Market pressures, costs and regulations driving private medical practices to hospitals
by Ron P. Whittington
The trend of private medical practices selling out to hospitals and healthcare facilities isn’t new, but it’s on the rise. The recent spate of such sales in Northeast Florida—similar to what’s happening throughout the United States—has resulted from growing pressures on physicians from government, the search for stable revenue streams among hospitals and a geographic change among those entering the healthcare field.
Recent examples abound in Jacksonville. Over the past few years, Baptist Health alone absorbed several private practices including the Jacksonville Orthopaedic Institute, the Jacksonville Heart Center in the Baptist Pavilion, the family practice of Dr. Charles Booras, and the neurology practice of Dr. Carlos Gama, to name a few.
Although many of the doctors won’t discuss the specific reasons why they choose to leave private practices and become salaried employees, experts who cover the medical profession say that increasing government regulations, the requirement to keep electronic medical records, malpractice insurance and the costs associated with it, and the search for a better work/life balance are all tipping the scales.
According to Dr. Samuel Steinberg, a board-certified hospital administrator who serves as a hospital consultant, the trend
initially began in the 1980s.
“Hospitals were then, and still are, in a unique position. They can’t exactly control the means of production, that is to say that a private physician can admit whom-ever he chooses to a hospital,” Steinberg says. “Many hospitals said ‘Let’s control our source of revenue by buying up these private practices.’ But it didn’t work out well at the time, because physicians were still very independent and not very good employees, so it fell out of favor.”
So what changed to make selling private practices suddenly en vogue again?
Dr. Steinberg says the marketplace is very different for physicians these days and many are being “squeezed” from several directions. For Example:
• Premiums that doctors must pay for malpractice insurance continue to rise. According to Towers Perrin, a global professional services firm, malpractice litigation costs $30 billion a year and, since 1975, the direct costs of litigation avoidance have grown at more than 10 percent annually. This means that, on average, 10 cents or more of every dollar spent on a medical bill goes to pay for malpractice insurance that doctors must have to protect themselves in case of a lawsuit.
• Private doctors who accept Medicare, already facing higher costs and slow reimbursement from the government, saw Medicare payments reduced by two percent earlier this year as part of federal budget sequestration cuts. It may not sound like much. How-ever, according to Dr. Jeremy Larazus, president of the American Medical Association, over the last 12 years Medicaid reimbursements to physicians have increased only 4 percent while the cost of providing care has jumped 20 percent.
• The requirement for doctors to absorb most of the cost for mandated electronic health record systems.
• Quality of life issues and the increase of women in the medical profession.
“The reason it’s back is also being driven by all the legislation that’s been put in place since the eighties,
especially recently with The Affordable Care Act,” Steinberg says. “For hospitals to be
successful they need to do everything to keep their revenue sources and expenses under control—and one of the best ways to do that is to put doctors on a salary.”
Since hospitals receive flat-rate reimbursements from both government and insurance companies, having salaried doctors allows hospitals to take on only the responsibility for patients it serves, control the patient population and, therefore, control expenses.
Private practices more apt to be absorbed by a hospital facility today include specialists such as cardiologists and gastroenterologists. One expert notes that only five years ago, 30 percent of cardiologist practices resided within a hospital and 70 percent were privately operated. Today, that number has totally flipped.
“Historically, these specialists have been receiving flat fees for their services, so it’s happening most often to procedure-oriented practices,” Steinberg says.
When a private practice moves beneath the umbrella of a hospital, it doesn’t necessarily mean a loss of all autonomy, according to one local CEO who spoke on the condition of anonymity.
“Every situation is different,” he says, likening their role to a sort of subsidiary. “We have our own payroll and benefits plans and our own practice management system. The hospital helps by negotiating insurance and other reimbursements for us, providing legal counsel, providing training, and assisting us with malpractice issues a bit. They support us and we grow along with them.”
Steinberg says that one of the shifts no one discusses much is the added financial and administrative pressures on physicians now and the impact on their quality of life.
“Regulations, all kinds of compliance and procedural forms—private doctors have to handle all of these things to survive or they’ll go out of business. The regulatory requirements just keep increasing.”
He also notes that more women are now physicians than ever before. According to the Association of American Medical Colleges, only 10 percent of those admitted to medical colleges in 1970 were women. By 2005, that number had spiked to 50 percent and many are now in practice.
“Doctors, both male and female, want to have a life,” says Steinberg. “They’re looking at their lives and saying ‘I really can’t control expenses and I’m working harder for less money.’ When they are salaried, they put in their eight or so hours a day and can go home and have dinner with the family without all those pressures to deal with.”