Physicians Try to Come In From The Cold

(MoneyWatch)  The economic storm isn't affecting only hospitals. Physicians are feeling the deep freeze as well, as patients either avoid office visits or put off needed tests and procedures, say health-care consultants. Just how much medical practices have been affected is shown by an American Hospital Association study that was conducted in October. More than half of the hospital executives surveyed said physicians had sought financial assistance from their institutions in the prior three months.

Specifically, 83 percent of the respondents said physicians were seeking increased pay for on-call or other services provided to the hospital; 69 percent heard from doctors seeking hospital employment; 31 percent said physicians were trying to sell their practices to the hospital; and 23 percent noted that physicians wanted to partner with their hospitals on equipment and technology purchases.

As an article in American Medical News points out, this is hardly a new trend. A study by the Center For Studying Health System Change found that there was a significant increase in the percentage of physicians joining large, single-specialty groups and becoming employed from 1996 to 2005. Moreover, physicians and hospitals have been jointly investing in imaging centers and ambulatory surgery centers for some time.

According to AM News, hospitals are very receptive to these kinds of arrangements, since these are the same doctors who admit patients to their facilities. Moreover, as business moves from the inpatient to the outpatient sphere, half a loaf is better than none for the hospitals.

But, even before the financial crisis, primary-care physicians were finding that, even if hospitals were interested in buying their practices, they were unwilling to pay them more than the value of their hard assets. (In a primary care practice, these are usually worth no more than $25,000.)

After the financial losses they incurred by paying too much for practices during the '90s, hospitals avoided practice acquisitions for several years and even returned a lot of practices to their physicians. But in recent years, hospitals have been acquiring primary-care and specialty practices at an accelerating rate. This is partly because the hospitals are competing for physicians who are perceived to be in short supply and are increasingly mobile. So to keep their beds filled and their facilities fully staffed, they're hiring more physicians out of residency and are acquiring available practices.

Before the recession began, physicians were "knocking on the doors of hospitals and saying, 'Come take us over,'" says Bob Bohlmann, a principal in the consulting practice of the Medical Group Management Association. Even then, there was no goodwill involved in the sales. "They were coming in from the cold and saying, 'We don't think we can make it on the outside because of financial pressures.'"

Even good-sized specialty groups, Bohlmann and other observers say, have found that that the costly ancillaries and surgery centers they invested in several years ago aren't so profitable, and they're having trouble carrying their debts.

All of these problems have been exacerbated by the recession, which has forced more marginal practices into begging hospitals to take them over. Whether hospitals will do so varies by the market and by each facility's needs. But practice management consultants point out that in some areas, hospitals are scooping up all of the available specialists. So what Richard Grundling, vice president of the Healthcare Financial Management Association, has portrayed as a recession-driven need for doctors and hospitals to work together may actually be an opportunity for hospitals to dominate their markets to a degree they have never been able to do before.