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Private Doctors Selling Their Practices to Hospitals. Why?

February 9, 2015

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Around the county more and more private doctors are selling their practices to large hospital systems.  As more Americans are joining the ranks of the insured thanks to the Affordable Care Act, hospitals are eager to increase market share.  The quickest and easiest way to do that is to buy a private practice and funnel those patients directly into the hospital system.  Why would a doctor sell his or her practice and become an employee subject to rules of a large bureaucracy rather than remain his own boss?  Reimbursement rates is a primary reason.  Medicare, the government health insurance program for those 65 and older or disabled, pays one price to the private practice doctor and another price, significantly higher, to doctors whose practices are owned by large health systems.  And that makes no sense.  The doctor remains in his exact same office, with his exact same staff, and performs the exact same tests he was performing prior to the sale.  When the doctor's practice was truly private, Medicare reimbursed the doctor $189.00 for the particular test and the patient paid the 20% co-pay.  Now that the hospital owns the practice, Medicare reimburses $453.00 for the same test and the patient's co-pay almost triples, according to "When Hospitals Buy Doctors' Offices", and "Patient Fees Soar", published recently in the New York Times. Strangely, Medicare assumes that the "hospital care" is, by definition, more expensive to provide than office based care, even though the more costly test is performed in the same office as before.

According to the American College of Cardiology, between 2007 and 2012, the number of cardiologists in private practice fell to 36% from 59%.  At the time of the survey, another 31% of practices were either in talks to sell or considering it.  This migration to hospital owned practices resulted in part because the federal government cut back on what it paid to private practice cardiologists but did not cut back what it paid for the same tests to a doctor who was "employed" by a hospital. But the cost disparity between a private practice and a hospital owned practice is not limited to Medicare.  Private health insurers pay higher prices to hospitals than private doctors as they tend to follow Medicare's payment practices.  In addition, large hospital groups have a greater ability to negotiate higher reimbursement rates than small private practices.

The Obama Administration has proposed changes to eliminate the financial incentives to selling a private practice.  The proposed changes would apply to all doctors working in off campus, hospital owned practices.  Medicare would pay the same for any test or procedure regardless of who owns the practice.  According to the White House, Medicare would save nearly $30 billion over 10 years if Congress required the change.  That is more than Medicare would save if it raised the eligibility age to 67.  And the patient would realize a savings on the co-pay as well.

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