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Healthcare Sector Quarterly Update - Q4 2016


Trend: Hospital Ownership of Physician Practices Continues to Increase

The number of US physician practices owned by hospitals is rising rapidly, as changes in medical payment systems prompt providers to seek efficiencies through new operational structures. Some 31,000 practices were acquired by hospital groups between 2012 and 2015, leading to an 86% jump in the number of hospital-owned doctors' offices, according to a recent study from Avalere Health and the Physicians Advocacy Institute (PAI). Nearly 40% of physicians in the US are employed by hospitals or health systems. Typical acquisitions include employment contracts for multiple physicians' services, along with physical property and equipment. The study found that Medicare payments for some common outpatient hospital services are up to three times higher than if they'd been performed at a physician-owned office, leading to concerns that the acquisition trend could drive up health care costs for payers.

Industry Impact
Health providers are consolidating to get a better handle on revenue streams, reduce costs, and control risk. Federal programs looking to control costs may further alter payment systems if consolidation is found to increase medical spending.


US consumer prices for medical care commodities, an indicator of healthcare costs, increased 4.5% in August 2016 compared to the same period in 2015.

US consumer prices for medical care services, an indicator of profitability for healthcare services, rose 5.1% in August 2016 compared to the same month in 2015.

Total US revenue for healthcare and social assistance rose 6.7% in the second quarter of 2016 compared to the previous year.