Docs flock to hospitals, larger group practices

Overwhelmed by bureaucratic red tape, financial realities and the looming prospect of health care reform, more doctors in Colorado and nationwide are giving up their private practices to join hospital systems or larger group practices.

They’re selling their small businesses in favor of a steady paycheck and benefits. But hospital systems also take away many of the administrative hassles that bog down private practices, while also giving doctors access to capital and technology for a competitive advantage over smaller private and group-owned practices.

The trend, which is evident in nationwide from Englewood-based Medical Group Management Association (MGMA), has accelerated in recent years with the downturn of the economy. MGMA’s hospital membership increased 20 percent between 2003 and 2008. Meanwhile, the number of physicians overall who own their practices dropped 2 percent annually for the past 25 years.

With a struggling economy and physicians uneasy about the prospect of national health care reform, hospital executives say the number of doctors approaching them to acquire their practice has more than doubled in two years.

“The driver today is the financial stress placed on most physician practices — particularly in primary care,” said William King, CEO of Denver-based HealthOne Clinic Services, which owns 55 practices that employ 100 physicians in the Denver area. “Medicare reimbursements are getting lower, and [private insurers] base their reimbursements on Medicare. The payments aren’t keeping up with the cost of running a private practice. Couple that with regulation, I think doctors are getting tired.”

HealthOne Clinic Services is part of the HCA-HealthOne hospital system, oneof the largest in the Denver area. It operates seven hospitals, includingPresbyterian / St. Luke's Medical Center and Rose Medical Center in Denver,Sky Ridge Medical Center in Lone Tree and Swedish Medical Center inEnglewood.

Two other big hospital systems, Centura Health and Exempla Healthcare, also have gobbled up physicians practices and plan to acquire more as part of their long-term strategies.

Buying practices makes sense for hospitals, which benefit because the doctors refer patients to other hospital-owned practices and facilities, generating more revenue for the system.

Health care observers also say hospital-owned practices enable medical providers to coordinate care more efficiently by taking advantage of the economies of scale of a larger organization.

King said HCA-HealthOne began acquiring doctors’ practices again in 2005, at which time the system employed only 20 physicians — compared with 100 today.

Robert Harris, president of physician enterprises at Centura, said the hospital system purchased half of its 66 practices (with 165 physicians) in the past couple of years. Harris said Centura intends to acquire more practices.

“Over the past two or three years, there’s been a real movement of physicians approaching us about employment,” Harris said. “A lot of them have been in practice for four or five years and want to make a change. A lot of them are financially strained — not that they’re not good at managing costs, but with reimbursements declining, this gives them another option.”

Lisa Wetherbee, COO of Exempla’s group practice, said the three-hospital system is buying practices, resulting in the addition of about 15 new doctors a year since 2007.

Exempla owns 28 practices with 60 physicians located near its hospitals. She added that 11 new doctors will join the staff in the spring from another purchase.

Wetherbee said Exempla looks for doctors who are a good fit for the system.

“On the plus side, they’re capitalized and no longer worried about how to buy new equipment,” she said. “On the down side, there’s an inherent bureaucracy that goes with joining anything that’s larger than you.”

Forward into the past?

If the trend of hospitals buying doctors’ practices sounds familiar, that’s because it is.

A similar acquisition wave occurred in the 1990s under the belief that reimbursements were changing from a fee-for-service model (in which doctors are paid for services they perform) to a capitation model (a method of paying doctors for treating patients).

The approach, known as a managed care delivery system, was supposed to bring greater efficiencies to the health care system by letting primary care physicians act as “gatekeepers” who managed their patients’ care.

“Back then, there was the very real possibility that if we shifted from fee-for-service to capitation or managed care without buying practices, then there would be no patients in hospitals,” King said.

But the trend fizzled out in about 15 years in large part because of a consumer-led backlash against managed care. Hospitals then started divesting practices in the late 1990s when they began to lose money.

Health observers say times have changed, and hospitals have learned from their mistakes.

In the last 12 years, King said, hospitals have developed new management approaches, as well as billing and collection systems that deliver better cost efficiencies. Some of the improvements are driven by technology, others by expertise.

“Hospitals understand what went right and wrong in the ’90s and made a lot of adjustments for that today,” said Daryl Edmonds, president and general manager of Cigna Healthcare in Colorado, one of the state’s largest health insurers.

Edmonds said he believes the trend will create better cost efficiencies and improved health care.

While Edmonds said consolidation of medical practices eventually will give hospitals more leverage in negotiating reimbursements (resulting in higher premiums that businesses and individuals pay), that’s hardly an immediate danger.

“Colorado still has a lot of small practices,” he said. “For the most part, health care is still largely a cottage industry.”

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