Acute interest: When doctor groups become owners

Physicians have emerged suddenly as bidders to buy hospitals. But are they making a wise investment?

By Katherine Vogt, AMNews staff. June 21, 2004.

Dozens of general acute care hospitals have been put up for sale in the last year, and physicians are responding like shoppers pursuing a blue-light special.

In an emerging trend that bucks tradition, physician groups appear to be increasingly attempting to buy these hospitals, some of which could be a bargain after losing money for their corporate masters.

While many physicians have invested in specialty hospitals, ambulatory surgery centers and diagnostic imaging centers, there have been few instances of physicians purchasing traditional hospitals.

But observers say that could be changing.

Several factors are aligning to fuel a trend. First, hospital ownership holds the seductive promise of helping doctors gain more control over their work environment and the quality of the care they provide. Also, it could provide doctors with a new source of revenue to offset declining reimbursements.

And with the future of specialty hospitals clouded because of an 18-month federal moratorium on their development, traditional hospitals have become more attractive.

But the challenges faced by these would-be physician investors are significant and might prevent some from completing deals. In addition to raising hefty sums of capital, they must structure their ownership carefully to avoid running afoul of regulatory laws. They must consider the ethical implications of their ownership. And some could suffer from a lack of experience in running a hospital, especially one that has historically operated on a narrow profit margin.