Employment by health systems is surging for Texas physicians as well as physicians across the country. 65% of physicians who changed jobs in 2009 moved into a hospital employment model according to a 2009 poll by the Medical Group Management Association. Through hospital acquisition, physicians receive a multitude of benefits while maintaining their autonomy.
2 Reasons Why Physician Groups Are Being Acquired
Accountable Care Organization (ACO) Formation:
While being held accountable for patients’ care in Texas is not a new concept, it is one gaining steam, especially in the ACO concept. In an ACO, physician groups align providing the best care for their patients and if they meet targeted measures they receive incentive payments. Why hospitals are being so aggressive in their acquisition for physician groups is that an ACO must include physicians, but it doesn’t have to include hospitals. Some hospitals believe physician only ACOs could negatively impact their bottom line. A great way of earning savings through an ACO is through reduced inpatient stays as that is very expensive care. In a physician led ACO, hospitals are left with empty beds without any apportion of shared savings.
Impact on Medical Real Estate:
Standard leases within a medical office building typically used to be in the 1,000-3,000 square feet range which compensates for a small physician group practice. Today, the average lease space is between 5,000-8,000 square feet and holds larger physician practices. As hospitals continue acquiring physician groups, they are also acquiring medical office space. Physician groups, many of whom have their own leased space, are vacating for the preferred route of hospital owned space.
Most recently, 550,000 square feet of new medical office space have been delivered to Texas during the first nine months of this year, according to a 2011 Marcus & Millichap report. Likewise, Texas’ accelerating economy has created enough demand to pull vacancy rates down to pre-recession levels, according to the same report.
Physicians Seek Hospitals as Well:
Hospitals are not just aggressively acquiring physician groups, in many instances physician groups are seeking to be under the management of a hospital.
• Medicare and Medicaid reimbursement rates are continuing to dwindle and gaining in difficulty to effectively navigate. Physicians are already well under reimbursed with some Texas physicians demonstrating costs 120% of what Medicare reimburses. According to Dr. Bruce Malone, Texas medical association president, Medicare payments to hospitals have increased while physician payments have typically stayed stagnant.
• Many physician groups are taking a wait-and-see approach to healthcare reform and as they are seeking employment individually or acquisition as a group, hospital ownership will help them weather the storm.
• Hospitals also provide a gamut of resources such as broadening physicians’ skill sets, advanced medical equipment and electronic medical records that some practices might find financially taxing to acquire.
A trend for increasing physician group in a hospital employment model can already be seen, and as Texas recently allowed rural hospitals to hire their own doctors, I expect the trend to continue as well.
James Ellis, CEO, Health Care Realty Development Company, is a nationally recognized successful real estate investor and developer of medical office properties with a comprehensive knowledge of sophisticated real estate transactions, cost effective designs, and efficient property management.
Aaron Razavi is Associate Marketing Director at Health Care Realty Development.
Visit their blog at http://www.hcrealty.com/medicalrealestatedevelopment/