Hospitals purchase unprofitable practices

February 1, 1998

Pharmaceutical Representative

Hospitals are more likely than medical groups and physician management companies to acquire unprofitable physician practices, according to a recent survey released in "The 1997-1998 Physician Practice Acquisition Resource Book."

Hospitals are more likely than medical groups and physician management companies to acquire unprofitable physician practices, according to a recent survey released in "The 1997-1998 Physician Practice Acquisition Resource Book."

The survey, conducted by The Center for Health Care Industry Performance Studies, draws its conclusions from 460 physician practice acquisitions made between 1994 and 1996. It represents more than 1,200 physicians from numerous specialties.

According to William Cleverly, Ph.D., who co-wrote the book with Patrick Knott and Carson Dye, there are several reasons why hospitals may acquire unprofitable physician practices.

"First, hospitals tend to pay higher salaries to employed physicians than other firms do, and second, hospital management may believe there are substantial opportunities to raise practice revenues or decrease costs to make the practices more profitable," Cleverly said.

But a third reason, according to the authors, may be the substantial opportunities for additional referral revenue for the hospital. "This strategy is, of course, illegal," Cleverly said.

The survey also uncovered a misperception about physician practice acquisitions. While it is generally assumed that tangible assets - accounts receivable, property and equipment - make up only a small percentage of a total purchase price, survey results indicated that the percentage is actually much higher than previously believed. PR

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