Survival Tactics

Wall

Street Journal

With shrinking Medicare and Medicaid reimbursementsand stepped-up overhead costsplunging some medical practices into thered, some hospitals are buying them up to preservecommunity access to medical care. According to a report, when the first wave of hospitalbuyouts rolled out in the '90s, many medical centerssaw ownership of physician groups as a marketingstrategy that would ensure a steady flow of referralsfor the hospital. However, some of the relationshipsdidn't pan out, and a number of hospitals ended upselling practices back to the doctors.

Today, hospitals are rescuing failing physiciangroups with a worried eye toward the alternative—losingthe group entirely along with the patients itserves. In some cases, the struggling group may representthe entire physician population for certain specialties,a situation that's a recipe for a potential medicalcare crisis if the group goes under.

As the reasons for buying doctor groups change,hospitals are being tougher than they were a decadeago. Intangible assets are off the bargaining table, andthe selling price is more likely to be based on pricingassets, such as medical equipment, at fair market value.That, plus an employment agreement, is about all thedoctors in a group can expect. Also, medical groupsthat are thinking about selling their practice shouldstart their search before the financial situationbecomes too severe, since it can take a year or longerto hammer out a final agreement with a hospital.