Reasons Hospitals Acquire Medical Practices

The Charlotte Observer did a great report on the shift to hospital owned medical practices. For those not familiar with the shift, here’s the numbers the article offers:

Last year, 47 percent of U.S. physicians were employed by hospitals – roughly twice the percentage in 2002, according to surveys by the Medical Group Management Association.

One health care recruiting company predicts that hospitals could employ as many as 75 percent of U.S. doctors within two years.

I still think that some of this shift is cyclical, and independent thinking doctors will eventually leave their hospital overlords and be back on their own again. However, considering the financial side of the equation, many doctors might not be able to go back to their own practice even if they want to do so.

Here’s an example from the article that explains one of the reasons that hospitals are acquiring medical practices.

Gary Ziomek can vouch for that. The Waxhaw resident began getting physical therapy in 2011, after undergoing an unsuccessful spinal fusion surgery. He went to a therapist at Carolinas Rehabilitation on the campus of Carolinas Medical Center-Pineville hospital.

Early this year, his bill was $148 for 30 minutes of massage. But starting in May, the charge for a 30-minute massage rose sharply, to $249.30 – even though he got the same therapy from the same therapist in the same building.

Ziomek said an employee told him the higher charge came about because the office, which is owned by Carolinas HealthCare, began billing as a hospital-based setting. He said he was told that patients could go to the Ballantyne office and pay the lower amount.

Ziomek’s Aetna insurance reimburses differently based on where a service is rendered. For an office visit, Ziomek was responsible for a $20 co-pay, no matter if he had met his $250 deductible. For a hospital visit, he pays 10 percent of the bill after paying the $250 deductible.

In this case, Ziomek’s out-of-pocket expense dropped, because he had already met his deductible for the year. But he’s concerned that the overall cost went up, with no change in service or quality.

“Somewhere along the line, they realized, ‘We can charge more to the insurance company even though the patient is getting exactly the same service,’ ” said Ziomek, 70, a retired investment banker. “They could have kept the lower rate, but they chose not to. Why? Because of greed.”

I think the last line about greed is a little bit of sensationalism. In our market, healthcare is driven by revenue and profits. Many hospitals say they’re non-profit, but they certainly act like for profit entities.

What’s surprising to me is that insurance companies are putting up with this shift. I expect the loophole will be reversed again, but that often takes time. Some policy will be put in place to stop hospital owned medical practices from charging at the hospital rate. However, until that happens you can be sure that hospitals will continue their acquisition of medical practices.

About the author

John Lynn

John Lynn

John Lynn is the Founder of the HealthcareScene.com, a network of leading Healthcare IT resources. The flagship blog, Healthcare IT Today, contains over 13,000 articles with over half of the articles written by John. These EMR and Healthcare IT related articles have been viewed over 20 million times.

John manages Healthcare IT Central, the leading career Health IT job board. He also organizes the first of its kind conference and community focused on healthcare marketing, Healthcare and IT Marketing Conference, and a healthcare IT conference, EXPO.health, focused on practical healthcare IT innovation. John is an advisor to multiple healthcare IT companies. John is highly involved in social media, and in addition to his blogs can be found on Twitter: @techguy.

4 Comments

  • Historically, different initiatives drove practices together, then back apart, then back together. I would not be surprised if from the physician practice perspective, the change to becoming a hospital owned entity may have had less to do with getting more money and being greedy, than simply looking for a lifeline in an increasingly hostile reimbursement environment. I would point out finally, that although the reimbursement might have been higher in the example cited within the article above, that as a hospital owned entity, the physician would not necessarily get that increase in reimbursement. Typically, hospital owned practices employ the physicians that they acquire and pay them on salary, with performance bonuses based upon how the hospital as a whole gets reimbursed under the MU program, which is totally different than the way an independent practice would get reimbursed. Typically, hospitals get incentive savings in a lump sum based upon a different set of criteria and the hospital itself then decides how to carve up that lump payment and how best to distribute it to every employed physician. Stelle Smith Director of Product Management, Physician Practice Services TrustHCS

  • Stelle,
    I agree that I don’t think it’s the physician being greedy when they make that choice. It’s the hospital that’s being greedy. Most physicians are really reluctant to make the change and if they had any choice they wouldn’t go that direction.

  • Greed may be an issue, but I’d like to think that better patient care is a potential outcome, where the hospital and affiliated practices do a better job of coordinating care for a given patient. But I do have concerns because in some cases, as cited, care is now given in an entity which had a super high overhead and where everything costs much more to do – even if it doesn’t. Someone I know can get certain treatments in a doctors office, home or hospital. In the home is the cheapest, the office next higher, and the hospital far more expensive. The amazing waste of time that occurs in the hospital in question is amazing; in an environment where there is always a wait to get in because the place is full – because things are so slow.

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