Hospitals buying physician practices at a furious pace

Grant Thornton says hospitals are acquiring physician practices at a more rapid rate because they need a secure physician base amid impending doctor shortages, the need to create new delivery models to meet payer-driven cost and quality initiatives, and general market uncertainty.

After initially knocking the trend, analysts began applauding hospital employment of physicians. According to Fitch Ratings and Moody’s Investors Service, physician employment has allowed hospitals to overcome flat inpatient revenue with greater outpatient care. Health reform is driving a shift from inpatient to more cost-effective outpatient sites.

Fitch said the No. 1 health-care sector challenge in 2014 would be to maintain profitability despite weak patient volumes and declining Medicare reimbursement to hospitals.

Moody’s partially attributed the gains to physicians. Closer relationships with physicians have helped hospitals stabilize their market shares and cut costs, Moody’s said. The relationships have translated into more physician input through joint ventures and hospital board memberships, aided by accelerating physician-practice acquisition. The rating service credited such steps, which ensure a steady flow of patient referrals, as an antidote to hospital reimbursement cuts stemming from the ACA.

According to Moody’s, inpatient admissions have been flat or declined since 2009, compared with physician office-visit growth of nearly 5 percent. Hospital profit margins stabilized in 2011 at about 2.5 percent.

A Wall Street Journal report noted the effect of physician employment on the cost of care. It pointed out that a 15-minute physician visit might cost about $70 at an independent practice, compared with $124 at a hospital outpatient clinic. Hospitals are able to use their market power to negotiate higher reimbursement rates with commercial payers, and Medicare pays “substantially” more when procedures are performed at a hospital-owned facility.

For Merritt Hawkins, 63 percent of physician searches between April 2011 and March 2012 were for hospitals, compared with 56 percent the year before.

One reason for greater physician demand is that physicians are working fewer hours. Compared with 2008, doctors now are working about 6 percent fewer hours and are seeing nearly 17 percent fewer patients per day, according to the Physicians Foundation.

Looming retirement for aging and frustrated physicians also is a factor. Nearly 1 out of 4 physicians are past the age of 60, and many delayed retirement because of the recent recession. Many others want nothing to do with the ACA. The Physicians Foundation survey estimated that 80,000 to 100,000 doctors might retire between 2012 and 2018.

Hospitals are recruiting physicians even when they do not have openings. More than half were recruiting for expected openings and nearly an equal number said they stockpiled candidates.

The percentage of cardiologists who were employed by hospitals tripled from 8 percent in 2007 to 24 percent in 2012, according to an American College of Cardiology survey.

Physicians who become employees increasingly consider themselves free agents, often open to the best opportunity. More than half working for hospital-owned or large independent groups were seeking to change practices for financial security, and a nearly equal number generally were dissatisfied with their current work circumstances.

More than half of practicing physicians get at least three employment solicitations a week. Almost 29 percent receive three to five weekly. Twenty-three percent get 6 to 10 notices, according to the Medicus Firm, a physician recruiter. Medicus also found that signing bonuses, once considered optional, are now an expectation.

According to a survey by QuantiaMD, an online physician community, about half of employed primary-care physicians had not had a raise in 1 to 2 years.  Nearly 1 out of 5 had experienced a cut in salary.

 

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