Why do hospitals buy primary care practices?

One reason is to apply an extra “facility fee” to patients’ bills.

Another reason is that primary care docs generate a ton of money for the hospital.  A new survey was sent to hospital chief financial officers across the nation and based on data submitted by 102 facilities, it found that PCPs generate more annual revenue than specialists do.

PCPs (defined in the survey as family physicians, general internists, and pediatricians) generated a combined average of $1.57 million for their affiliated hospitals last year, compared with a combined $1.43 million across 15 specialties.

Why does this happen?  Well, here is what this Medical Economics article said:

The company attributed the revenue shift toward primary care and away from specialists to the growing trend of hospital employment of physicians. As PCPs become hospital employees, they may be more likely to divert tests, therapies, and other services “in-house” to their hospital employer rather than to outside resources such as radiology groups or laboratories, according to the report.

Additionally, as new practice models such as accountable care organizations (ACOs) become more prevalent, revenue from primary care is likely to increase while it decreases from specialists. That’s because ACOs place a premium on lower-cost patient care, such as what typically is provided by PCPs, as opposed to more expensive, procedure-driven care from specialists.

Here are 2012 revenues generated for hospitals broken down by a few physician types:

  • family practice ($2.1 million)
  • internal medicine ($1.8 million)
  • pediatrics ($788,000)
  • orthopedic surgery ($2.7 million)
  • general surgery ($1.9 million)
  • invasive cardiology ($2.2 million)

So, now you know why hospitals buy out family doctors and their offices when they are in a competitive market.

The question is, will family doctors be paid more so as to incentivize medical students to go into that field?   The answer is no.   They may get a little bump here or there but nothing of any significance.   You see it doesn’t matter if there is much of a change by the insurers or the government in paying Medicare fees to PCPs.  The reason is that each hospital administration uses clauses in their physician contracts to find ways to keep that extra money.  I have seen that happen at two different systems before, multiple times.

Once you are owned by the hospital you are basically under their control and they will make up story after story of why meaningful use bonuses, RVU increases, etc. are needed by the hospital and not you.

And you have no way to fight it unless you sue or walk.

Doug Farrago is a family physician who blogs at Authentic Medicine.

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  • Elvish

    The sad thing is many Internists, Family physicians and Paediatricians are not defending their practices.

    Without primary care, the system will fall into chaos; primary care physicians can and should say no.

    • buzzkillerjsmith

      All well and good from a distance but if you say no, then you might earn less than your local plumber. My neurology buddy has not paid himself a salary since February and his local hospital (no fools them) will not buy his practice.


    I work (as an “employed physician”) in a large private integrated healthcare system. My compensation (income + benefits) is in excess of $300,000 per year working full time. My income has been going up yearly for the last 7 years, and will likely continue to do so in the foreseeable future. The organization is highly profitable, has won numerous awards for patient quality and satisfaction, and has some of the highest retention rates for physicians in the country. Oh, and I’ll retire with a life-time pension (which is fully funded, and 100% secure, barring a complete collapse of the U.S. economy).

    The system itself is amazing – a very effective and well integrated EMR that makes my job infinitely easier, specialists at my beck and call (phone consults and conventional consults, emails, whatever I need). If I have an unprofessional encounter with one of them, my chief will “take care of it”. I’m given the freedom to work to the “top of my licensure” – clinic only, or mixed with HBS, L&D, pediatrics, procedures, even ER work if I want. It all pays the same, so I’m able to pick and choose based on my skills and interests.

    Why is it so good to be a PCP in my organization? Because it recognized about 10 years ago that PCP’s are the most valuable resource they have. That in a pre-paid model, intelligent, well-resourced, well compensated and happy PCP’s provide better care at lower cost, with better outcomes and quality measures, and result in happier customers as well. I.e., its truly a win win situation. Did I mention that this model is crushing our local competitors, which are trying desperately to re-invent themselves like us? That they’re struggling to hire (and afford) PCP’s while we now receive approximately 10 applicants for every position we offer?

    Am I bragging or gloating? No – I’m just presenting the counter to this post based on my own experience – that the free market can and has recognized the value of PCP’s, and will continue to do given the current economic and business climate in medicine.

    • Close Call

      A certain large private integrated healthcare system in our area is paying new family medicine grads 205k starting salary. Thrive =)

      • PCPMD

        Lets not forget the generous sign-on bonus. Thrive indeed!

    • http://onhealthtech.blogspot.com Margalit Gur-Arie

      There is one problem though with these excellent integrated health organizations: the premiums for members are not lower than comparable plans from regular insurers. If (big if) we are indeed planning on reducing health care costs by say 30%, then I would venture a guess that, since quality and efficiency are already optimized, both the organization’s profits and the salaries for employees will have to go down significantly, or the number of employees will have to be reduced. Perhaps quality could be maintained, but I am not certain that it can.

    • querywoman

      How about your rest? Do you have a good rotation for your 24 hour answering service?

      • PCPMD

        We have nurses who field a majority of the night-time calls. Those that are more concerning are forwarded to an MD. These physicians usually just do night-call only (Many are former PCP’s who are nearing retirement, and are given the option of doing night phone-calls only in their last few years). PCP’s don’t take night call. We do have weekend clinics that are staffed on a rotating basis – you end up doing about one weekend day per month.

        • querywoman

          The old-fashioned 24 hour doctor duty who made house calls was at risk of extreme fatigue. This to me is the real advantage of the modern group practice.

    • Roy Poses

      Wow, this seems like some sort of primary care paradise. Since I often write (on Health Care Renewal: http://hcrenewal.blogspot.com) about badly lead hospital systems, and about employed physicians who are not doing so well, it would be really nice to show an example of the opposite. So,…

      1 – Would you care to identify yourself?

      2 – Would you care to identify this apparently wonderful system?

      3 – Would you care to share some data/ evidence to support your contentions above?

      • http://onhealthtech.blogspot.com Margalit Gur-Arie

        While waiting for PCPMD to answer, you may want to check this new report from SK&A (if you haven’t already) http://www.skainfo.com/health_care_market_reports/physician_compensation_trends.pdf
        That high compensation is not impossible, and although I have no idea where PCPMD is practicing, I’ve heard pretty nifty anecdotal stuff about Group Health up in WA.

      • buzzkillerjsmith

        Indeed. I have actually won a Nobel Prize and I am the fastest and strongest man and have the bestest job in the world and am very rich and good-looking.

        And no, I would not care to identify myself or where I work or supply any data.

      • PCPMD

        We have 35 doctors in total, with 1 leaving due to a system issue in 7 years, which I consider pretty good retention rates.

        Is it utopia? Not quite. There’s still garden-variety whining at the ground level (mostly, I think, b/c many don’t know what its like outside), but nobody would actually leave over it. I work an average of 53 hours per week, which is about the national average for full-time primary care. I see an average of 16 patients per day plus 1-2 telephone appointments, 10-12 emails and all of the other stuff that goes on with patient care. A really busy day would be 20 office appointments plus 4 phone appointments, and 15-20 emails – days like that happen maybe once every few months.

        Our “administrative hassles” revolve around patient access (how easy was it for your patients to get in to see you), quality measures (diabetes, BP, lipids, pediatric vaccinations, etc.), etc. i.e., nobody likes to get a list of stuff they need to do, but its all stuff that helps real people.

        Our leadership is a mix of top-down (Dr. Robert Pearl, our CEO, and his regional physician leaders), and bottom up (our facility’s chief of medicine and a small group of other physicians who tailor our local approach to the broader strategies).

        This model works well, gives doctors who want to have a voice a say in how things run, and those who just want to clock in, see patients, and clock out, to do that as well.

        Overall, I can’t think of a smarter system, nor one more primary-care centered.

        • buzzkillerjsmith

          I used to work for PMG in back in the day, senior physician and all that in the Napa (my home town) clinic. We admitted to Vallejo. Working there was hellish and I quit in 1995.

          In truth I don’t have the personality to be happy at Kaiser or at any large CorpMed outfit. A limitation perhaps but there it is.

          But I must apologize to you. I have to admit PMG was and is primary-care centered and I am told by old colleagues that it is much better place to work than it used to be. Not that I will ever want to find out first hand again….

        • Roy Poses

          Sorry for the slow response, I was on the road.

          Kaiser Permanente certainly has the reputation of providing high quality, primary care-centric care. As far as I know, it also has the tradition of being run by health care professionals, not generic managers. So now I see what you were talking about, and am willing to believe that things really are better there. At least the folklore is that they have been better there for a while.

          That being said, I also suspect that Kaiser if very much an outlier, and most of the corporate entities that now employ many physicians are very different.

    • Randall Oates, MD

      Bravo! The key is having docs able operate at “top of license,” and the health systems and their employed physicians that are/will doing well are the ones that figure that out. Run the numbers and note that a Family Physician is generating around $17/minute of revenue for the system. What sense does it make to turn them into harried, distracted data trolls? By using better technology and team work flows, everyone wins and certainly the quality can goes up… often dramatically.

  • http://www.thehappymd.com/ Dike Drummond MD

    Come on now Doug … Hospitals buy family practices because the doctors sell them. This is not a takeover … although in some markets there are some pretty clear turf battles going on. Doctors sell to get out of the business hassles of their practice and they are then at the mercy of a system they cannot control.

    The pipe dream of “if I sell out the to the hospital, I will be free of administrative hassles and just be able to see patients” (I can hear the angels singing) is bogus for 98% of organizations you might join. [PCPMD's comments here being one of the organizations that is an exception to the rule ... if the comments are true]

    If you do sell out or take an employee position, you must evaluate the culture, organizational structure, how they make decisions, and the strength of the physician leadership in detail. If you are not clear about and comfortable with each of those topics you are walking into a dark alley, late at night and it is not going to end well — because all you will be able to do from this point on is comply with whatever you are told in a setting where you have no voice, influence or power.

    Fortunately we are talking about Primary Care … so Concierge and direct pay micro practice are a very important and financially viable option in all but the smallest of communities.

    My two cents,

    Dike Drummond MD

    • buzzkillerjsmith

      Employment is great for about the first year and then the lack of control rankles. We’re in a box: admin hassles and lack of income if solo or if in a single-specialty group, versus lack of control and meetings and memos and vision statements if we sell out to CorpMed.

      There is no answer, there is no way out, with the possible exception of direct pay, which only works in some areas and might disappear as more docs compete for it.

      I’ve said it before and I’ll say it again. The med students must look at this with gimlet eyes. If they are wide-eyed optimists they might go in primary care and make one of the biggest mistakes of their lives.

      • http://www.thehappymd.com/ Dike Drummond MD

        Hey BKS … thanks for chiming in. Most docs sell to hospitals out of fear. They are running away from things they don’t want … not running towards anything they really desire. It is possible to find hospitals/groups with strong physician leadership and functional systems … a team that cares about the physician experience and your opinions are valued. Sounds like PCPMD is in one of those places.

        And for primary care, the concierge and direct care business plans are incredibly common sense and market forces will drive their popularity in the years ahead. It is not ALL doom and gloom. Keep your eyes on what you really want and you can find it.

        Dike Drummond MD

        • buzzkillerjsmith

          Running away and not running to is a good way to put it.

          • http://www.thehappymd.com/ Dike Drummond MD

            Hey BKS … this is a core issue for physicians. We are conditioned to see danger/disease/problems everywhere. So when doctors move to a new job they are usually only running away from something they don’t want. There is a subconscious assumption that goes something like this –

            “If I avoid everything I don’t want … that means I will get just what I want .. right?”

            Cue the “wrong answer” buzzer here.

            To get what you want, you have to know what you want and give yourself permission to want it. That is a foreign experience for doctors. They are always trying to give other people what the other people want. So a piece of what I do is help docs create an ideal job description and ideal life description and move in that direction. Take control back over your practice and your life balance. And it is doable EVEN IF you have given up on it being possible in this lifetime.

            Dike Drummond MD
            117 ways to lower stress and prevent burnout in the MATRIX Report here

          • buzzkillerjsmith

            Direct pay is hard for me to swallow. I’m not there yet. There’s still a bit of masochism left in the tank, although I have absolutely no disrespect for those who feel otherwise. Limiting pts is better than pulling the plug entirely, especially since with both agree that we have been abused for a generation or more.

            I want all Americans to have a right to basic health care. I’m not saying this desire is realistic, but there it is. I suspect that you agree.

            This country has pissed all over poor people for as long as I have been alive and that’s a long time. It’s all very sad.

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