The Reversal of the Trend: Hospital Systems Stop Buying Physicians Private Practices
Stanley Feld M.D., FACP, MACE
The control of the healthcare system is dominated by the insurance industry, the government, hospital systems and pharmaceutical companies.
One of the reasons hospital systems bought physicians practices was to have control over ancillary services generated by the physicians’ intellectual property. These ancillary services are laboratory services, CT scans, MRI scans, cardiac catheterization labs and ECGs.
The business of medicine had become too complicated for most physicians. Physicians who sold their practices to hospital systems did not realize they could not make a living without the revenue from ancillary services. Physicians retreated to the safety of hospital guaranteed salaries without realizing they were giving away their intellectual property the only property they had to sell. Physicians reacted when they realized that the hospital systems were generating undo profit from their intellectual property. Physicians also realized that hospital systems were inefficient in operating some of the ancillary facilities. These services were more convenient for their patients in physicians’ offices. The result was inefficient care to their patients.
On the other hand, many hospital systems learned they could not make any money from physician productivity. The hospital systems guaranteed the physicians the salary they had generated before the practice buyout. The hospital systems are now giving the physicians back their practices. The hospital systems lost their cash buyout of the physicians’ practice. It would not be surprising to me that this loss was billed back to the patient in the form of cost of service. We cannot figure out the actual cost of services.
The focus of the hospital systems was changed from ownership to management of the back office duties such as billing, hiring, firing, and paying the rent. Hospital systems also demanded that the physicians used their hospital facilities.
Another round of physicians’ reaction is in the offering. Physicians are starting to realize that the hospital system is overcharging physicians for back office services. Hospital systems require physicians to use the hospital systems inpatient facilities.
The large physician groups now own the revenue generated by several ancillary services. They are benefiting from the use of their intellectual property. However, physicians are realizing they are not getting their fair share of the revenue they are generating. In many cases their practices are being overcharged for overhead, payroll, rent and administrative services. The thinking by hospital systems advisors was that younger physicians would not be as interested as older physicians are in how the business is handled. I think the hospital systems are going to be in for a big surprise. A sleeping giant is slowly awakening. Especially when the younger physicians are realizing that the hospital systems are under coding and under collecting for their physician services and not billing a professional fee for ancillary services. The result will be that physicians will demand they control their overhead and their billings. The problem for the hospital systems is that management of physicians’ offices was a nice profit center. With less inpatient services needed and the increase in brick and mortar investment over the last ten years, hospital systems are going to be in a cash flow bind.
The physicians’ goal is to practice the best medicine they can while earning a living consistent with the value of their intellectual property is worth. The level of mistrust that physicians have for hospital systems is simply going to intensify when they find out what is happening to them financially. The hospital system- physician relationship will shift from bad to worse.
Physicians’ control of their overhead, in my opinion, is good shift during the changes healthcare undergoing. In the changing environment toward consumer driven health care and the patients owning their healthcare dollar, the physicians controlling their own practice overhead, the result can be an enhanced relationship between the primary stakeholders the patients and the physicians. Competition for patients will create physician incentives to force physicians to become more efficient. Physicians will adopt EMR’s more rapidly in an attempt to increase the level of efficiency and service.
Competition will motivate physicians to increase quality and lower price. Focus factories will develop in Family Practice offices. New mechanisms for building healthcare teams for the creation of systems of care to prevent the complications of chronic disease will occur. The result will be a decrease in complications of chronic diseases. Prevention of chronic disease will also be increased because patient will demand preventative services. They will compensate physicians for the preventive care. I can envision physician being compensated telemedical communication systems to avoid frequent office visits and hospitalization. I can imagine an increased compliance with treatment and a demand for effective patient education when the patients understand that they own their healthcare dollar.
Presently, there is no insurance mechanism to compensate physicians for preventative care. I see a bright future for patients, physicians, the physician extenders and the secondary stakeholders. The losers will be the administrative waste and avoidable and expensive services rendered for the complications of chronic disease.