When it comes to accepting acquisition by hospitals, many cardiology practices are increasingly all in. What makes radiologists think they can continue bucking the trend?
Imagine a world in which private physician practices use Craigslist to shop themselves to acquisition-minded hospital leaders. For healthy practices that once financially thrived but now face profound economic uncertainty, the listings would all but write themselves:
Have patients, will integrate. High-volume practice seeks sale to hospital-based buyer. Docs thoroughly acclimated to hospital culture, extensively practiced at cutting costs, minimizing readmissions and maintaining quality. Motivated to sell. Will consider all serious offers.
Many a cardiology practice rocked by sinking reimbursements and soaring expenses could run an ad like that right now. Most radiology practices vexed by the same troubles could not. The ad’s headline gives away the divide between the two specialties’ business models: Diagnostic radiologists accept patient referrals but do not give them.
A recent Jackson Healthcare survey put numbers to the comparison. The staffing firm found that 52 percent of 119 hospital executives planned to buy practices in 2013. One in 10 were interested in cardiology while radiology made it onto only 1 percent of respondents’ wish lists.
The latter is not in demand because the forces driving hospitals to command the care of a maximum number of patients are, by extension, motivating them to grow by acquisition. In the Jackson survey, a strong majority of respondents cited “build or maintain competitive advantage” as top reasons for their shopping excursions. Not surprisingly, the various categories of primary care—family practitioners, internists and other “gatekeepers”—led all others. Heart problems are so prevalent that some healthcare economists consider cardiology a de facto extension of primary care.
Cardiology practices directly deliver patients to hospitals while diagnostic imaging practices do not: This is not news. Why point out the contrast between these two particular specialties to the exclusion of all others? Because, as cardiology discovered, when it went from enterprising to acquirable, things changed.
“So far we haven’t seen a big rush of radiologists seeking to become hospital employees, but I could see where demographics could make that option attractive for some practices to explore,” says Robert Still, MPH, practice manager of Lancaster Radiology Associates in Lancaster, Pa., and president of the Radiology Business Management Association. In the current climate, he says, groups with numerous physicians 55 and older might have a hard time resisting a several-year employment guarantee.
Still points out that, in recent years, the three-hospital Lancaster General Health system has gobbled up large cardiology, surgery and cardiothoracic practices. “It’s not like they’re aggressively pursuing us at all,” he adds. “But it’s almost paternalistic. They always say, ‘If you guys run into anything and you want to come talk to us, our doors are open.’”
Reasons for Physician Practice Acquisition
Physicians approach hospital/seek to sell their practices 70%
Build a competitive advantage 58%
Part of a physician recruitment strategy 57%
Maintain a competitive advantage 55%
Improve patient safety 28%
Source: Jackson Healthcare
Howard Walpole, MD, MBA, chief medical officer of Okyanos Heart Institute in the Bahamas and a trustee of the American College of Cardiology, says that, over the next three to five years, all physicians will have to assimilate one way or another with larger provider entities.
“We don’t completely understand what all the effects of healthcare reform will be, but even small private groups are going to have to work together with hospitals, maybe in a professional-services arrangement or some other model,” he says. “Team-based care is a concept that everyone will have to embrace.”
In cardiology today, a fair number of group members as well as solo practitioners continue to treasure their independence. Those successfully fending off hospital suitors are doing so largely by clamping down on costs and pumping up patient volumes. “They have very full practices and they work very hard to generate sufficient revenue,” explains Walpole. “But that margin is getting very tight. The number of practices that will remain successful in the independent-practice model is probably going to continue to decrease.”
In the Jackson Healthcare survey, 70 percent of respondents said that they had been approached by physician practices looking to be bought. For diagnostic radiology, arrangements other than full operational integration tend to make better sense for both sides. It doesn’t take full employment of radiologists to ensure the hospital 24/7 availability and subspecialist coverage; this can be accomplished with exclusive contracts, joint ventures, on-call service agreements, nonexclusive contracts and other modes of strategic partnership. And radiology practices, with their specialty’s two-component billing model (a technical charge for equipment-related costs, a professional charge for reads and reports), are motivated to maintain sole control of their books.
“As a motivator of performance and service, entrepreneurialism is almost always a better solution than corporatization,” says Jonathan Medverd, MD, a University of Washington radiologist who co-authored a white paper on hospital employment of radiologists for the American College of Radiology. But in some situations, hospital employment can be just what the doctors ordered. Local business conditions vary, he points out, and so do physicians’ skill sets and resources. “Some [radiology] groups out there are feeling the pressure. If they were to be bought out by a white-knight hospital, they might like it very much.”
Regardless of how the hospitals-buying-practices trend shakes out for diagnostic radiology, the profession should take greater control of its destiny by leading the charge on Accountable Care Organizations (ACOs). So says Tom W. Greeson, a partner in the healthcare division of the international law firm Reed Smith.
“Radiologists need to be able to demonstrate to the community and the referring physicians that they bring value to patients and physicians,” says Greeson, a former general counsel to the American College of Radiology who sits on the board of the Radiological Business Management Association. “They can do that by taking a leadership role on ACOs. There’s no reason why they should wait on someone else to organize the delivery system around them.”