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Health care giant wants to buy locally-owned Corvallis Clinic chain

Commercial building exterior. A sign on the building reads "The Corvallis Clinic."
Corvallis Clinic, P.C.
The North Albany building of The Corvallis Clinic

This story originally appeared Jan. 2, 2024 on the Lund Report, a nonprofit news website focused on Oregon health care issues. It appears here with permission.

UnitedHealth Group, the nation’s biggest health care corporation, is continuing its expansion drive in Oregon with a bid to buy The Corvallis Clinic, an independent 11-clinic physician-owned system in the mid-Willamette Valley.

Under the deal, the clinic network, founded 76 years ago, would become an arm of Optum Health, the burgeoning United Health division that is rapidly buying up medical practices nationwide.

The Corvallis Clinic, with over 100 doctors and other providers and a support staff of over 500, is the largest multi-specialty outpatient healthcare provider in the mid-Willamette Valley. It serves the Benton, Linn and Lincoln county markets.

The proposal comes at a time when UnitedHealth’s size and practices increasingly have made it a magnet for criticism. Ranked by Fortune magazine as the 10th largest company in the world, it reportedly employs or is affiliated with about 10 percent of all physicians in the United States. The parent company faces lawsuits for, among other things, allegedly charging ‘unconscionable’ fees blamed for putting independent pharmacies out of business. It’s recently been the subject of a series of articles in STAT, a top health care industry news publication, for allegedly using a secret algorithm to cut off care for sick and elderly patients in rehab.

The Corvallis clinic system’s local owners want to sell in part because the venture is struggling financially, according to the application UnitedHealth and clinic submitted to the state’s Health Care Market Oversight program. The application doesn’t name the owners or say how many of them there are.

The state program reviews acquisitions and mergers to see if they will drive up costs or hurt care and health equity. The state can reject or set conditions on deals.

The application paints a bleak outlook for the business if the state rejects the deal.

The clinic has forecast “material losses over the next 12 months, despite the physician-owners’ 15% reduction in compensation which was put in place more than a year ago,” the application states. Without the sale, pay cuts “would almost certainly continue for an indefinite period, jeopardizing Corvallis Clinic’s ability to retain high-performing physicians and recruit new providers.”

“Along with ongoing losses, further instability is expected as clinicians will seek employment opportunities where they can earn more competitive compensation. The loss of physicians in the geographic service area would have a significant negative impact,” the application states.

The application includes details of the clinic system’s finances plus financial terms of the purchase, but those are blacked out because UnitedHealth and the clinic say they are trade secrets exempt from disclosure under Oregon public records law.

UnitedHealth would revitalize the business by increasing the number of health care providers, improving service quality, replacing old equipment, upgrading software and standardizing workflows, all over one to two years, the application states. No financial or other specifics on the upgrades are provided in the public portion of the application.

Third deal in Oregon

The proposed deal is just the latest example as doctors nationwide increasingly sell their practices to large businesses such as hospital systems or insurers such as UnitedHealth.

The deal would be UnitedHealth’s third in Oregon. In 2020 it bought the nine-clinic Oregon Medical Group system in Lane County, followed by a small two-clinic group in Portland.

The Corvallis Clinic purchase would be the first UnitedHealth acquisition to undergo Oregon’s merger review process. The previous purchases took place before the program launched.

The state can nix a proposal if it finds the deal would harm health care. Or it can set performance conditions and monitor the entity to ensure compliance.

Minnesota-based UnitedHealth’s main business is providing Medicare, Medicaid and commercial health insurance nationwide. But profits from that work are relatively thin, financial analysts say. So, the corporation has been diversifying, in part through buying up physician-owned medical practices around the country. It has found willing sellers in the form of doctors who want to retire or to hand off the increasingly complex tasks of insurance claims, care coordination, electronic records management and the like.

UnitedHealth uses its Optum Health arm to buy practices, bringing on the physicians and other staff as employees. Nationwide, Optum Health now employs nearly 90,000 doctors and other 40,000 advanced practitioners such as physician assistants, Optum Health CEO Amar Desai said at UnitedHealth’s annual conference for investors and stock analysts in November. That’s up from 60,000 doctors in mid-2022.

“We are becoming the practice and partner of choice in the marketplace,” Dr. Desai said.

That growth will continue, he said. UnitedHealth is the single largest employer of physicians in the country, according to published reports.

The four million patients served this year by UnitedHealth’s physician practices “is a small fraction of the vast potential,” UnitedHealth CFO John Rex told the audience.

One big focus of UnitedHealth is streamlining and improving health care and records technology and other procedures at physician practices.

UnitedHealth is also branching into pharmacy services and medical technology.

Vertical integration

Some observers say it’s unclear whether this so-called “vertical integration” is good for patients.

“We know that horizontal consolidation — that is, hospitals merging with other hospitals or physician practices merging with other practices — increases prices, and it’s hard to find evidence of quality improvement. There’s less data on vertical integration, though it seems to have the same effect,” said David Blumenthal, former president of The Commonwealth Fund, a nonprofit health care research and advocacy group, in a November 2022 interview.

Vertical integration “clearly facilitates some infrastructure development that improves care coordination, like a common electronic health record. And in theory, having multiple types of care under one roof should facilitate care coordination. However, some integration seems to be occurring not for the purpose of coordinating care, but for increasing leverage in the marketplace.”

Blumenthal said it’s difficult for states to regulate vertical integration. But some states – including Oregon with its cost growth target program are pressing large health care businesses to cap their overall cost increases. That approach may work, Blumenthal said.

On its website, The Corvallis Clinic said it was hammered financially by the COVID-19 pandemic.

“All elective surgeries were postponed, cutting into much of the services The Clinic offers. The devastation of COVID-19 cannot be understated,” a history of the business on the website states. The federal Department of Health and Human Services database shows the agency gave the clinic $1.7 million in pandemic provider relief money to help cover costs.

In 2022, the clinic celebrated its 75th anniversary. The narrative on the clinic website is optimistic. That year “brought much growth to the organization. The leadership teams were spurred on toward personal and departmental growth mindsets, and many remodels and department changes took place. The Corvallis Clinic may have 75 years under its belt, but the best is yet to come,” it stated.

The business is headquartered at its Asbury building, next to non-profit Samaritan Health’s Good Samaritan Regional Medical Center in north Corvallis. The clinic built and moved into that hub in 1978, according to the history. The building is on land owned by Samaritan Health, which built the hospital at the same time. The clinic has a 100-year lease on the land from Samaritan Health, according to the history.

The clinic system has three other locations in Corvallis, three in Albany, and one each in Lebanon, Philomath, Newport and Lincoln City. Besides primary care, it offers 25-plus specialties, from behavioral health to physical therapy, orthopedics and neurology, and it owns and operates an ambulatory surgery center.

In the merger review application, many details have been blacked out with a claim of confidentiality under Oregon law. For example, the number of employees is blacked out. However, the clinic’s website states it has “over 100 board-certified physicians and advanced clinical professionals” plus 500 other staff. The website’s employee listings show 125 doctors, physician assistants and other advanced professionals.

The Oregon Health Authority is asking the public to email comments to hcmo.info@oha.oregon.gov by Jan. 18, and to include the word “Optum.”

UnitedHealth’s growing profits

As it has diversified, UnitedHealth has delivered steady profitability for shareholders, and many analysts are bullish on its stock.

UnitedHealth reported $20 billion in net profits on $324 billion in revenues for 2022. Optum Health’s portion was $6 billion in net profits on $71 billion in revenues. Optum Health’s operating profit margin was 8.5%, significantly better than the 5.8% margin of UnitedHealth’s health insurance business, according to the annual report.

Fed by continued acquisition of physician practices, Optum Health’s revenues will top $110 billion in 2024, and the number of patients served by its clinics will grow by 750,000, CFO Rex said at the November conference.

UnitedHealth’s expansion into health care technology met federal opposition in 2022 when the Department of Justice alleged UnitedHealth’s proposed purchase of Change Healthcare, a health insurance claims processor, violated anti-trust law. But a federal judge ruled for UnitedHealth and the deal closed in late 2022. UnitedHealth said the deal will help cut administrative and claims processing costs.