Physicians are increasingly joining hospitals as employees, signaling interest from both hospitals and physician practices to partner together. According to the Medical Group Management Association's 2010 physician placement report, roughly 65 percent of established physicians were placed in hospital-owned practices, up from its 2008 report that showed a figure closer to 50 percent.
Hospitals looking to acquire a physician practice have a lot of things to consider, especially with recent healthcare legislation taking effect and accountable care organizations and other pay-for-performance models formulating. The following are five questions hospitals should ask before acquiring a physician practice, a trend that has only been on the rise for hospitals and physicians alike.
1. How do you find interest? Like any business transaction, there has to be a willing buyer and a willing seller, says Larry Fitzgerald, CFO of the University of Virginia Health System in Charlottesville. It's not hard for hospitals to find willing physician practices today, as many are looking for alternative business models due to pricey electronic health record implementation, malpractice litigation and general overhead costs. "[Physician practices] are in a difficult time dealing with the compliance issues, billing issues, criteria of different payors, procedures being pre-authorized, and a significant amount of overhead costs," Mr. Fitzgerald says. "There's an enormous amount of bureaucracy, and small physician groups are looking for a safe harbor."
James Dan, MD, president of Advocate Medical Group in Chicago, came from the private practice realm years ago. He says hospitals are gradually going to be more responsible for the cost of care, and with the recent healthcare reform and economic downturn, both hospitals and physicians are seeing the prospects of joining forces. "Financial pressures are clearly causing private physicians across the country to look up and around and ask, 'What are my options?'" Dr. Dan says. "Medium-term private practice will be difficult, and hospitals have concerns about healthcare reform and services they will no longer be paid for."
2. Which physician practices should be considered? There are numerous types of physicians practices, ranging from cardiology and primary care to dental and optometry, that may be looking for hospital alignment. Choosing one and evaluating it are the crucial steps as an acquisition gets under way. Dr. Dan says when acquiring physician practices, it's important to find those that have hospital care as a major part of their practices because that is where the synergy is. Primary care physician practices have been the most commonly sought-after practices, but specialty practices are garnering increased looks among hospital leaders today as well. These specialty physicians include cardiologists, oncologists and neurosurgeons among others.
Recently, Midwest Heart Specialists in Oak Brook, Ill., agreed to affiliate with Advocate, and Dr. Dan says reimbursements for specialties such as cardiology revolve around hospital care. "Cardiologists are beginning to approach en masse very much at the same time hospitals face healthcare reform," Dr. Dan says, and evaluating the physician practices' needs with those of the hospital or health system must fall in line.
3. What issues arise with physician compensation? The key phrase, from both a legal and business perspective, when it comes to paying physicians is "fair market value." Paying physicians fair market value is the baseline, and Dr. Dan says an improvement in benefits and the offering of a stable hospital or health system environment are usually two other incentives that make a compensation methodology successful.
Mr. Fitzgerald notes that not giving physicians a straight salary is an important component, as compensation in the current era should be based on both productivity and value of the physician. "Hospitals made mistakes in the 1990s by giving them a salary not tied to productivity," Mr. Fitzgerald says. "They were giving them a high base salary, and the doctors realized they can work eight hours today or nine hours today and can make the same amount of money. The very key point of the sustainability of the business after acquiring a physician practice is a payment arrangement that is based on productivity with an emphasis on quality and patient satisfaction."
Dr. Dan echoes that sentiment, saying a hospital's compensation methodology that is also based on reducing unnecessary care and improving outcomes, or value-based compensation, is increasingly becoming a part of the compensation climate.
4. What types of physicians should be sought after? Mr. Fitzgerald says the trend back in the 90s was to search for primary care physicians only and to avoid specialty care. With the uncertainty of how ACOs will look, he says specialty physicians are now sought after just as much in order to keep a health system vertically integrated. "Five years ago, a trend started to surface to accumulate both primary care physicians and specialty care physicians under the health system umbrella," Mr. Fitzgerald says. "That trend has continued and accelerated, and I think it is likely to accelerate into the future."
Mr. Fitzgerald also notes that a hospital or health system must assess each physician at a basic level to see what is motivating them to sell their practice. For example, buying a physician practice in which there is a physician nearing retirement, perhaps looking for a retirement package, is a scenario where a healthcare organization should be careful about overpaying, he says.
In the end, the quality of physician is of utmost importance, Dr. Dan says. Malpractice liability is a challenge for any hospital or practice, and while he says there can be a Russian roulette aspect to individual malpractice suits, practicing safe medicine is a built-in mantra of any healthcare entity. "Doctors are not a commodity," Dr. Dan says. "A cardiologist is not a cardiologist; it's how that person practices medicine. Quality counts."
5. How do you provide mutual support? At the core of any successful relationship, healthcare-related or otherwise, is a sense of trust and support between the two interested parties. Dr. Dan says acquired physicians need to have a sense of trust with the hospital administration and to feel their support as if they are a part of the new team. There needs to be a governance of physician leadership that can both articulate their points of view but also show the hospital or health system's willingness to make things work. "The valuation and compensation side may satisfy a financial appetite, but you need to create a setting that is professionally satisfying, too," Dr. Dan says. "You can't emulate a large, bureaucratic organization that makes them feel like they are another cog in the wheel."
Illinois' Midwest Heart Specialists to Merge With Advocate Medical Group
University of Kansas Cancer Center Merges with 11-Location Cancer Practice
Hospitals looking to acquire a physician practice have a lot of things to consider, especially with recent healthcare legislation taking effect and accountable care organizations and other pay-for-performance models formulating. The following are five questions hospitals should ask before acquiring a physician practice, a trend that has only been on the rise for hospitals and physicians alike.
1. How do you find interest? Like any business transaction, there has to be a willing buyer and a willing seller, says Larry Fitzgerald, CFO of the University of Virginia Health System in Charlottesville. It's not hard for hospitals to find willing physician practices today, as many are looking for alternative business models due to pricey electronic health record implementation, malpractice litigation and general overhead costs. "[Physician practices] are in a difficult time dealing with the compliance issues, billing issues, criteria of different payors, procedures being pre-authorized, and a significant amount of overhead costs," Mr. Fitzgerald says. "There's an enormous amount of bureaucracy, and small physician groups are looking for a safe harbor."
James Dan, MD, president of Advocate Medical Group in Chicago, came from the private practice realm years ago. He says hospitals are gradually going to be more responsible for the cost of care, and with the recent healthcare reform and economic downturn, both hospitals and physicians are seeing the prospects of joining forces. "Financial pressures are clearly causing private physicians across the country to look up and around and ask, 'What are my options?'" Dr. Dan says. "Medium-term private practice will be difficult, and hospitals have concerns about healthcare reform and services they will no longer be paid for."
2. Which physician practices should be considered? There are numerous types of physicians practices, ranging from cardiology and primary care to dental and optometry, that may be looking for hospital alignment. Choosing one and evaluating it are the crucial steps as an acquisition gets under way. Dr. Dan says when acquiring physician practices, it's important to find those that have hospital care as a major part of their practices because that is where the synergy is. Primary care physician practices have been the most commonly sought-after practices, but specialty practices are garnering increased looks among hospital leaders today as well. These specialty physicians include cardiologists, oncologists and neurosurgeons among others.
Recently, Midwest Heart Specialists in Oak Brook, Ill., agreed to affiliate with Advocate, and Dr. Dan says reimbursements for specialties such as cardiology revolve around hospital care. "Cardiologists are beginning to approach en masse very much at the same time hospitals face healthcare reform," Dr. Dan says, and evaluating the physician practices' needs with those of the hospital or health system must fall in line.
3. What issues arise with physician compensation? The key phrase, from both a legal and business perspective, when it comes to paying physicians is "fair market value." Paying physicians fair market value is the baseline, and Dr. Dan says an improvement in benefits and the offering of a stable hospital or health system environment are usually two other incentives that make a compensation methodology successful.
Mr. Fitzgerald notes that not giving physicians a straight salary is an important component, as compensation in the current era should be based on both productivity and value of the physician. "Hospitals made mistakes in the 1990s by giving them a salary not tied to productivity," Mr. Fitzgerald says. "They were giving them a high base salary, and the doctors realized they can work eight hours today or nine hours today and can make the same amount of money. The very key point of the sustainability of the business after acquiring a physician practice is a payment arrangement that is based on productivity with an emphasis on quality and patient satisfaction."
Dr. Dan echoes that sentiment, saying a hospital's compensation methodology that is also based on reducing unnecessary care and improving outcomes, or value-based compensation, is increasingly becoming a part of the compensation climate.
4. What types of physicians should be sought after? Mr. Fitzgerald says the trend back in the 90s was to search for primary care physicians only and to avoid specialty care. With the uncertainty of how ACOs will look, he says specialty physicians are now sought after just as much in order to keep a health system vertically integrated. "Five years ago, a trend started to surface to accumulate both primary care physicians and specialty care physicians under the health system umbrella," Mr. Fitzgerald says. "That trend has continued and accelerated, and I think it is likely to accelerate into the future."
Mr. Fitzgerald also notes that a hospital or health system must assess each physician at a basic level to see what is motivating them to sell their practice. For example, buying a physician practice in which there is a physician nearing retirement, perhaps looking for a retirement package, is a scenario where a healthcare organization should be careful about overpaying, he says.
In the end, the quality of physician is of utmost importance, Dr. Dan says. Malpractice liability is a challenge for any hospital or practice, and while he says there can be a Russian roulette aspect to individual malpractice suits, practicing safe medicine is a built-in mantra of any healthcare entity. "Doctors are not a commodity," Dr. Dan says. "A cardiologist is not a cardiologist; it's how that person practices medicine. Quality counts."
5. How do you provide mutual support? At the core of any successful relationship, healthcare-related or otherwise, is a sense of trust and support between the two interested parties. Dr. Dan says acquired physicians need to have a sense of trust with the hospital administration and to feel their support as if they are a part of the new team. There needs to be a governance of physician leadership that can both articulate their points of view but also show the hospital or health system's willingness to make things work. "The valuation and compensation side may satisfy a financial appetite, but you need to create a setting that is professionally satisfying, too," Dr. Dan says. "You can't emulate a large, bureaucratic organization that makes them feel like they are another cog in the wheel."
Related Articles on Acquiring Physician Practices:
University of Virginia Medical Center Buys Private Cancer PracticeIllinois' Midwest Heart Specialists to Merge With Advocate Medical Group
University of Kansas Cancer Center Merges with 11-Location Cancer Practice