Q: Why are hospitals in your area snapping up so many physician practices?
Chris Rivard: It’s a trend that started several years ago but is definitely accelerating. Both the hospitals and the physicians are getting ready for healthcare reform, when they will have to share payments. Physicians, for their part, are likely to lose reimbursements and will need some protection under a hospital’s umbrella.
Q: What’s the motivation for hospitals?
CR: Acquiring practices gives hospitals some influence. Think about it. Hospitals don’t have much say about who comes through their doors, what type of care they would get or even what the payment would be. But if they become “vertically integrated” — to borrow a term from the 1990s, which was the last time there was a practice acquisition boom — they can play a greater role in outpatient care. They can become leaders in the accountable care organizations that are being set up under healthcare reform.
Q: As the practice-acquisition trend gathers force, are some hospitals forced to participate, just to maintain market share?
CR: Once a few hospitals start buying practices, the others have to join, as a defensive measure. Each hospital system, each self-standing hospital, has to play the game or risk losing market share.
Q: This could get very expensive for hospitals. Are they cutting back on other projects to pay for practice acquisitions?
CR: No, they are not cutting back on other projects. They are just borrowing more. You see some very heavy liabilities on hospitals’ balance sheets these days.
Q: Who initiates these acquisitions, the practice or the hospital?
CR: The hospital usually makes the offer, but in some cases the practice does. For example, cardiology groups are now interested in employment because they are going through some substantial reimbursement cuts. Also, the whole drama of the temporary physician fee fixes — “Will there or won’t there be a 21.3 percent cut?” — is making some physicians feel anxious about the future.
Q: Are any practices fighting acquisition?
CR: A lot of surgery groups are very much opposed to acquisition, but they may have to change their minds. Physicians stand to lose money under healthcare reform, at least in the short term, and the reforms will bring more regulations, which physicians don’t have a great tolerance for. Also, many practices don’t have EMR systems in place and can’t access the capital needed to buy them or initiate any other projects.
Q: What kinds of practices are hospitals looking for?
CR: Hospitals are particularly interested in cardiac surgeons, orthopedic surgeons, general surgeons and neurosurgeons, because they can enhance their highest-paying service lines. They are not interested in specialties such as ophthalmology, which don’t have much to do with inpatient operations. Primary care physicians also don’t have much to do with inpatient operations, either, but hospitals want their referrals.
The five or six dominant systems in the Puget Sound area are also looking to acquire community hospitals. The targets for acquisition are self-standing hospitals of around 100 beds. They may not know it yet, but the big systems have their eyes on them.
Contact Chris Rivard at chris.rivard@mossadams.com.
