Consolidation is when organizations become bigger and market power becomes more concentrated. This happens when two or more organizations merge or when one organization acquires another. There are two main types of consolidation: horizontal and vertical. Horizontal consolidation is when two similar organizations come together (e.g., two medical groups) while vertical consolidation is when two dissimilar organizations merge (e.g., medical group and health plan).

Some medical group markets and specialties are highly consolidated, which means that there are just a few large practices. Other markets and specialties that haven't seen much consolidation are more fragmented, with a large number of small practices. Most physicians still work in small practices with 10 or fewer physicians. However, over the past decade, the portion of physicians working in larger practices has steadily increased.

There are three primary drivers of this trend toward more consolidated medical groups.

In an AMN survey where final-year medical residents could indicate their top two workplace preferences, 68% selected hospital employee, 42% selected single-specialty group employee, and 32% selected multispecialty group employee. In contrast, only 20% preferred to partner with another physician and 6% wanted to run a solo practice. Larger practices are more appealing to young physicians because they offer less financial risk, lower administrative burden, and more stability than smaller practices. As younger physicians gravitate toward larger practices and the older generation retires, medical groups will become even more consolidated. 

Mergers and acquisitions are on the rise. From January 2019 to January 2022, there was an 86% increase in the number of practices owned by corporate entities, including private equity firms and health plans. The typical playbook for these organizations is to roll up fragmented practices to increase scale and cut costs. In fact, health plan deals are 10 times larger (measured by number of physicians) than other funders, leading to more consolidation. These practices are often attractive to physicians who want to preserve their autonomy with less financial risk. 

Running a small practice has become more challenging due to declining reimbursement, growing administrative complexity, and the up-front resources required for value-based arrangements. These factors make it difficult for small practices to remain financially viable, and as a result, many are bought out by larger entities. From 2012 to 2022, the number of physicians in solo practices has declined by over 5%, while those in groups of less than 10 physicians decreased by 10%. 

There are two main trends that will continue to drive consolidation. 1) Healthcare is approaching mass physician retirement. As of 2021, 46.7% of active physicians were age 55 or older. With an average retirement age of 65, almost half of the physician workforce will age out across the next decade, meaning that younger physicians and their preference for larger practices will predominate. 2) Corporate investment in medical groups also remains hot. From January 2019 to 2022, corporate ownership outpaced hospital ownership by nearly 10 times, resulting in 54% of practices employed by larger entities. If the last decade is any indication, this trend will continue on.  

It’s still too early to definitively say what impact consolidation will have on patients. And early literature is a mixed bag. Proponents suggest that consolidation could improve care coordination by simplifying and unifying the patient experience under one “roof.” On the other hand, opponents claim consolidation will reduce competition, drive up prices, expand healthcare deserts and worsen care quality. It is crucial to track quality, access, and affordability outcomes to understand long-term impacts. But it is an oversimplification to label medical group consolidation as solely good or bad. 

Consolidation changes partnership dynamics. Partners must tailor their strategy to the medical group’s size and resources. Partners operating in more fragmented markets or specialties must find a way to work with many small practices at scale. Management services organizations (MSOs) are a common way to do so. On the other hand, larger practices exert more power and influence in a market. They often require more tailored approaches and value strategic partnerships. Organizations partnering with medical groups must avoid one-size-fits-all strategies. 

As mentioned earlier, some specialties are more or less consolidated than others. We analyzed a national data set from CMS to quantify consolidation for key outpatient specialties relative to one another. While this data offers a national snapshot, consolidation will vary by market, as the drivers mentioned earlier manifest differently in different localities. 

We analyzed data from CMS’ Provider Data Catalog National Downloadable File to examine the primary specialty of each physician included in the data. Certain specialties were grouped based on Advisory Board service line definitions. These definitions were used to determine the specialty of the physician.  

To determine the size of the organization associated with each physician, we categorized the data based on the number of organization members associated with each physician’s organization. Consolidation for each specialty was calculated by determining the percentage of physicians in each specialty that were in a medical group of 100+ physicians. Specialties were then split into four quartiles by analyzing the range of consolidation percentages.

• What is the state of consolidation in your market? Which specialties are more or less consolidated?
• Who is acquiring and competing for physicians in your market?
• How can you adapt your strategy to work effectively with both large and small medical groups?
• What metrics will you track to assess the impact of consolidation on patient care outcomes?