Hospitals on Buying Spree Snap Up Physician Practices

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KeratinPearls

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From the Dark Daily, Dark Report

June 1, 2010

Doctors Opt For More Resources, Fewer Administrative Burdens Over Independence
There's an interesting trend which has significant implications for pathologists and the clinical laboratory testing industry over the long term. For a variety of reasons, growing numbers of physicians are selling their medical practices to hospitals and health systems. This is creating a noticeable reduction in the number of private practices in the United States.

As commercial laboratory executives know, when a medical group practice is purchased by a hospital or health system, the clinical laboratory test referrals are redirected to the laboratory outreach program of the new owners. That means a reduction in the number of potential laboratory test clients in that regional market.

It's a practice option that has been accepted by physicians. Many doctors now consider that the benefits of selling their practice to the hospital brings benefits—more resources, less time spent on non-medical tasks—that outweigh the loss of independence. Add to this mix the attitudes of Generation X and Generation Y physicians, who view a practice integrated with a hospital-based health care system as the most attractive working situation and don't mind practicing medicine as employees and not partners in a professional corporation.

This trend has some experts going so far as to predict that the independent physician practice may soon be a relic of the healthcare past. With Medicare and other payers looking to bundle costs and tie reimbursement to quality, hospitals are buying up physician practices to put all the players on the same team. With physicians as employees, hospitals can more easily align financial incentives around quality measures to meet payer goals.

Hospitals offer physicians access to sophisticated electronic medical record (EMR) systems and practice management that takes the coding, billing and insurance headaches out of the physician's purview. A large practice within a hospital system also means physicians spend fewer nights and weekends on call. Young physicians, for whom quality of life is a high priority, find this arrangement more attractive than independent practice.

John A. Deane, CEO of Southwind Health Partners, a physician practice management consulting firm, recently told Modern Healthcare, "The ‘secret sauce' is practice management and EMR systems… structuring the governance so it's physician-led and professionally managed."

Nearly half of all physician practices are now owned by hospitals, according to the 2008 Medical Group Management Association's (MGMA) annual Physician Compensation and Production Survey.

A 2009 survey by the American College of Cardiology found that only 33% of cardiologists expect to remain in private practice or a small group practice. Another 38.1% said they will actively pursue integration with a health care system, partly in response to a CMS proposal to cut the overall cardiology fee schedule by about 20%.

Hardest hit by the Medicare fee cuts will be many of the diagnostic studies done in cardiology offices. CMS officials acknowledge that some cardiology practices will close, but that the cuts are necessary to move more dollars into primary and preventive services. With dramatically lowered revenue in the offing, cardiologists are actively seeking partnerships with hospitals.
Atul Gawande, M.D., a New York surgeon who has studied and written about the regional cost disparities in Medicare payments, has noted that integrated, cooperative health systems were better able to increase quality while holding down costs. Systems similar to the Mayo Clinic model, with a broad spectrum of specialists and primary care doctors working as employees, tend to breed greater physician collaboration than independent practices. They also tend to reduce duplication of diagnostic tests and increase coordination of medications. This is due in part to an EMR system that makes the patient's medical record available to every physician in the system," stated Gawande.

These systems also tend to breed a culture of medical practice that is less defensive and more cost conscious, according to Gewande. Physician practicing in these types of arrangements are better able to meet the dual goals of quality and cost established by payers.

For hospital-based clinical pathology laboratories, the trend to more hospital/health system-owned physician practices is likely to mean increasing volumes of outpatient work. With physicians working as employees of hospital/health care systems there is a natural alignment of incentives to send clinical laboratory tests to the hospital's in-house laboratory.
Moreover, integrated health systems are in a position to foster better integration of clinical care. That may favor pathologists and clinical laboratory scientists, who are well-positioned to help clinicians be more effective at ordering the right test at the right time—then assisting in the interpretation of the laboratory test results and decisions about the most appropriate therapies.

–K. Branz

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I really learn a lot about the business of pathology and medicine in general from getting those Dark Daily emails. I have gleaned lots of little pieces of info by skimming over them.

It makes sense that hospitals want to buy these practices and that practices want to be bought. Everyone seems to win in the short term. Docs cash out and hospitals get more earning potential and can run those clinics with their nice economies of scale.

In the long run, though, I wonder how much this will impact the individuality and autonomy of all doctors (if the day comes that there is no way to feasibly open your own practice...maybe not as important for pathology but similar principles apply to us I think)?
 
Income will probably decrease some, but this also means that the local urology group isn't going to abuse you or sell you out for the practice across town giving kick backs.
 
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I think one of the major places this has happened is cardiology - private cardiology groups are becoming a thing of the past it seems. A lot of that has to do with reimbursement.
 
Interesting article. The volume of deals involving hospitals and other entities buying physician practices has picked up. Also saw an article in AMA news talking about PPMC's buying practices again...but obviously in much smaller volume than the 90's acquisition mania. The ability of these deals to gel really depends on how the selling doctor is able to function (or not) within the structure of the acquiring entity. It's difficult to give up the autonomy of private practice even with all economies of scale offered by a larger entity. Also crucial is what the physician compensation agreement will look like post-sale.
 
I know here in the greater Boston area small community hospitals get eaten up by the big academic centers on a near-daily basis. I know of at least one small private practice path group that just got swallowed by one of the Harvard programs. I know they're not thrilled with it, but once the hospital got bought there wasn't too much they could do. The hospital world isn't too far off from the business world, really. Mergers, takeovers, etc are the norm.
 
I know here in the greater Boston area small community hospitals get eaten up by the big academic centers on a near-daily basis. I know of at least one small private practice path group that just got swallowed by one of the Harvard programs. I know they're not thrilled with it, but once the hospital got bought there wasn't too much they could do. The hospital world isn't too far off from the business world, really. Mergers, takeovers, etc are the norm.

it'll be interesting to monitor how much staying power these deals have or whether they will unravel over time. the changing dynamic in regional markets will really dictate this. it may be a good option (or only option) for some practices to sell to hospitals, but for the ones which can stay profitable it's probably better to sell to another group or individual physician buyer. hospitals generally can't cash-out sellers like other buyers can.
 
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