A 3-way Tug-of-War Over Physician Practices

and its impact on pharma

Physicians who own their own practices should feel honored! They are the focus of an ongoing tug-of-war between the biggest stakeholders in the healthcare industry. The prize in this contest is the independent physician practice. The winner of the contest gains a powerful advantage in payer/provider network negotiations, as well as control over the gateway to the healthcare system.

For several years now, large integrated hospital systems have become larger through acquisition of physician practices. This is not a new dynamic, and the rationale hasn’t changed; controlling more healthcare services results in local market . This dominance leads to a stronger position as the hospital system negotiates for higher payments from insurance companies.

Image from StarTribune

In response, payers have been hiring and purchasing their own healthcare providers. Not only is UHC the largest commercial insurer in the country, it is also the largest employer of healthcare providers. Employing providers offers two primary advantages to a payer:

This latter scenario is happening in several markets across the country. due to failed negotiations. UHC can take stronger stances against hospital contract demands partially due to the availability of their own organic provider network.

Image from BCBSM website

A third line being pulled in the tug-of-war between payers and providers relates to keeping physician practices independent. As long as payers have more than one network option in each market, they have a relatively strong negotiating position against large hospital systems. Therefore, some payers have created support programs to help physician practices remain independent:

  • BCBS of Michigan offers a program that helps physicians “optimize their business practices”
  • BCBS of North Carolina offers a program “to make sure independent physician practices survive”

IMPACT on Pharma

The three scenarios described above create very different prescribing environments, each impacting the pharmaceutical industry in unique ways:

When the prescriber is owned by a hospital system

They don’t reflect a single payer’s formulary; they represent the merger of many payer formularies. This means each hospital formulary is unique, and is enforced by the system’s Electronic Health Record (EHR), which only offers preferred treatment options to

When the prescriber works for a payer

These prescribers are strongly encouraged to follow their employer’s formulary. As you would expect, formulary adherence rates are very high in this environment

When a practice is independent

Prescriptions in this environment have very little financial impact on independent physicians. They write a prescription (generally following patient-specific coverage restrictions), and a pharmacy worries about the rest.

Look for the influence

Selling in these different environments requires different strategies and tactics. For example, if hospital systems win the tug of war for more physician practices, then sales efforts should focus on decision makers at the top of the system’s decision tree. If payers win, then higher rebates may be worth the market share to be gained.

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