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July 2012

Why Your Colleagues Are Selling Out to Hospitals and
Why You Should Think Twice About Following Them

Hospitals are buying up physician practices again and physicians are selling to them in the belief that this will make their professional lives easier while improving their incomes. We’ve seen this trend before. Unfortunately for many physicians, it had disastrous results. Will it be the same this time around? 

In our experience working with over 15,000 healthcare practitioners, we have known many physicians who are sorry that they sold their practices to hospitals. Many learned that, once they made the move, it was too late to back out. Many signed contracts that did not deliver what they expected and agreed to terms that were less favorable than they originally thought. Many did not read the fine print or consult with attorneys before signing their contracts.

In too many cases, the hospitals included production requirements that were actually higher than most physicians could perform. These production requirements were tied to the physicians’ salaries. In order to earn “X” the physicians had to produce “Y”. Hospital contracts typically referred to “RVUs,” or relative value units, that they expected from physicians they salaried.

More often than not, the physicians did not relate what they normally produced in private practice to see if those numbers were significantly different from the hospital’s employment expectations. And many hospitals did not inform physicians until it was too late if they were meeting the hospitals’ expectations. Many physicians found themselves getting “fired” because of this.

Lacking financial focus

We’ve seen that physicians in general are not financially focused people. As a result, they tend not to ask the kind of questions that accountants would ask. Since they are not the owners of the hospitals, they do not typically ask for the hospital financials and are not given the financials automatically. Typically, hospital-employed physicians do not see any financials until their bonuses are being calculated – or they receive termination notices based on underperformance.

To make matters worse, hospital billing and collection systems are often inefficient. Some hospitals are actually worse than private practices at managing their financials. Hospital billing staff does not have relationships with physicians like private-practice billing staffs do. The billing staff in a private practice usually has a vested interest in ensuring that the billing is as accurate as possible. Without personal relationships with the physicians, hospital employees are not as personally invested in making sure things get done right for them.

Do any physicians benefit from selling to hospitals?

If a private-practice physician has a lot of debt and a short window to pay off that debt before retirement, selling to a hospital may provide enough cash to resolve the debt and allow the physician to practice until retirement.

Seller beware

If you are in the process of negotiating with a hospital to sell your practice, how can you protect yourself from a negative outcome? Here are some simple but critical steps you should take:

  • Find a good attorney who has worked with healthcare practice sales before.
  • Find a healthcare consultant who understands financials. A good consultant or an accountant who has worked with physicians on practice sales often knows what can happen from experience.
  • Know what to look for and what you are getting into. Read the fine print.
  • Ask questions. Negotiate better terms. Some hospitals will change their contracts.

As long as both sides understand what is in a contract and negotiate accordingly, the final terms and relationship will always be better. 

Recent Survey Predicts 26% of Small Practices May Close by 2013

Nearly one-third of physicians in small group practices who responded to a recent survey expect their 2012 income to fall below what they earned last year. And new financial pressures could devastate practices with 10 or fewer participants. More than a quarter of those said they might have to close their practices in the next year.

The survey was emailed to a random sampling of 15,000 physicians who are registered members of a medical news website called MDLinx.

Nearly half of small practice physicians reported cutting staff and services to reduce operating expenses. Despite those measures, nearly one-quarter said they have used their personal savings and one-fifth borrowed money to cover expenses. Only half as many physicians in larger practices or hospitals expect their income to drop this year, by comparison. Sadly, the smaller practices are often the lifelines in their communities.
The weak economy, new regulations, additional paperwork, insurance requirements, lawsuits, changes in Medicare and the specter of ObamaCare have all seemingly conspired against small private practices.

According to a survey conducted by Medscape Medical News, more than half of the responding physicians reported that Medicare and Medicare payments provide 75% of their income. If the scheduled 27% reduction in Medicare payments takes effect next year as currently planned, 61% of the respondents said they would be forced to cut services further and about 7% said they would have to close their practices.

A reduction in small community-based medical practices will likely translate to longer drives to reach less-personalized, higher-cost medical care for millions of Americans. It could also mean the end of the dream for many private-practice physicians.

The potential small practice lifesaver: cash-based services

Many of Practice Builders’ clients have developed and implemented value-added cash-based services to supplement their revenue and incomes. In some cases, they have abandoned their specialties (e.g. ob/gyn) in favor of cash-based services. These include:

  • Anti-aging programs
  • Wellness/fitness programs
  • Prevention programs
  • Weight loss programs
  • Boutique medicine
  • Cosmetic services (Botox®, etc.)

The fastest-growing medical specialty in America today is anti-aging, or regenerative medicine. It’s the proverbial “Fountain of Youth” and patients are flocking to it like hungry seagulls. The biggest growth factors are the aging “Boomer” population and the general public’s heightened interest in quality-of-life issues and longevity.

According to a February 2009 report by Global Industry Analysts, the anti-aging products market is expected to exceed $5 billion by 2015. This exciting new specialty focuses on early detection, treatment and reversal of age-related conditions that cause human decline. Now is a great time to consider incorporating regenerative medicine services into your practice.

If you need help identifying and incorporating cash-based services into your practice, call Practice Builders at (855).898.2710 for more information or direct assistance.

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