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Systemwide integration may have been the mantra of health care gurus during the 1990s, but these days disintegration is growing in popularity as more physicians leave the hospitals that purchased their practices to return to private practice. Discouraged by the poor profits of practices they often paid a premium price for, many hospital owners are encouraging their physician-employees to make the move back out on their own.
Hard numbers on how many hospitals are divesting their physician practices are difficult to come by. However, some experts contend up to one-third of health systems are considering paring down at least part of their physician networks. Tenet Healthcare Corp., for instance, plans to slash its stable of practices by 75% nationwide. At its peak in 1998, Tenet owned 1,000 doctor practices. By May 2001, it expects to own only about 250.
Harry Anderson, Tenet’s Arizona-based vice president of corporate communications, said Tenet is losing $100 million a year on its physician practices. "We’re not alone," he observes. "Virtually every hospital chain has reported the same experience. Obviously, something was wrong with the model because everyone has failed with it."
In 1999, hospital-owned multispecialty group practices lost more than $50,000 per full-time equivalent physician, found the 2000 Cost Survey by the Medical Group Management Association (MGMA). In contrast, similar practices not owned by a hospital earned a profit of just over $2,000 per full-time physician, says the Englewood, CO-based organization.
Wanting to cut their losses while staying on good terms with the local physician community, many systems are engineering so-called "soft landing" strategies to help the doctors in their captive practices move out on their own. In the Philadelphia area, for instance, Tenet has helped organize an independent practice association to assist former employee-physicians with everything from group purchasing of malpractice insurance to negotiating managed care contracts.
In Wilkes Barre, PA, another hospital system has used a similar strategy to cut loose some of its physician practices. Mercy Health Partners has created an alliance with the largest privately owned medical group in the area to give its 45 employee doctors the option to join that group and to acquire stock in a management services organization company jointly owned by the hospital chain and the physician group.
Other hospitals have developed generous outplacement programs that turn over any outstanding accounts receivable, let doctors buy back equipment at its fair market value, and toss in six months’ severance pay to physicians who decide to end their employment contract.
Most experts say physicians planning to leave their hospital-owned practice to start their own shop need to allow at least it three to six months to plan their exit strategy properly. Here are some tips from the American College of Physicians-American Society of Internal medicine in Philadelphia on putting together an effective exit plan:
• Practice valuation. Your practice will need to be valued and sold back at a fair market price — which probably will be significantly less than what it was worth five years ago — to avoid questions from federal regulators and the IRS. Warning: The Office of the Inspector General is concerned that some hospital "give-backs" of physician practices are little more than illegal kickbacks intended to encourage physicians to continue referring patients to the hospital.
• Furniture and equipment. Hospitals are frequently willing to sell back office equipment to doctors. After the hospital does a valuation, you can usually negotiate a price. Be aware, however, that hospitals cannot legally just give you back your equipment.
• Payer contracts. You’ll have to renegotiate all contracts with insurance companies, HMOs, and other payers, so get started early on that. Also, expect to wait three to six months for a new Medicare provider number.
• Accounts receivable. Although you will start billing patients from day one, collections will not start coming in for 60 to 90 days. Depending on whether you expect to be paid or whether you want to cover your operating expenses and pay staff, MGMA consultant Robert C. Bohlmann recommends that primary care physicians who are starting over borrow $75,000 to $150,000 per doctor. One of your top priorities, therefore, should be to develop a good relationship with a bank, because you’ll probably need to borrow a fair amount of money the first few months. Be sure to have enough funds to pay for rent, equipment and buying back the practice from the hospital, reminds the ACP-ASIM.
• Patient notification. If your present contract prohibits you from telling patients or staff you are leaving and asking them to come with you, you may want to re-negotiate this provision.