on MA that we have seen in the last year are high. Medicare Advantage is growing, but also we are seeing tightening risk adjustment and tightening reimbursement, and-

Rae Woods (20:31):
They're high and they're new. They're new as of this year, right?

Sarah Roller (20:35):
It's a super red ocean. There are so many people trying to do Medicare Advantage right now, that it's a heavily saturated space. I'll admit that I'm a little bit of a value-based care skeptic in terms of how much it's going to saturate the industry or how quickly it'll be able to saturate the industry, and these organizations are really betting on not just value-based care, but a very specific payment model. And that's dangerous for anyone to say, "This one payment model is the thing that I am going to tie it all to." One thing goes south and you don't have a backup plan. So that's my skepticism there.

Eliza Dailey (21:15):
I would say I am betting on the organizations who are innovating and diversifying how they're working with physicians. I just talked about how employment and acquisition doesn't guarantee loyalty, and so if you look at the organizations that are having more success, that seem to be growing in a more sustainable way, it is those who have multiple ways of working with doctors. They're employing doctors, they're partnering with doctors. They have MSOs, they have IPAs, they have these affiliated networks. They have lots of ways of growing their physician base, both independent and employed. So those are the orgs that I would bet on, is those who recognize we need to work with doctors in lots of ways, and we can't bet on any one model to guarantee loyalty.

Rae Woods (22:04):
And I actually want to take a moment and channel the voice of the incumbent right now because I think that hospital employed medical groups in particular might be listening to this conversation and almost breathing a sigh of relief and thinking, "Aha, those corporate medical groups aren't going to be coming for my business, or maybe they're not going to be winning it, whether it's my business in terms of my patient volumes or my physicians and providers themselves, because they're going to be facing some of the same challenges that I am." Is that right, or do you still want incumbents to be a bit concerned, a bit wary of some of the changes in the physician landscape?

Sarah Roller (22:40):
I don't know that I would use the word concern, but I do think that health systems and incumbents, let's say incumbents, because this applies to independent medical groups as well, have to do something, they have to respond, and I think that there are a couple of different flavors of response that are going to depend on who the incumbent is, as well as the corporate medical group in the market. I see it as you can partner, so you have primary care and I need your volume, let's partner on those relationships. A great example is the one medical Amazon piece there. They have a lot of deep health system partnerships. You can compete. You're probably most likely going to compete with those regional multi-specialty networks who are trying to have everything. You can react. So you can respond by anticipating something that's going to happen.

(23:38):
So for example, you can anticipate that if you have a specialty care medical group coming into your market or that's a big player in your market, that you are going to have to do something differently about specialty care volumes because there is going to be a low cost provider in your area. Or you can technically ignore them. That's not the route that I would take, and there's probably something, maybe it's ignore, but keep tabs on. So you can't pretend that someone is not there, that a group has not come into your market, but it may be that the urgency is not today, but I need to keep track and know here is when we've hit a point that I need to pay attention or that I need to do one of the other reactions.

Eliza Dailey (24:24):
I think too, the biggest competitors for incumbents are those corporate medical groups that define growth in the same way that you do. So if you are trying to grow downstream revenue, your biggest competitors are the consumer focused front doors. If you are really playing in value-based care and Medicare Advantage, your biggest competitors are the MA utilization managers. So I think it forces incumbents, health systems, independent medical groups alike to ask themselves two questions. One is, how do I define growth? How am I going to grow? So that doesn't mean I'm competing again.

Rae Woods (25:02):
Which by the way, how they define growth will probably help them understand, "Do I partner, do I compete? Do I react?" Right?

Eliza Dailey (25:07):
Exactly. Yeah. I think the other important question is honestly an identity one, which is where do I see myself across these four different models? Am I trying to be the jack of all trades and trying to do everything, or am I going to bet on a more scoped ambition?

Sarah Roller (25:27):
And I would actually say that that idea of how do I see myself is the same message that I would give to independent practices as well. Independent practices are in a different place scale wise than either the corporate medical groups or the health systems, but that doesn't change the fact that all of these provider organizations are in a bit of a, or should be, in a bit of an identity definition phase around given the market forces that we have, reimbursement is rough right now, what do I want to place my bets on? It's a good time for everyone to be reconsidering that based on these archetypes.

Rae Woods (26:12):
Before we close, I just want to underscore the most important thing that you said in this conversation, at least the most important thing for me, which is that this year, 2024, is going to be the make or break year for corporate medical groups. If that's the case, here's what I want to know. What would it mean for the industry as a whole if corporate medical groups make it? What does it mean if they fail and maybe what are you watching for that will tell you which direction we actually end up in?

Sarah Roller (26:44):
I alluded to this earlier with my example of the divestitures and the closures, but one thing we know about corporate owned entities broadly is that they are not afraid to divest or pivot strategies if something isn't working.

Rae Woods (27:00):
And we're seeing that already.

Sarah Roller (27:01):
Yes, and I think about whenever we talk with health systems about what happens if you close a service line, what happens if you close a hospital? There's a huge response around what does this mean to the community? What does this mean to the people that I employ who relied on me and the patients that I feel obligated to serve? I am not saying that corporate medical groups don't have an identity with a community necessarily, but I do think that they're coming in later. The established relationships are there with the health system. It's not necessarily the same, "I'm going to make or break this city if I pull out of this city."

(27:45):
Not to mention the fact that no one is sitting here saying, "Oh my gosh, I love this corporation." The halo around, "Oh, Amazon is the best or whatever group. I love private equity." It's not like there's this super positive halo that they're going to be disrupting if they make these choices. So I think we are going to see divestitures and closures of medical groups if we don't have success. I also think that there are certain current owners who need these big corporate groups to buy them for a way out of things.

Eliza Dailey (28:25):
Personally, I'm going to be watching for two things this year. One is how well these corporate medical groups can actually shape utilization patterns, referrals, where patients are getting care, because if they're actually able to do that, I think that's a huge threat to incumbents. I'm a skeptic, but that's one of the big things I'll be watching. The second is where physicians choose to work. Like I said, it's about a quarter, a quarter right now, a quarter of practices owned by health systems, a quarter owned by these corporate entities. Which way are physicians going to go? So I would say if we roll the tape forward, let's say in a year, if either one of those pans out, I think you could see these corporate ecosystems emerge in the same way that you see the ecosystem around the health system emerge in any one market. You could see actually corporate practices, corporate medical groups, emerge as the anchor in a regional market.

(29:30):
They don't have a hospital, none of them do. That is actually a common denominator across all of these corporate medical groups. I think you very much could see two different worlds depending on the region that you're in, either markets that are heavily influenced by the health system or markets that are heavily influenced by these corporate medical groups.

Rae Woods (29:50):
Well, you've given me a lot of things that I'm excited to watch, and I know that the two of you and your teams are going to be tracking this and are going to be here to tell us what's coming next. So thank you for coming back on Radio Advisory.

Eliza Dailey (30:01):
Thanks for having us.

Sarah Roller (30:02):
Thanks, Ray.

Rae Woods (30:10):
Clearly, we could have spent even more time talking about all of the changes that are happening in the physician landscape, and if you're sitting there thinking you want to learn more, don't worry, Eliza, Sarah and the entire Advisory Board physician research team have actually been putting together a couple of webinars this spring that dive into this exact topic. In fact, they're going to go a little bit deeper. They'll go into things like market dynamics. They'll continue to speak to provider executives. They're even going to speak directly to those who maybe are listening to this and going, "I need to figure out how to sell to these medical groups." We've put all of that information in the show notes because we're here to help.

(31:15):
If you like Radio Advisory, please share it with your networks, subscribe wherever you get your podcasts and leave a rating and a review. Radio Advisory is a production of Advisory Board. This episode was produced by me, Rae Woods, as well as Abby Burns, Kristen Meyers, and Atticus Roche. The episode was edited by Katie Anderson with technical support provided by Dan Tayack, Chris Phelps and Joe Shrum. Additional support was provided by Carson Sisk, Leanne Elston, and Aaron Collins. I'll see you next week. And Jack stopped barking just in time, and then he started again.