Think Twice Before You Sell Your Practice

By Annette Boyle, contributing writer.

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  • Hospitals and healthcare systems managed by physicians perform better financially.
  • These mergers are not always profitable for both or either party.
  • A recent study of Kentucky hospitals found that 58% of responding hospital CEOs reported losses of greater than $100,000 per employed physician per year.

Hospitals and other entities seem to be purchasing physician practices at an ever faster clip. However, it may make sense for some physicians to remain on the sidelines until everyone figures out how to make money in these new arrangements.

For the past several years, concerns about the effects of the Affordable Care Act (ACA) and the increasing need to more closely coordinate patient care across providers have led hospitals to court and acquire physician practices. This has frightened many physicians into trading independent practice for a hospital salary.

But a lot of kinks still need to be worked out for practice integration to benefit both hospitals and physicians, and that could take some time. A recent study of Kentucky hospitals found that 58% of responding hospital CEOs reported losses of more than $100,000 per employed physician per year. This is up from 41% reporting such losses in 2013.

Generally, hospitals said they lost less than $100,000 per primary care physician; losses above $200,000 were entirely attributed to specialists. Those costs may be overstated, however, as 42% of hospitals do not track physicians’ downstream contributions. 1

This isn’t just a matter of time for upfront costs to work through the system—the longer a hospital has employed physicians, the more likely it is to have experienced increased operating losses, with all the hospitals who have had employed physicians for more than seven years reporting losses.

To turn around these numbers, hospitals are starting to bundle physician compensation with metrics such as quality outcomes, patient satisfaction, and strategic goals as well as relative value unit (RVU) methodology, and implement withholding for underperformers.

With the Department of Health and Human Services announcing plans to shift 90% of fee-for-service payments to value or performance-based payments over the next three years, the RVU base may prove unsustainable.

With hospitals reporting losses on the majority of employed physicians, nearly everyone would appear to be at risk for some compensation adjustment until it become clear how compensation models will change. For instance, how many physicians will be terminated for hospitals to start to break even? Is this right way to ask the question?

In the meantime, physicians may be wise to hold onto their practices and independence or, at least, hold out for a hospital or health system that has incorporated physician leadership—they lose much less money. (See Figure.)

Figure. Financial losses per physician at hospitals and healthcare systems with and without physician leadership.*

* The Challenges of Integrating Physician Group Operations, 2014 Kentucky Healthcare Industry Study, Dean Dorton Allen Ford, PLLC. Unpublished.

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