3 hidden costs hospitals should consider when acquiring physician practices

Consolidation has been increasing across the healthcare industry, and it's not just hospitals acquiring other hospitals. Hospitals are also increasingly acquiring physician practices.

A recent study by Avalere Health revealed hospital ownership of physician practices jumped 86 percent between 2012 and 2015. The study also found 38 percent of physicians were employed by hospitals in July 2015.

With this trend comes a myriad of challenges for hospitals and physicians, according to Heather Delgado, a partner and member of the healthcare department at the law firm of Barnes & Thornburg.

Ms. Delgado recently spoke with Becker's Hospital Review about one of those challenges — hidden costs. Below are three hidden costs hospitals should consider when taking the acquiring physician practices.

1. Buying new equipment. Hospitals may end up purchasing new equipment, depending on the type of physician practice they acquire, according to Ms. Delgado. For example, a hospital acquiring a cardiology practice may need to purchase imaging equipment for electrocardiograms. She says hospitals usually want the newest and best equipment possible and may decide to replace what the physician practice is currently using. "Some of this equipment will be 10 years old and hospitals feel they have certain standards their equipment should meet, so right away they're looking to replace pieces to bring the practice's equipment up to the same standard of equipment the hospital has in its main facility or other hospital-owned facilities," says Ms. Delgado.

2. Benefits for staff. When hospitals acquire physician practices and agree to employ the practice's staff members, they should consider base salary as well as benefits they will need to provide employees, according to Ms. Delgado. These benefits may include paid time off, health insurance and employee assistance programs, among other things. "They might have looked at the beginning of the transaction and said, 'OK, we can handle this base salary.' But often hospitals forget that there are other costs associated with employing these physicians or staff members," says Ms. Delgado.

3. Upgrading IT. Hospitals acquiring physician practices may also have to upgrade the practice's IT system, especially if it is not able to interface with the hospital's existing EHR. This incompatibility can arise because the physician practice used software that is primarily for a standalone physician office. Once the physicians at the practice are hospital employees, it is important that the hospital gets the practice running on the system used by all other hospital facilities. This will allow patient information to be transferred efficiently and effectively, Ms. Delgado says. "IT upgrades can be a big expenditure in these acquisitions. Sometimes computers or other software systems are outdated but were sufficient to operate the EHR at a standalone physician office; once you start to integrate this existing technology with some of the bigger hospital EHR systems the expenses start to add up. The hardware and software upgrades alone can be expensive, and those prices do not begin to include the IT personnel that will need to go into that physician office and provide the training they need to use the new system," she adds.


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