Physicians eager to be acquired

According to a survey of hospital administrators, 52 percent of hospitals planned to acquire physician practices in 2013, compared with 44 percent that made such purchases in 2012.

The survey found that opportunity, rather than strategy, was the overwhelming reason hospitals are acquiring physician practices. Seventy percent of acquisitions in 2012 began with physicians approaching hospitals to sell their practices.

Even though Moody’s Investors Service issued a “negative outlook” on nonprofit hospital finances in early 2013 for the sixth year in a row, it noted that the sector had improved its bottom line in recent years and credited physician-practice acquisition.

Hospitals especially covet increasingly scarce primary-care physicians. Dr. Guy Culpepper, president and chief executive officer of Jefferson Physician Group in Dallas has quietly guided his group of about 200 primary-care physicians from the managed-care era of the 1990s to the current wave of consolidation. With primary care in such demand, he and his group constantly fend off suitors.

“They (hospitals) want to buy us, steal us, have us go away and break us up. When hospitals tell our doctors, ‘You can make 180 percent of Medicare rates instead of 125 percent,’ that is hard to turn down,” he said, acknowledging the market power of health systems in negotiating with insurers.

In 2012, for the first time since physician recruiter Merritt Hawkins began its survey in 2002, primary-care physicians generated more annual revenue for their hospitals than did specialists. Primary-care physicians generated an average of more than $1.56 million for their affiliated hospitals, compared with an average of less than $1.43 million for specialists.

 “A seismic shift is taking place in medicine, away from specialists and toward primary-care physicians,” said Mark Smith, president of Merritt Hawkins. “Primary-care physicians are increasingly employed by hospitals and in new delivery models, such as accountable care organizations. They are taking a greater role in driving both the delivery of care and the flow of health-care dollars.”

 According to Smith, the volume of services performed by physicians is still the key economic determinant for hospitals, rather than quality of care.

 “Hospitals still get higher rewards the more that physicians do for patients within

their walls,” Smith said. “Volume may not be paramount in the value-based system of the future, but it remains the name of the game today.”


The question is whether increased hospital employment of physicians is a structural workforce change or a passing fad. Hospitals acquired physician practices in droves in the 1990s, only to let them go when it became clear there was a cultural mismatch and the anticipated financial windfall failed to materialize.

Health policy analysts say the current hospital-physician integration will be different. They point out that the ACA is driving delivery transformation, younger physicians are more amenable to employment for work-life balance, and many physicians are feeling the effects of reimbursement cuts. Hospitals need physicians to deliver care and patient referrals. Physicians yearn for income and employment security.

More than half of physicians are now employed by a hospital or integrated delivery system. Over the past decade, there has been a nearly 75 percent increase in the number of physicians employed by hospitals. And hospitals say they plan to continue to step up the pace.

Physicians believe hospital employment should translate into a greater voice in management. More than 9 out of 10 believe they should be more involved in executive leadership, serve on boards of directors and have input on performance-improvement initiatives.

There is a history of mistrust between hospital executives and physicians. The former often see the latter as obstacles—rather than partners—in cost-cutting and quality initiatives. The latter frequently see the former as more concerned with the bottom line and their bonuses than patient welfare and physician concerns.

Hospital executives say physician relationships are critical to successful accountable care. Most understand that they will not see a return on investment in physician employment for years, but the improved coordination of care, greater patient satisfaction and larger market share ultimately will pay off.

Acquiring and integrating physician practices are expensive. According to an American College of Physician Executives poll, 32 percent said costs went up after their hospital or health system bought a medical group or practice, compared with 5 percent who said costs decreased.

A Healthcare Financial Management Association (HFMA) survey found physician compensation by hospitals increasingly based on value rather than production. Cost-of-care and efficiency-related incentives are expected to grow from 16 to 67 percent of physician contracts, and quality-related incentives will rise from 65 percent to 86 percent. Care-volume incentives are expected to drop from 77 percent to 59 percent.

Hospitals are just as eager to pursue relationships with independent physicians. Nearly 1 out of 3 are pursuing clinical relationships, directorships and co-management opportunities with independent physicians.

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