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Thursday, Mar 28, 2024

Doctors Selling Out to Hospitals

Dr. Jeffrey London’s office looks directly out on West Hills Hospital and Medical Center. But since he and his partners sold their 14-provider medical practice, the name on the door reads Providence Medical Institute, making his office a division of the competing hospital system — Providence Health & Services. A nonprofit division of Providence has been buying independent medical practices as it pushes to expand market share in the Valley. It’s finding many takers. “What we gave up was the hassle and worry of running a major office,” said Dr. London, who was previously the managing partner of Affiliates in Medical Specialties. “I don’t miss contracting for managed care contracts, doing the accounting the back office payment and billing and collection work — all the things that pull me away from practicing medicine.” Hurt by shrinking reimbursements, rising costs and a need to invest huge sums in technology to stay current, a growing number of doctors nationwide are finding it easier and more financially secure to sell their practice and work for a hospital. According to the American Hospital Association, the number of doctors working directly for hospitals has increased by 32 percent since 2000, and more are joining the ranks with health care reform, which would reward integrated delivery of care and encourage the creation of accountable care organizations (ACO). In California, the business of buying doctors’ practices is tricky. A ban against the corporate practice of medicine means hospitals cannot directly employ physicians, and the hospital cannot dictate that the doctors they acquire refer their patients exclusively to them. In order to fall within the law, Providence created Providence Medical Institute (PMI) as a nonprofit foundation, which buys the assets of a practice, such as real estate or medical equipment. PMI has a relationship with a third party, which in turn contracts with the doctors. For doctors, the arrangement is attractive for the financial security it offers, as well as the ability to lose the headache of running a business. “I think there will be more such arrangements,” added Dr. James Chow, a West Hills obstetrician, who together with his three partners sold to Providence Medical Institute earlier this year. “It’s just too difficult for an individual doctor to run his or her own practice.” For hospitals such as Providence, the allure is in building an ambulatory care network, with the hope that it leads to an increased referral base, the lifeblood of a hospital. It also allows hospitals to build ACOs more easily and deliver the kind of coordinated patient care that the new health care law would reward. “The hospitals need an off-campus strategy and they are building loyalty to the brand,” said Bryan Lewitt, senior vice president and health care practice leader of CBRE Group, the real estate brokerage firm negotiating some of the property transactions between doctors and hospitals. Strategic plan Providence is hoping its strategy of acquiring practices will lead to growing market share. The system already operates three hospitals in the Valley with a total of 673 staffed beds. Now it is expanding its ambulatory network to help fill those beds and ensure that patients get what the health care industry calls good continuum of care before and after being admitted to the hospital. In addition to the West Hills acquisitions, Providence recently purchased an urgent care practice in Santa Clarita. And the hospital system is fielding dozens of calls a month from area physicians eager to join, said David Asplund, director of business development and physician relations at Providence Medical Institute. “Doctors are seeing the writing on the wall and looking to affiliate with someone to get the practice support they need,” Asplund said. “I’m having conversations with doctors every week. They are coming to us.” Asplund said the PMI business model is a replica of the one created by Kaiser Permanente, where the company’s three divisions — the Kaiser hospitals, medical groups and foundations — work together but within the limits of the law, leaving the physicians technically autonomous. Doctors are paid either a share of the patient revenue, or what the health care industry calls “relative value units” under which doctors are rewarded according to how much they work and the value of the work. The payment structure ensures that doctors continue to have incentive to build the practice after they no longer have an ownership stake in the business. That lack of incentive was problematic for hospitals that had acquired doctors’ practices in the early 1990s, the last time hospitals went on a practice acquisition binge across the country. This time, hospitals are avoiding some of the compensation pitfalls. “We reward doctors for being productive,” Asplund said. There also are quality measures that doctors have to be able to meet when they joining PMI, he added. ‘Market share opportunity’ PMI also is being strategic about its acquisitions. PMI already has more than 155 physicians in the South Bay area, where it started out more than 10 years ago. Now it’s building its presence in the Valley and beyond. Ideally, the system is looking to snap up practices that are somewhat removed from its hospitals so that it can extend its reach. “It’s a market share opportunity,” Asplund said. “We are looking for where there is not a hospital…where there is a potential to reach into an outlying community such as Woodland Hills, Calabasas or Agoura. We expect it will give us access to the patients out there.” The West Valley and Santa Clarita are key markets, Asplund said. He also emphasized that this is not a “retirement plan or a golden parachute” for doctors tired of the business. While Providence hopes that the physicians who choose to become part of PMI will send their patients to Providence hospitals, by law, there can be no directive for them to do so. Even after buying a practice, the doctors have autonomy to refer to the hospital of their choice. For example, Dr. London can continue to refer patients who prefer to visit West Hills Hospital, located across the street from his office, to that hospital. However, both Dr. London and Dr. Chow are making it clear to their patients that, if they decide to go to Providence Tarzana Medical Center, located 8 miles away, they will be able to offer much more coordinated care. Providence is in the process of installing its electronic medical record (EMR) system in Dr. London and Dr. Chow’s offices, so they soon will be able to see everything that happens to their patients at Tarzana. So far, few hospitals are following Providence’s lead in buying physician practices in the Valley. West Hills Hospital CEO Beverly Gilmore said her hospital is not pursuing practice acquisitions at this time. Regarding the West Hills doctors who chose to be part of the competing Providence system, she said, “It will make life confusing in the short run for patients, but in the long term we believe patients will choose to come to us because we believe they will want local care.” Glendale Adventist Medical Center said it’s not ready to speak about its strategy. Northridge Hospital Medical Center said it has no plans to acquire doctors’ practices at this time. Other Los Angeles area hospitals, however, are said to be pursuing the acquisition strategy. “In the Valley, which has been very resistant to this idea, we’re ahead of the game,” Asplund said. “But nationally, we’re behind.” Other hospitals will find themselves left behind unless they, too, start looking, Asplund said.“There are only a certain number of great doctors out there,” he said. “Health systems that are not looking to align with physicians are going to find themselves out of the running and in trouble.”

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