Risk Managers Tackle Challenges of Hospital-Acquired Physician Practices

Few new physicians are starting independent medical practices, and physicians in long-established practices are finding it more difficult to manage them. Meanwhile, hospitals and health systems are finding it harder to resist acquiring independent practices. By acquiring physician practices, hospitals believe they can better align their interests with those of physicians in the areas of quality of care, patient safety, use of health information technology, and growth of service lines.

The trend is clear. Since 2005, hospitals and health systems have been on a buying spree nationwide, purchasing existing physician practices at a fast clip and attracting newly minted physicians. Between 2005 and 2008, physician practices owned by hospitals doubled, and by 2008, nearly 50% of medical practices were hospital-owned and -operated. By 2010, the number of new physicians who joined hospital-owned practices exceeded the number of first-year practitioners who joined physician-owned practices, according to the results of a Medical Group Management Association survey. Even in states like California and Texas, where laws prohibiting the “corporate practice of medicine” do not allow hospitals to employ physicians, hospitals and physician practices are becoming closely tied through contractual arrangements. (O’Malley et al.)

For physicians, numerous factors are driving the trend, including problematic reimbursement, weak leverage to negotiate payment rates with health insurers, heavy administrative burdens, growing overhead expenses, uncertainty arising from healthcare reform, and the desire of younger physicians to achieve work-life balance. For hospitals and health systems, hiring physicians and acquiring physician practices may be a strategy necessary for survival in a regulatory and reimbursement environment that creates incentives for hospitals to “own as many pieces of healthcare as possible” (Sun). Healthcare reform may also be playing a role in the trend—hospitals need to have affiliated physician practices in order to develop...