The number of hospital-owned physician practices has been climbing steadily over the past four years, according to the Medical Group Management Association’s annual physician compensation survey.
“The reason is pretty straightforward,” said MGMA president Bill Jessee. “The economic situation is so severe that a lot of physicians are throwing up their hands. They are giving up some of their professional autonomy rather than worrying if they can make payroll and their own income.”
According to Randy Bauman, author of “Is It Time To Sell?” in The Journal of Medical Practice Management, solo and small physician groups have lost the managed care battle.
“They have no leverage in negotiating payment rates, and Medicare operates under a perennial threat of double-digit rate cuts,” he said.
While the trend is minimally disruptive for consumers, as physicians stay with their patient base, the practices themselves are financially taken over by hospitals.
According to Carol Carden, author of “What Drives the Value of a Medical Practice?” in the JMPM, there are different ways to evaluate a solo practice.
“When hospitals went through the wave of acquiring practices in the mid-‘90s, they typically paid for ‘goodwill,’” she said. “When you are dealing with a sole practitioner with no mid-level providers and no ancillary services, there is typically not a great deal of value to the practice. This time around, in our current experience with hospital acquisitions … they are simply purchasing tangible assets such as equipment and entering into employment agreements.”
Carden also believes that a physician’s rate of compensation is the single biggest consideration in any physician practice acquisition.
“My profit margin on chemo drugs disappeared within the period of a year,” said James Stark, MD, of StarkOncology in Suffolk, Va., part of the Riverside Medical Group. “Medicare reimbursement is supposedly 6 percent over market value for chemo in the office. It wasn’t covering my costs.”
Stark ran his solo practice for six years before he joined the 10-oncologist group.
“I love what I do and I wanted to keep doing what I do,” he said. “This seemed like the only option. … I was driven by economic necessity and it’s a good arrangement for me.”
Stark could have fired his hand-picked staff and used cheaper help or even stopped drawing his salary or offering health insurance to fix his woes. “But I simply needed a way to reduce my overhead.”
Jessee expects that the trend of physicians selling practices will accelerate over the next few years.
“Physicians are facing a possible 21 percent cut in Medicare payments in January 2010,” he said. “If that happens, you’ll have a lot of docs knocking on hospital’s doors.”