Contract Management Groups (CMGs) have been in the news lately, with Envision Healthcare and American Physician Partners filing for bankruptcy in the summer of 2023.  Commonly referred to as physician staffing companies, this description underestimates the role of CMGs in modern healthcare and the power they hold over US physicians.  CMGs not only staff physicians from multiple specialties but also do their administrative work, bill and collect patient accounts, and negotiate contracts on behalf of physicians with insurance companies.  They also sign physicians to one-sided contracts, allowing doctors to be fired for any reason without the ability to appeal.  Non-complete and restrictive covenant clauses also restrict physician employment even after termination.  In short, CMGs are the private equity-owned, corporate overlords of large groups of US physicians.  

     The debate when I was a resident in emergency medicine was whether you should work for a CMG or not.  Unfortunately, with fifty percent of EM doctors in the US employed by CMGs today, that question is moot in many parts of the country.  Unless things change, the more applicable questions for EM docs are now: “Who is my new employer?” and “What should I know before working for a CMG?”  

Contract Management Groups 

     Contract Management Groups are businesses that act as middle men between hospitals and doctors.  Instead of a hospital hiring individual doctors directly or a group of doctors collectively, the CMGs hire the doctors and contract with the hospital for services.  Actually, the sequence is often reversed, which is part of the problem.  CMGs will negotiate an agreement with the hospital first, then go out and try to find providers to cover the promised services.  Their modus operandi is to underbid the contract, then scramble to find physicians by initially overpaying them, then replacing them with lower-priced permanent replacements as soon as possible.  They then focus on increasing profits by minimizing staffing and salary, maximizing billing, and using their scale to their advantage through self-insuring for malpractice, in-house billing/coding, and negotiating with insurance companies for better reimbursement rates.  

     These tactics are not intrinsically bad.  Private ER groups, if they are smart, generally attempt similar things: increase efficiencies, offload minor cases to APPs, maximize billing through better documentation, negotiate with insurance companies for better reimbursement rates, etc.  This is just good business.  The main differences, however, are the way physicians are treated and the extent to which the business model interferes with the ethical practice of medicine.

domino effect

CMGs vs. Small Democratic Groups

   Small independent democratic groups have traditionally been considered the ideal as they promise to treat physicians more fairly than CMGs.  It’s all there in the name.  First, they’re small, so you expect a more personal relationship with other group members.  Next, they’re independent, so they should not be as influenced by profit-motive directives as those coming from corporate management.  Finally, they’re democratic, so physicians should have their say in what happens within the group.  This is the allure of the now elusive small democratic group.  Sounds great . . . if you can find one.  

History of CMGs

     CMGs started in the 1970s as doctor-owned businesses, responding to the challenge of staffing the country’s emergency rooms 24 hours a day.  By the 1990s, these small groups had become bigger, incorporating billing & coding services and malpractice self-insurance.  They continued to expand and began staffing hospitalists, radiologists, trauma surgeons, critical care doctors, and more.  Eventually, a few giant groups emerged that either became publicly traded companies or were bought by private equity.  

Private Equity Takes Over

     The largest CMG, Envision Healthcare, began life as EmCare in 1972 in Dallas, Texas.  By 2005, it was the largest ER staffing company in the country and was purchased by a private equity group.  The company went public in 2013 as Envision Healthcare, which was taken private again when it was purchased by another private equity firm, KKR, in 2018.  The other private equity-owned giant in the space is TeamHealth, owned by Blackstone.  These two companies alone employ 1/3 of all American ER doctors.  Other industry giants include American Physician Partners (APP), owned by Brown Brothers Harriman; SCP Partners (formerly Schumacher Group), owned by Onex; and US Acute Care Solutions (USACS), owned by Apollo Global Management.  Collectively, CMGs employ 50% of all US emergency medicine physicians, while nearly 75% of all physicians are now employed by hospitals or for-profit entities.  To read about the Corporate Practice of Medicine Takeover, click here.      

 Private Equity Playbook

     Private equity firms raise capital from investors to invest in privately held companies.  Their investments tend to follow a prescribed pattern.  Buy a company using debt, increase efficiencies to maximize profit, and sell the business in 5-7 years at a higher valuation.  They have tried to use this playbook with CMGs, with varying degrees of success.  They certainly got the first part right, buying many CMGs using debt at inflated values.  With low-hanging efficiencies already picked, private equity-backed CMGs use more questionable methods to increase their “efficiency” (read bottom line), such as decreased staffing, pressuring clinicians to “up code” charts, increasing their out-of-network billing, surprise billing, and replacing doctors with APPs inappropriately.     

       In any physician-centric business, salary will always be the largest expense.  Let’s face it: doctors are expensive.  To circumvent this, CMGs have attempted to make emergency physicians a commodity.  As with any commodity, there is a supply & demand relationship, and CMGs have tried to tilt both sides in their favor.  On the demand side, they have reduced physician staffing hours and are increasingly shifting patient care toward APPs, whether appropriate or not.  On the supply side, CMGs will use “board-certified emergency physicians” instead of “physicians board-certified in emergency medicine” in smaller ERs.  Anyone with any board certification fits the former description as long as they work in the ER.  Free-Standing ERs frequently use the same linguistic trick.

     More sinisterly, CMGs have begun sponsoring EM residency programs, directly increasing the supply of new graduates.  The number of for-profit affiliated Emergency Medicine Residency Programs has increased by 85.7%, from 5 to 29 in a 5-year span (2016-2021) (1).  This has allowed CMGs to spin their business model in a positive way to a generation of young EM docs while getting some cheap labor while they’re at it.  Predictably, for-profit programs pay their residents 6.4% less than non-profit programs.  (1)  

business fishing

Effects of CMGs on Medicine

     Not surprisingly, Wall Street’s takeover of medicine has been harmful to physicians and their patients.  Since healthcare acquisitions by PE firms have only grown exponentially over the last few years, long-term cost and patient outcome data by PE-owned facilities is sparce.  However, a meta-analysis of the current literature by the BMJ in July 2023 concludes, “Trends in PE ownership rapidly increased across almost all healthcare settings studied.  Such ownership is often associated with harmful impacts on costs to patients or payers and mixed to harmful impacts on quality.” (3)  

Financial Difficulties 

     Recently, it has become clear that the operational efficiencies implemented by private equity-backed CMGs have not resulted in sufficient profits to cover their massive debt.  Blame can be widely placed: COVID-19, operational mismanagement, the No Surprises Act (NSA), overleveraging, and insurance companies’ power.  Whatever the reasons, CMGs have been in trouble lately.  Envision Healthcare filed for Chapter 11 bankruptcy in May 2023, meaning they will attempt to restructure and continue business.  American Physician Partners followed by filing Chapter 7 bankruptcy in July, which means they will cease operations, leaving 119 emergency departments scrambling for coverage.  Both companies cited the NSA as a contributing factor; however, it ultimately came down to being unable to cover their massive debt load.  This is despite APP having 38% fewer uninsured patients, and staffing costs 34% lower than the national average!  (2)

     Are the recent struggles of the CMGs a mere stumble on Wall Street’s march to take over health care, or is this a harbinger of change to come?  Envision will emerge from bankruptcy protection and continue down the same path with restructured debt, yet they face other hurdles.  In 2022, the American Academy of Emergency Physicians (AAEM) sued Envision Healthcare in California, alleging the company used a “shell business structure” to circumvent the state’s CPOM laws.  The suit further alleges that “after it acquires a practice and at all other times, Envision exercises profound and pervasive direct and indirect control and/or influence over physicians’ practice of medicine.” (4)  AAEM representatives have vowed to continue the lawsuit despite Envision’s bankruptcy, as the suit does not seek monetary damages, but to establish a legal precedent against the corporate practice of medicine that will carry over into other states.   

life raft; survival mode

Backlash?

     As more and more studies demonstrate that private equity-owned healthcare provides lower quality at higher costs, awareness is increasing on this issue.  Search “private equity in healthcare” in your favorite browser, and you will find a long list of recent popular press articles on the subject.  The AAEM lawsuit highlights a new physician involvement against CMGs, while the American Medical Association has adopted a formal policy on PE’s involvement in graduate medical education.  Time will tell where awareness, advocacy, and litigation will lead, but the factors that started the PE takeover may eventually lead to its restriction.  The bankruptcies of Envision and APP may demonstrate a crack in the PE business model regarding healthcare.  Only so many “efficiencies” can be tolerated when dealing with people’s health.  Rising interest rates also limit future acquisitions, as the increased cost of debt makes deals less appealing to PE firms.  

Physician Culpability 

     Physicians also have culpability regarding private equity’s takeover of medicine.  After all, who is selling these medical practices to private equity firms to begin with?  Who is working for the CMGs?  Who is agreeing to the contract restrictions being placed on them?  Many physicians in 2023 don’t always have a choice, as the job market has shifted toward the physician-employee model.  However, the pendulum is free to move in both directions.  For too long, the average physician has buried their head in the sand on the issue of business and medicine.  Most doctors want to practice medicine and live their lives, unconcerned with the financial machinations behind the scenes of their practice locations.  However, the practice of medicine is undeniably made up of two parts: patient care and the business of medicine.  One cannot exist without the other.  This hemispatial neglect of the business half by the average physician has contributed to the current corporate takeover of the profession.  If physicians don’t stand up and take control of the business aspects of medicine, Wall Street will be happy to do it for them.  Physicians need to become educated on PE firms, CMGs, and the corporate practice of medicine.  They also need to educate themselves on personal finance and the business of medicine.  Join us at Business is the Best Medicine as we explore these topics and hopefully inspire medical professionals to take medicine back from their corporate overlords.       

  1. AEM Educ Train.  2022 Aug; 6(4): e10786. Published online 2022 Aug 3.  doi 10.1002/aet2.10786
  2. APP’s investor slide deck 2021:  https://s3.documentcloud.org/documents/23605675/american-physician-partners-redact.pdf
  3.  BMJ 2023; 382 doi: https://doi.org/10.1136/bmj-2023-075244 (Published 19 July 2023)Cite this as: BMJ 2023;382:e075244
  4.  https://www.aaem.org/wp-content/uploads/2023/04/Envision-Lawsuit-Lawsuit.pdf
  5.  https://www.nber.org/system/files/working_papers/w28474/w28474.pdf