Hospitals hang on to money-losing medical practices

Many hospitals and systems derive benefits, such as referrals and stable physician networks, that outweigh practice losses.

By Mike Norbut, AMNews staff. March 8, 2004.

Medical practices owned by hospitals or integrated delivery systems reported a median net loss of more than $82,000 per full-time physician in 2002, according to a survey published by the Medical Group Management Assn.

The report says the loss was 9.5% more than in 2001, when groups posted a median loss of just more than $75,000 per physician. The report highlights a trend that has been apparent to health systems for several years. Hospitals were selling practices back to physicians or anyone else that would take them more than four years ago because they already had been deemed a drain on finances.

Still, some hospitals have managed to mold thriving medical practices, while others have decided the losses are worth it to have a physician network.

"The philosophy is, 'We will make money off their referrals, even if we don't make money off their practice,' " said Janet Houser, PhD, associate professor of health services administration at Regis University in Denver.

Hospitals started buying practices as a competitive response to the growth of physician practice management companies in the early 1990s.

The hospitals that have not cut bait and sold their practices probably have recognized a benefit of some sort from their investment, said Daryl Johnson, co-founder and principal of HealthCare Appraisers Inc., a valuation consulting firm based in Delray Beach, Fla., that specializes in physician compensation agreements with hospitals.

"The competition hospitals faced a number of years ago is no longer present," he said.