Hospitals taking over private practices

A decade and a half ago, when I moved to Memphis, I proudly hung a sign outside an office I shared with another doctor. It had my name followed by an MD. I had started my own small business as a solo practitioner in medicine.

Over the years, the practice has grown. I now have several employees and my own office, with the names of several other doctors alongside mine on the sign.

But across Memphis and the nation, health care delivery systems are shifting, and doctors are radically changing how they practice medicine. In a matter of a few years, small and large medical practices are crumbling, lumping, merging, or rebuilding — depending on one’s perspective.

According to the Medical Group Management Association, in 2005 more than 65 percent of medical practices were physician-owned. Within three years that figure had dropped to 50 percent, and by now I suspect it is much lower.

So why all these changes, and ultimately what will it mean for patients?

For one, providing health care is becoming increasingly complex. Keeping up with innumerable regulations from private insurers and the government, transitioning to electronic medical records (EMR) and caring for a growing population of chronically ill patients make it nearly impossible for a full-time practicing doctor to manage patients and a practice. For example, last year, I invested $15,000 in an EMR only to scrap it because it did not connect efficiently with hospital computer records.

There is another more significant reason for the demise of physician-owned practices. Two years ago, a cardiologist educated me over a coffee at Starbucks about the way Medicare was changing its payments. For the technical component of an echocardiogram, a hospital-outpatient department receives $450, while a physician-owned cardiology office gets $180. “It doesn’t make sense. We are going to go out of business.” According to rumors, that’s what was happening with many large private practices that had invested heavily in technology and diagnostic equipment. With the cuts, the practices were not sustainable.

So why did Medicare cut payment to doctors for office procedures? Many studies have found that if doctors have medical equipment in their offices, they tend to overuse it. One study showed that doctors who have an MRI machine in their office tend to order three times more MRI scans per 1,000 office visits compared to other physicians. For a cardiologist it was 2.6 times more cardiac echoes, according to a 2009 Medicare Payment Advisory Commission’s report. Overuse of imaging studies is a major factor contributing to skyrocketing health care costs.

So I asked a few doctors why did Medicare not cut payments to the hospitals. Some say, “That is coming soon,” while others say, “The hospital lobby was stronger than the doctor lobby.”

Whatever the case, the new health care landscape gives hospitals greater control over local health care resources. But as one hospital CEO told me, “I really don’t want to take over doctor practices. Managing doctors is like herding cats. But there is no choice.”

True — doctors are independent, autocratic and often have trouble working together. “I didn’t go through medical school, residency and fellowship training to be told what to do by an administrator,” one doctor told me. But a more efficient system requires more hospital and doctor collaboration.

What many people might not realize is that these Medicare payment changes predate the health reform law that was passed last March. The new law does encourage the bundling of care where doctors and hospitals must join together in pilot projects to bring efficiency, but the law does not mandate these changes.

A simple but important lesson from all this is: One of the best ways to change health care is to change the way one pays for health care. Businesses and insurance companies are watching and preparing to do just this.

So, with my small practice and business, like many other doctors, I am at a crossroads — to join hospitals or to tough it out. Nothing is certain in today’s health care conundrum.

Manoj Jain is an infectious disease physician and contributor to the Washington Post.  He can be reached at his self-titled site, Dr. Manoj Jain.

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  • family practitioner

    From a primary care point of view only, this is simply a case of if you can’t beat them, join them.

    My private practice was going out of business for the following reasons:
    1. I was stuck in bad HMO contracts that frequently paid less than medicare and because I was a gnat, I had no leverage to negotiate better rates.
    2. Virtually level medicare rates for at least a decade. Not only did this make it harder to care for medicare patients but private insurers tie their rates to medicare; if medicare does not go up, then they don’t either.
    3. Ever increasing employee costs, especially the cost of health insurance (irony anyone?)
    4. Ever increasing administrative and regulatory burdens, only to get worse under reform (and I for the most part support Obama’s endeavors!)
    Anyone care to add to the list?
    Anyway, I lost, I threw in the towel; I sold my soul in the process but now I make more money and work less.

    • jsmith

      I agree that throwing in the towel makes sense for individual docs short-term. The problem is with the long term. Working for hospital systems is no fun. Different cultures, different priorities. An MBA in a suit and tie makes me see red. I suspect other docs feel the same way.
      To attract enough med students long term, primary care must be sufficiently reimbursed to allow PCPs to make it on their own. If that does not happen, and I suspect it won’t, the field will continue its death spiral.

      • family practitioner

        Ain’t gonna happen.
        This years 10 percent bonus from medicare, if we ever see it: too little too late.

      • doc99

        The term “reimbursement” is a misnomer. Reimbursement means repayment for monies laid out. The term should be “payment,” as niggardly as it may be.

  • doc99

    Wait until your new department administrator puts productivity targets in place – can you say “weeping and gnashing of teeth?”


    When the gate is closed and all the head of cattle are milling about, all seems well. They are cajoled and there is an erie silence. The heard decants in a particular direction, along a building, then down a ramp…each steer out of the sight lines of others.

    Then one by one through the door of the kill floor and the stun gun or koshering blade finishes the grisely business.

    Temple Grandin ain’t got what the administrators have waiting for you, especially when the squeeze is really on. I think you know that. You also know that Admin. will not suffer one bit as the financial pain will roll downhill onto the heads of their employed providers.

    • jsmith

      Dark, very dark. I like it.

    • pj

      Thing is, an administrator/politician/bureaucrat/computer can’t replace a physician.

      “Together we bargain, divided we beg”

      • Vikas Desai

        I completely agree. The next generation of MD’s are the key however.

  • Harry

    i have experience from both sides, private practice and hospital-employed (ie. owned). It is nice having a steady paycheck/paid vacation/cme time/retirement benefits/etc from a hospital, but at what expense? The constant reminders of productivity targets become overwhelming; practice expenses to which you are being held to, but which you have no control over; the uncomfortable feeling that the person you’re answering to is likely an administrative nurse or MBA, likely making twice as much as you are; and, worst of all, in my personal experience, the feeling that you no longer have a voice.

    i now find myself back in private practice, going against the grain. Many of my colleagues think I’m crazy, and maybe they’re right. However, I’ve regained my voice. I control my own destiny. By no means is private practice for the faint of heart, especially in our current system and especially for PCP’s.

    A patient of mine recently commented to me, regarding my decision to leave hospital employment and venture back into the world of private practice. He said, “if most people are telling you you’re crazy, you know you’re on the right track……..because most people don’t know what they’re doing”! Hopefully for me, he’s right.

    • jsmith

      Very well said. For a lot of docs, myself included, being owned is simply not a psychological option. It has cost me a lot of money and will continue to do so. But I’m a lot happier not being owned.

  • stephen.chen28

    this would help the patients……

  • Marc Gorayeb, MD

    Hitch your wagon to a group that is not owned and run by physicians, and you will kill off a piece of yourself in the name of a steady paycheck and paid vacation time. For most of us, professional independence is what fuels our fire.

    • jsmith

      Agree 100%.

      • ninguem

        +2 What Gorayeb said………….

  • soloFP

    I have offers from my local hospitals to join each of their groups. Currently I meet or exceed any monthly quotas that they have in the each group for primary care. The difficulty is that I would take a 30-40% take home salary cut to work fewer hours with paid vacation and paid sick days. I would have increased overhead with 3-4 employees required in my office full time, an outside hopsital-owned billing agency with only an 80% collection rate, and practice administrators telling me how to practice. I like my independence and feel sorry for the owned doctors who are not making their true potential incomes in exchange for what they think is a good lifestyle.

  • Elizabeth Rowe

    Hospitals are gobbling up physician practices in order to take over outpatient care, especially the ancillary services. Hospitals receive much higher payments (three fold) from both Medicare and private insurers for testing such as MRI and sleep. They can afford to pay the docs more than the docs’ direct reimbursements (which are already higher than in private practice) because of the downstream revenue that they bring in. You can bet that their volume of orders for imaging, etc, does not go unnoticed by the administrators who determine salaries. It is very perverse that the “self referral” of neurologists and orthopods who own their own MRI is being widely vilified while the epidemic of increasing (and often inappropriate) imaging orders that we can expect from hospital owned primary care physicians is being neglected. (This is surely “self referral” on a grand scale.) Also ironic is the radiologists arguments against the ownership of imaging by treating physicians, when 60% of their radiology reports suggest additional studies.
    The trend of hospitals buying up physicians is not just a matter of physician job satisfaction, as important as that is. It is a critical matter for overall healthcare costs, because of the shift of outpatient testing services from the low cost outpatient environment to the high cost hospital owned environment. It is shocking that the facts about the differential payments to hospital owned outpatient facilities compared to free standing outpatient facilities has not come into the public awareness yet—but surely it will as their co payments increase.

    • family practitioner

      I work for a hospital and am told again and again to DO WHAT I THINK IS BEST FOR MY PATIENTS. I get no pressure whatsoever to increase utilization of ancillary services.

      • Elizabeth Rowe

        But you DO most likely order your testing from the highly reimbursed hospital owned facilities rather than lower cost free standing facilities, don’t you? I am interested to know whether you order MRIs yourself before you send a patient to a specialist, say a neurologist? Or do you let the specialist decide what testing to order based on his/her examination and evaluation of the patient? Also, do you feel you can refer a patient to any specialist in town, or are you limited to the ones in your own hospital?

        • family practitioner

          1. They do not care where I send patient s for imaging; and I don’t care either, stand alone radiology places, run by overpaid primadonna radiologists, have done nothing while primary care, especially private practice primary care, has died a slow painful death over the past decade.
          2. I order the mri myself if I think that is appropriate, or I send the patient for a consult, if I think that is appropriate. Whatever is best for the patient.
          3. There is some truth to this; although not required, the implied suggestion is to use specialists that are part of the system. Since I believe that my local community and specialists are quite good, I am okay with this. When patients leave the community for specialty care, it makes more work and liability for me, as Dr. Bigshot in Manhatten never seems to be available.

          • Elizabeth Rowe

            Ok but re 2, how do you as a family practitioner know what MRI is needed? If it is a neurological problem, do you know if you should image the neck, what part of the spine, and whether or not to order contrast? And if you are hoping to avoid a specialist referral based on MRI, did you realize that you are relying on a general radiologist who has never taken care of a patient to make a diagnosis? A radiologist who will never know whether his/her diagnosis was correct or not, so cannot learn from it for the next time. Wouldn’t it be better to let the specialist order the MRI based on clinical findings and then correlate the MRI results with the clinical picture, decide on a clinical treatment plan, follow the patient, and change course if it turns out the radiologist missed something? Or better still, but regrettably not always available, refer to a specialist with MRI training who will be sure that the MRI interpretation is correct to begin with, and hopefully even has enough input into the MRI facility to make sure the instrument is optimized, and the sequences are optimized for the suspected disease.


    @Elizabeth Rowe,


  • family practitioner

    To Elizabeth Rowe:

    If you do not think primary care doctors know how and when to order an appropriate MRI study, then you do not understand, nor have much respect for, primary care. It is my opinion that neurologists frequently order brain MRI/MRA/MRV, cervical MRI, lumbar MRI, emg studies and EEG’s when they are not necessary. Fewer referrals lead to more appropriate testing. Overtesting, and excessive specialty referral are two of the many reasons why our healthcare system is so expensive. Plus, overtesting leads to more testing and overtreatment. There is no substitute for a good primary care doctor, be they FP, IM or PEDS working up a patient appropriately and doing what is best for them (ie the patient).

    I am not sure where your mistrust of radiolgists comes from. The ones I know have a make a lot of money, do not work particularly hard and are not that pleasant, but they do know how to read MRI’s.

    • Elizabeth Rowe

      It has nothing to do with respect; it has to do with training and expertise. Primary care doctors know something about a lot of topics. Specialists know far more about fewer topics. The same is true for general radiologists. Over 95% of MRIs are interpreted by general radiologists. There are not enough neuro radiologists to go around. On the other hand, an interested neurologist can be far more adept at interpreting MRI of the nervous system than a general radiologist. The same is true for orthopods.
      If you do not know exactly what you are looking for in an MRI, then you cannot know exactly what to order, including which body parts and whether to order contrast, for example. Contrast is risky for the patient, doubles the cost of the test, and is often not necessary. It is common for patients to arrive at the neurologist’s office for the first time with MRI images that are inappropriate, ordered by a primary care doctor, or even a nurse practitioner. They do not image the portion of the nervous system the specialist needs to see, or the way the MRI was done does not distinguish grey matter from white matter, or the head has been imaged but not the neck or spine. They are accompanied by a report with a laundry list of possible diagnoses, some of which are very scary for the patient. Probably other patients have received interpretations of “normal” MRI, and were not followed up until months later when the problem had progressed significantly. ( The liability possibilities here are probably why there are so few “normal” radiology reports.) Then either more MRIs must be ordered, if the insurance company will allow it, OR the specialist will not be able determine a diagnosis.

      No disrespect for family practitioner intended—they play a vital role. But in the case of ordering sophisticated very specific tests, the role of the general physician in this process is to determine whether a patient has a problem that requires further study, and to choose the appropriate specialist, and then let the specialist determine the appropriate testing.

      Regarding incentives, the prevailing theory is that no overutilization will occur in an integrated system like a hospital, where the hospital will get the revenue who-ever orders the test. But unfortunately, within that system, the ordering behavior of each physician is tracked, and there can be no doubt about whether their downstream revenue is part of the personnel evaluation process. Also, note the comment of Doc99 above.

  • Vikas Desai

    why should we listen to hospital CEO’s? Its ridiculous, its an ego trip to this clowns to “control” all these physicians, physicians go through too much training to be treated like worker bees. Medicine is the one high income specialty that actually is beneficial to society most other professions the guys at the top work as hard as they can to make sure they stay there and thats all their goals are, whether they are hospital CEO’s , school superintendants, malpractice lawyers or what have you. I am not against medicare reigning in on some of the reimbursement for in house testing because there can be conflict of interest issues.(I do echos in my own office as well) I get it, but medicare should increase the regular E+M codes, its a joke a 99213 pays 55 dollars in new york that has not increased in years we dont even get increases that go up with the rate of inflation, MD’s should work hard to retain autonomy otherwise your work, your training and all your sacrifice will be minimized by the same self serving corporate sensibilities that drove this country into recession.

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