The Promises and Failures of Consolidation — Issue #2

We were told bigger would be better. It hasn’t quite turned out that way.

Greetings from Atlanta.

I’m recently returned from a road trip through the Southeast, where we launched a new partnership with St. Francis Medical Center in Louisiana and met hospital administrators in Alabama about some other potential new business.

In the first issue of this newsletter, I wrote about how I founded Core Clinical Partners, the failing hospital Jessica Long and I bought while we were at ApolloMD, and how I went from running dozens of contracts in multiple states to suddenly being CEO of a new group with just one contract. It’s a good story, if you want to catch up!

This month, I’m going to write about what was going on in the market in the years leading up that time: namely, consolidation. Consolidation of hospitals and health systems, of payers, and, in my world, physician groups.

There’s a lot to this story, but in my view understanding what happened starts with a very simple human emotion: fear.


From something worth millions to something worth nothing

For decades, there was a good reason to start your own emergency medicine group: rising volumes, and valuable hospital contracts. An entrepreneurial ER doc (or group of docs) could start a new business relatively easily and watch volume and profits grow.

But 10 or 15 years ago, things began to change. Hospitals started consolidating, and so did payers. This happened for a range of reasons, some regulatory, some market-driven. Regardless, the consolidation led to a wave of fear among the ER docs who had started these groups. The fear was that the thing they owned that was worth millions today could suddenly be worth nothing tomorrow.

The partners in an emergency medicine group could have a profitable hospital contract and a really good relationship with the CEO in one place — but if that hospital merged or sold into a larger system that used another group, they could lose the contract overnight. It didn’t take this happening too many times for the smaller groups to get the message.

Consolidation offered a number of promises to these physician leaders. At least, it seemed to.

Promise #1: Scale will help with recruiting

A big part of winning new hospital contracts is proving you have the ability to staff the site. Scale promised to help do that.

Plus, back then, maybe ten years ago, being small meant it was tougher to get the word out. Recruiting took resources: hiring recruiters, visiting residencies, spending big on advertising, and — of course — throwing a memorable party at ACEP each year.

Promise #2. Scale will help with RCM

When I started Core, people told me I would never be able to compete with the big national groups when it came to revenue cycle management (I’ll give my answer to how that panned out below).

There are a lot of reasons scale might help run a large healthcare organization, but ultimately the issue of rates is at the heart of it all. Both payers and hospitals were engaged in an escalating battle over reimbursement. Insurers got big in order to pay out less, and hospitals got big to counteract that leverage and instead negotiate for more.

In that environment, the thinking was that the small EM groups didn’t stand a chance. There was no way they could run revenue cycle as efficiently as a larger group, and as a result, they were more expensive to the hospitals, and thus were more at risk of losing the contract.

Promise #3: Becoming a “safe” choice

Here I want to point out that it wasn’t just physician leaders who feared losing their contracts — hospital leaders also feared losing their jobs.

As wave after wave of consolidation hit health systems, many hospital CEOs felt like the best choice was a safe choice. So, what was safe?

Well, there’s a story: in the waning days of 2016, during the Christmas holiday in fact, the emergency medicine group in charge of running five emergency departments for Summa Health in Northeast Ohio essentially walked off the job. The health system and the ED physician group had failed to come to an agreement on renewing their contract, which ended December 31st.

If you were working in emergency medicine back then, I’m sure you heard about it. It was high drama. Summa lost the residency accreditation at one of its sites, a new group stepped in to take over the contracts, the old group accused Summa of bad faith in negotiations, the community was up in arms, the whole thing made national healthcare news, and the Summa CEO eventually resigned over the whole debacle.

So, what does “safe” mean, from a hospital CEO’s point of view? It means not getting Summa’d.

In other words, it means hiring a group that won’t implode or just decide one day in the middle of a contract negotiation that they’re not going to show up. And it’s true: that would never happen with any large group, because that group would lose business and credibility if they tried to pull something similar.


How the promise of consolidation eventually failed

I’m not here second-guessing anything. I think consolidation was probably the right choice for those involved at the time. But still, I think it’s time we all acknowledge that many of the promises of consolidation have simply not come to pass.

The recruiting market is on its head

Let’s start with the obvious change in the job market for emergency physicians. Whereas the name of the game for the past 10-15 years has been working to fully staff your locations, today this just isn’t as big a pain point.

The argument that you have to be big in order to get fully staffed locations has simply vanished.

Core, for example, is fully staffed at every site, and I don’t even have a full-time recruiter. How can this be? Well, the changes in the job market for emergency physicians should be the subject of their own dedicated newsletter, but it seems to be a combination of lower volumes, more residencies, more new docs graduating, changes in technology, and the pandemic.

Plus, today I can post a job announcement to a Facebook group and get a dozen responses within days. No recruiters needed, no fancy steak dinners, no ACEP parties. Recruiting just doesn’t require the resources it used to, and in fact being a big corporate giant is often a turnoff for physicians deciding where to go out of residency.

The RCM challenges are real — but dwindling

The other big promise of being able to run a super efficient revenue cycle management program is real, but it’s not as big a deal as I was warned it might be.

While I’m sure it’s true that the largest national groups are able to charge more than Core, we make up for that in a variety of other ways. Meanwhile, I believe the new balance billing compromise passed by Congress last year will have the effect of evening out disparities in rates. The new legislation means the most expensive groups (the large ones) will be forced to lower their rates somewhat over time.

Meaning, the challenge of RCM is less of a challenge once national groups are no longer able to use their size as a giant hammer against the payers. That’s good for patients, who will no longer get “surprise” bills in their mail, but it’s also good for Core.

What about the quality?

Hospital CEOs who made the safe choice of hiring a big national company to run their emergency department did get a group who won’t implode or walk off on them. But they also found that the quality they were promised often didn’t materialize, or materialized but then dwindled away over time.

I think this is because these large groups failed to get physician alignment and buy-in at the local level. The promise of consolidation was that the contracts would be more secure, but once consolidation happened, they lost physician engagement.

To be sure, large groups have a lot of resources to fix hospital problems — patient flow, patient satisfaction, rounding models — and a lot of smart people and experience to do it. But they can’t get the doctors actually at the hospital to follow through in the long run, because the doctor at the hospital has no allegiance to the group.

Without engagement and alignment, it’s hard for the larger groups to move the needle, even if they have the tools and resources to do so.

What the future may hold

I think we are about to see another big churn in the market. This churn will be driven by the realization that all this promise of consolidation didn’t turn out the way it was sold.

Physicians will realize they would rather work for a group and alongside colleagues who have alignment at the contract level, and not at some distant corporate level. And health systems will realize that they may have gotten a safe choice, but they didn’t necessarily get the highest quality choice.

And as we come out of the pandemic, life gets back to normal, and the healthcare system continues its transition from volume to value, all these factors will start to matter more than they ever have before.

Of course, I founded Core in 2018 based on what I watched during all this consolidation, and having taken from it numerous lessons: that alignment at the local level is critical; that the promise of scale was overblown; and that real partnership with physicians and hospitals was possible with a different approach.


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