What Happens When NICUs Affiliate With Physician Management Companies?

Practice management companies, many of them owned by private equity, are sweeping through U.S. healthcare, taking control of a large number of specialties, especially hospital-based ones such as emergency medicine and anesthesiology.

Another prime target are the physicians who staff the neonatal intensive care units (NICUs). Some of the NICU practice management companies include Millennium Medical Group in Beaumont, Texas, and Onsite Neonatal Partners, in Voorhees, New Jersey. One of the largest is Pediatrix Medical Group, in Fort Lauderdale, Florida, which is a publicly traded company and reported $491 million in net revenue for the first quarter of 2023.

The practice management companies say they can bring economies of scale and special expertise to the nation’s NICUs, especially at smaller hospitals that perhaps couldn’t support a NICU on their own. Critics say the companies, particularly the ones owned by private equity firms, are focused on short-term gains, so they work to fatten profit margins by negotiating higher prices with payers, skimping on quality improvement and steering care to high-margin services.

Jiani Yu, Ph.D.

Jiani Yu, Ph.D., an assistant professor of population health sciences at Weill Cornell Medical College, and her colleagues set out to systematically assess those claims and counterclaims. They identified 34 NICUs affiliated with Pediatrix and Envision Physician Services in Nashville, Tennessee, a company that also supplies anesthesiology, emergency department and other services. (Envision Healthcare, the parent company, filed for Chapter 11 bankruptcy in May.)

They compared those NICUs to 2,348 that aren’t affiliated with practice management companies. Researchers often include much larger numbers in a comparison group for statistical purposes. The results were posted in April in the journal Pediatrics.

What Yu and her colleagues found was that the NICUs affiliated with the companies were associated with large increase in prices and total spending but not with changes in measures of utilization, such as length of stay and the number of days graded as “intensive.”

In addition, they found that some measures that are indicators of quality — hospital readmission, hepatitis B vaccination, cases of necrotizing enterocolitis — were not different for the NICUs affiliated with the two practice management companies.

On the price differences, more specifically, the researchers found that the average prices for five common types of days billed by NICUs in the units affiliated with the practice management companies increased by $313 per day relative to prices increases by the NICUs not affiliated with the practice management companies, which works out 70.4% increase over the prices prior to practice management company affiliation. Their research also showed an increase of $5,161 per stay in spending on physician services in NICUs affiliated with practice management companies.

Yu and her colleagues say the price increases are consistent with those seen when emergency physicians and anesthesiologists become affiliated with practice management companies. They acknowledge an argument made by practice management companies: that insurers have the negotiating power to underpay physicians and that the spending hikes are the result of the companies using their leverage to correct the imbalance. “However,” wrote Hu and her colleagues, “the extent, if any, to which PMCs share revenue from higher prices with employed neonatologists is unknown."