New reasons for hospitals to buy practices

Survival and protection of services are eclipsing marketing motivations as some hospitals revisit a strategy that was popular in the 1990s.

By Mike Norbut, AMNews staff. Dec. 13, 2004.

It used to be that hospitals saw marketing opportunities and dollar signs when they purchased physician groups. Employed physicians in satellite clinics meant a steady flow of referrals for the hospital, which were crucial to securing revenue in competitive markets.

However, when San Luis Valley Regional Medical Center, a hospital located in a rural community in southwest Colorado, acquired the community's premier multispecialty group a few months ago, protection and survival were the motivating factors.

If the group, San Luis Valley Medical PC, was to fail, that would mean the community would lose all of its surgeons as well as several other specialties.

"What we saw initially was this group is important to the hospital, and we can't allow them to not be successful," said Russ Johnson, CEO of the hospital. "We moved from being a 'How do we work with this group' situation to a 'How do we create a model to preserve the specialty services for 45,000 people in this community?' "

Other hospitals around the country have taken a fresh look at an old strategy, as they look to acquire physician groups to save them from financial trouble and protect services for the community.

It's a symbiotic relationship that is vital to the hospital's livelihood as well; a failing practice means fewer patients, which means less revenue for the medical center.

"It's gone from a marketing to a survival perspective," said Darrell Schryver, a Denver-based consultant and principal with the Medical Group Management Assn. Consulting Group. "Rather than controlling the market and referrals, it's looking at how to protect and maintain a broad spectrum of services."