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Selling Practices to Hospitals - Boon or Burden?

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It’s back – hospitals around the country are looking to an old strategy to pump up managed care contracts, and revenue opportunities in ambulatory services: purchasing physician practices. If you’ve contemplated selling your practice to a hospital, this article will answer several frequently asked questions, share some of the pitfalls to avoid, and provide resources to contact for a one-on-one conversation.

In the 1990’s, hospitals were acquiring practices at break-neck speed. However, the majority of those relationships failed. The owners discovered they paid too much for practices that weren’t as profitable as predicted. Hospitals commonly reported revenue losses up to $100,000 per hospital-owned physician per year. They mostly purchased primary care physician practices and concluded that more specialists should have been acquired. In addition, integrating physician practices into hospital administrative, billing and computer systems was more costly than anticipated.

On the other end, newly hired physicians also had trouble adjusting. The cultures and systems of hospitals are disparate and the speed at which physicians make decisions in their own practice is often quicker. The same decisions in a hospital environment often require more analysis and layers of approval. The physicians also experienced unanticipated costs and the reality that their practices were more profitable prior to selling them. Lastly, there were concerns that under the hospital’s medical malpractice  insurance, their individual interests would be compromised and their careers
and reputations potentially damaged.

The trend to ambulatory services such as out patient facilities, freestanding diagnostic, surgery and treatment centers, has rekindled possibilities for hospitals and physicians to join forces again.

However, today hospitals are more price conscious and physician compensation agreements are now structured with more production incentives and less
salary guarantees.

Thinking of Selling?
The first step is to evaluate why you want to sell your practice: Is it due to financial hardship? Are there succession issues? Are you just “sick and tired” of practice management and reimbursement hassles? Most importantly, are you ready to be an employee in a large corporate culture? The potential for conflict with hospital management and rigid systems should be considered. Remember, about the only thing that hospitals and physician practices have in common are patients. Among other factors, physicians should consider:

• Salary and Productivity Bonuses – The days of large physician bonuses are gone. However, the percentage of guaranteed salary versus production bonuses is negotiable.
  
  
• Higher Overhead – Employee benefit costs are typically much higher for a hospital employee than for a physician employee. Also, many hospital allocated support personnel and/or practice manager costs’ are billed to the practice, further reducing profitability. Additionally, most hospitals insist on immediate changes to the practice’s billing system, adding costs.
  
  
• Medical Malpractice Insurance – Insist on individual physician coverage with a company you know and trust. This may be pivotal if a lawsuit arises pitting you against your hospital-owner. The person paying the malpractice premiums usually has some say in the decisions about his or her lawsuit. Also in a hospital, all physicians’ medical malpractice  insurance is lumped together and applied to over head – making it possible that your rates could increase greatly.
  
  
• Contracts: Be Cautious – If a hospital presents you with a “canned” package and appears unwilling to negotiate, this is usually a red flag. Remember, the hospital management will never be nicer than when they are trying to woo you. Relations will not likely improve once you become part to the hospital’s staff.

There are many other important factors to consider when selling your practice to a hospital. Prior to making such a significant decision, do your due diligence and thoroughly evaluate the pros and cons of the opportunity. Then get a second opinion from someone who specializes in partnerships such as these and be sure to seek legal advice before signing documents.

MAG Mutual’s Strategic Partnership Advisor and Retention Associates are poised to guide you through the process. For you through the process. For more information, call us at 800-282-4882.