Doctors in private practices are now joining hospital staffs

March 12, 2012

Fifteen years ago, I proudly hung a sign outside my office with my name followed by “MD.” I had started my own business.

A small private medical practice is much like a mom-and-pop store, where the doctor has the autonomy to decide the hours, which insurance to accept, which patients to see and how much to charge.

Over the years, my practice has grown, and now I have several doctors working along with me. But I may be an endangered species. Across the nation hospitals are purchasing physician practices at an extraordinary pace. In part, it’s due to complexities in managing chronically ill patients, but mostly it’s due to the way doctors and hospitals are being paid for their services.

When a hospital buys out a practice and brings it into the institution’s system, it’s like Wal-Mart coming into town. Corporate decisions are made about purchasing and staffing as well as oversight of medical care and quality, all of which impacts a patient’s experience when he comes for an office visit.

In essence, the doctors become hospital employees; they are paid fixed salaries based on productivity, which distances them from some of the unpredictable changes in health care. This can be a relief for a doctor who no longer has to fear a competing practice that has set up shop nearby or an insurance company that is cutting physician reimbursements.

In my city, a dozen practices totaling more than 100 doctors have been purchased in just two years by various hospitals. According to the Medical Group Management Association, a professional membership organization, in 2002 about 20 percent of U.S. physician practices were hospital-owned; in 2008 that figure was over 50 percent.

So why all these changes?

In large part it is due to how Medicare pays doctors. Three years ago, a cardiologist colleague educated me over a coffee at Starbucks about Medicare payments for office procedures. He said, “Medicare has cut reimbursements to us by 10 to 40 percent. But they have not cut payments to hospitals.” With resentment, he pointed out that Medicare would pay $180 for an echocardiogram in his office but $450 at the hospital down the street.

Hearing the complaint, I was not entirely sympathetic. Medicare was focusing on individual doctors because many doctor-owned practices also included a testing facility, and studies had shown that in such cases the doctors often overprescribed Medicare-reimbursable tests for their patients. “That’s likely why Medicare cut payment to doctors’ offices,” I told him.

Medicare cuts have had a big impact on cardiologists and oncologists in particular. Rumors were that my colleague’s cardiology practice, which had invested heavily in diagnostic equipment, was going bankrupt. The practice was unable to sustain the overhead of a new building and the high physician salaries once Medicare starting cutting back reimbursements.

That’s when the hospital stepped in. The hospital was willing to buy the practice, clear the debt and promise the doctors handsome salaries, similar to what they had made in a good year, for the first few years, with uncertainty after that. Once the practice was owned by the hospital, it would receive the higher Medicare payments for echocardiograms and other procedures.

Recently I asked a hospital chief financial officer why hospitals wanted to buy practices.

He pointed out that private-practice doctors who join a hospital can be tremendously valuable: They bring in patients to fill the beds and outpatient labs in that hospital. And that gives the hospital greater market share. The merger can also help lower hospital costs for drugs and devices. One hospital saved a million dollars when the staff doctors and the hospital agreed to use a single vendor for pacermakers and defibrillators, the hospital’s CFO told me. This sort of savings may or may not be passed on to patients.

Not all private practices sell themselves to hospitals because they are in a financial bind. Many, like mine, have difficulty transitioning to electronic medical records or traversing the maze of insurance company requirements. The greatest problem many physicians in private practice face is the uncertain future of health care. Each year doctors must grapple with threatened pay cuts brought on by Medicare’s sustainable growth rate formula, adopted by Congress in 1997 as a way to keep medical costs to the government from ratcheting ever higher. These cuts have always been restored with the so-called doc fix, but many private-practice physicians worry that these cuts may soon happen and put a huge financial strain on their practices.

And even though I’m not one of those who believe the cuts will occur, the back-and-forth wrangling over the doc fix is wearing. I’m tempted to have my small private practice join the hospital, giving me job security and better work-life balance as well. I see many younger colleagues, including those just completing their residencies, taking this route.

Joining the hospital may be a sound business decision for many, but my heart aches at the prospect of losing my autonomy. My wife, also a doctor in private practice, says, “I didn’t become a doctor to be told what to do by an administrator.” Yet she grumbles at the time expended on managing accounts and collections for her practice.

A surgeon friend tells me, “I may be the last man standing, but I am not going to be bought out by the hospitals.” Although pride and self-reliance run deep among private doctors, in the end, I suspect there will be only a few holdouts.

As for me, the sign with my name still hangs outside my office, but I am keeping my options open. The prognosis for a private practice looks grim.

Jain is an infectious-diseases doctor in Memphis who writes regularly for The Post.

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