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Hospital-owned physician practices: A win-win or lose-lose?

November 21, 2016
Business Affairs
From the November 2016 issue of HealthCare Business News magazine

By Kevin N. Fine

Mergers and acquisitions are at an all-time high in the health care industry, and the trend toward vertical acquisition, in which payers purchase providers, has made the competitive landscape tougher for hospitals and health systems. Low interest rates are making it easier for hospitals to finance deals, and as regulation increases, the idea of selling to a hospital becomes more attractive to many physicians. The majority of doctors still work in physician- owned practices. However, hospitals and health systems have been aggressively acquiring physician practices in recent years in order to expand their networks and market share. Ideally these deals will be mutually beneficial, but that’s not always the case. It’s crucial for both physicians and hospital leadership to understand the potential pros and cons on both sides of these deals to increase the likelihood of success.

Pros and cons for physicians
On the medical practice side, many physicians are feeling more pressure to join a large system as regulatory requirements and reimbursement changes have made independence a difficult model to sustain. Physicians who manage their practice like a business will be better positioned to succeed in any environment. Joining a hospital or health system can afford physicians more time to focus on seeing patients by taking administrative and operational burdens off their desk. In addition, physicians often have better compensation structures and more financial stability as hospital employees.

But there’s always a tradeoff. For physicians, one of the biggest losses is independence and the control that goes with it. From business plans to hiring choices and even seemingly minute decisions like ordering supplies, losing control over day-to-day operations can be a very hard change for many doctors to swallow. Physicians will no longer be the only voice for their practice.

The move to a large system often comes with additional policies and procedures and a more “corporate” culture than many physicians are used to. The staffing situation may change as well, and both physicians and their staff will likely have to learn new software, possibly including a different electronic health records (EHR) system. In addition, hospital leadership may use different measurement criteria to judge physicians’ performance.

Pros and cons for hospitals and health systems
On the hospital and health system front, acquiring a physician practice can help an organization to become more scalable and expand its reach into the community. In this increasingly competitive industry, everyone is fighting for market share and control of the patient. By developing integrated delivery systems, hospitals are able to provide the entire continuum of care for population health management, and are better positioned to move into alternative reimbursement structures.

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