How fee for service pushes independent practices into hospital ownership

Fee for service pays a physician for each visit, test and procedure. Gary Jacobs argues that the model also determines something less obvious: which practices can survive independently, and which ones end up owned by a hospital.

Jacobs is managing director at the Washington policy firm Healthsperien and has spent more than 40 years in health care as an entrepreneur, operator and advocate, including at Medicare Advantage challenger Universal American and later VillageMD, an early participant in the direct contracting experiment that became ACO REACH. He is also the author of "The Zen Lobbyist: A Mindful Approach to Transforming Healthcare."

Why the documentation burden is an economics problem

The paperwork load on a small practice cannot be fixed by working harder, Jacobs said. A physician cannot see patients all day, go home for dinner and then spend three more hours away from family finishing the day's compliance work. Hiring staff to absorb it is the obvious answer, and under fee for service the math does not support it.

A capitated, risk-adjusted payment tied to a defined population changes that, by his account, because it gives a practice predictable cash flow to staff up and move work to the top of every license, with nurses and nurse practitioners handling more and the physician overseeing a larger panel.

What happens to the practices that wait

Jacobs described a pattern he watched repeatedly: A physician in their 60s who has billed fee for service their whole career declines to take on risk. They bring in a younger associate with a plan to hand off the practice. When the time comes to sell, the associate cannot finance the purchase, so a hospital does.

The physician who wanted to preserve an independent practice ends up salaried inside a system, taking call and doing work they had never done before.

At VillageMD, he said, the company bought a number of practices from physicians who had sold to hospitals and regretted it.

The evidence he points to

Jacobs' case rests on ACO REACH — that is, Accountable Care Organization Realizing Equity, Access, and Community Health, a voluntary model run by the CMS Innovation Center (CMMI) — which he said produced about $2.5 billion in savings in 2024, with primary care-led ACOs performing best. ACO REACH sunsets at the end of 2026 and gives way to ACO LEAD — the Long-term Enhanced ACO Design model — which launches in January.

Jacobs is watching whether the successor preserves what worked, and argues the approach only holds together if physician and patient well-being sit inside primary care rather than beside it.

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