San Diego Business Journal

Large health care providers in the county are bracing for an influx of new patients, as the Affordable Care Act comes into full effect next year.

This requires a growth in the number of primary care physicians to meet that need, which has led to a spurt of acquisitions and mergers of primary care physician practices into their network of providers.

Escondido-based Palomar Health is meeting that need with its expansion plan in North County. Palomar recently opened a new, $6 million clinic in Ramona and added to its growing roster of physicians recruited from neighboring practices,

“Our growth plan calls for really doubling the number of our primary care physicians over the next four years,” said Vicky Lister, executive director of Arch Health Partners, an 80-physician practice affiliated exclusively with Palomar Health.

“In the last two years, we’ve really been seeing an uptick in these kinds of acquisitions — of smaller groups forming into larger groups that are already large, and making them larger,” said Brad Vaudrey, a principal at Chicago-based executive and physician compensation consultancy Sullivan Cotter and Associates Inc. “The push is in integrating health systems — and the big fish are gobbling everything that they can.”

Already Choked System

There are several reasons, he said: Medicare reimbursements are decreasing, and the upfront costs to physicians are increasing as more stringent quality measures are enforced by the government. And, of course, health care reform will push a new legion of patients through an already choked system. Primary care doctors, in particular, are in high demand — and health systems are forming affiliations with physician groups to accommodate.

Arch Health Partners was formed in 2010 by Palomar Health and the Centre for Health Care, a Poway-based multispecialty medical group with about 35 doctors. Since, the practice has more than doubled — largely through acquiring smaller medical groups along the way.

Arch Health Partners operates under Palomar Health’s foundation, because a California law that restricts the corporate practice of medicine and doesn’t allow hospitals or businesses to employ physicians.

Lister said that the Palomar Health Foundation was created so that it could build a network of physicians “who were dedicated and loyal to admitting patients to Palomar Health facilities.”

In its most recent physician recruitment effort which added seven new doctors in Escondido, Lister said that Arch Health Partners — and by extension, Palomar Health — added about 20,000 new patients to its patient pool.

Expansion Into Secondary Markets

The seven Escondido physicians were previously affiliated with Scripps Coastal, a large medical group that employs about 140 throughout the area. A representative from Scripps Health said that it wasn’t a practice acquisition so much as physicians just leaving Scripps Coastal to join Palomar Health.

“The primary reason they wanted to move to Palomar was to be able to access Palomar Health facilities,” Lister said. “This group of physicians, in talking with their patients, learned that most live around Escondido and North County and didn’t want to continue driving to Scripps Encinitas or La Jolla — so Palomar became more attractive once the new hospital was built.”

Lister said that Arch Health Partners plans to add new clinic sites within the Palomar Health boundaries, as well as expand into secondary markets that haven’t yet been touched by the physician practice.

“It’s still up in the air — we’re talking to other physician groups in the area, but it’s premature to try to identify which ones we might bring on,” Lister said.

Three Competing Groups

There are three large competing physician groups in the North County. Graybill Medical Group covers Escondido, San Marcos, Fallbrook and Temecula, and is affiliated with Palomar Medical Center, Sharp Community Medical Group and Fallbrook Hospital. Scripps Coastal, the physician group affiliated with Scripps Health, also has several clinics in the area.

“I’m sure other hospitals are trying to expand, because North County has one of the highest growth areas here,” Lister said. “There’s just a limitation to the downtown area, and there’s not a lot of physical space for growth.”

Scripps Health, for instance, is expanding in the area as well. Last month, Scripps Coastal Medical Group, which is affiliated with Scripps Health, acquired a smaller physician practice called Alvarado Medical Group — marking the eighth physician group to join the larger practice since 2008. Before the merge, the Alvarado Medical Group largely admitted patients to Alvarado Hospital, but beginning April 1 will begin working exclusively with Scripps Health hospitals.

In addition to improving the financial performance long-term, acquiring physician groups means more to a hospital system than just the bottom line, said Scripps Coastal Chief Medical Officer Louis Hogrefe.

“We’re seeing more of a focus on population health throughout the country, which is more of a move to pay for quality rather than volume,” he said. “Physician groups need systems in place and operational support in order to facilitate improving that quality of care. It’s just more complex these days.”