What Happens When a Physician Sells Their Practice?

The decisions for a physician selling their practice can come with an immense emotional and mental burden. After years building your business, you may want to retire and move into the next stage of your life. Perhaps you will move into a different aspect of your professional journey. While you consider the financial implications of a sale, you must also consider the impact on your current staff. Furthermore, you must consider the impact on the patients you have worked so hard to care for.

Laura Dyrda of Becker’s ASC Review outlines six trends found through numerous studies on the subject.

1. Physician income drops

Hospitals absorb and consolidate private practices under their umbrella. Therefore, a physician selling their practice will see a drop in their total income.

According to Dyrda, “independent physicians earn 0.8-percent more than physicians in hospital-owned practices.” A study in Health Affairs also showed a drop of $2,987 in income for physicians after being acquired by a hospital. A Medscape report showed that physicians who remain independent earn more in comparison to physicians and specialists employed by a hospital.

2. The cost of care increases

A physician selling their practice to a hospital or other healthcare system decreases competition, thus increasing the cost of care. According to a study published in The Journal of Law and Economics, locations with a higher concentration of healthcare providers charge more in comparison to less crowded areas.

The study explains that a physicians located in the 90^th percentile of market concentration will charge 14-30-percent more than a physician in the 10^th percentile of concentration.

“Our estimates imply that physician consolidation has caused about an 8 percent increase in fees on average over the last 20 years and substantially higher increases in concentrated markets,” the study says.

3. Health insurance costs rise

In a similar fashion to that listed above, increased consolidation of healthcare creates an increase in insurance prices and premiums. This trend is visible in California, a state that houses some of the country’s most densely populated areas. However, it remains mostly rural. According to Health Affairs, the percentage of physicians in hospital owner practices jumped from 25-percent in 2010 to more than 40-percent in 2016. As a result, premiums in these highly concentrated areas saw prices increase by 12-percent.

Dyrda cites that according to the National Bureau of Economic Research, hospitals without competitors within a 15-mile range charged their patients, on average, 12-percent more. This reduction in competition allowed for hospitals to increase prices. This was because private physicians elected to join or sell to their former competitors.

4. The cost of outpatient services increases

A study published in JAMA Internal Medicine came to the conclusion that, “financial integration between physicians and hospitals has been associated with higher commercial prices and outpatient care.”

The study elaborates on this finding by explaining that hospitals may choose to follow Medicare’s payment structure. This was because the price for services in a hospital is higher than a traditional ambulatory surgery center or office.

5. Patients elect to go to owning hospitals

A study published in the Journal of Health Economics presented findings that when a physician is owned by a hospital, patients would elect to seek care at the hospital itself rather than the physician. This choice led to higher costs and lower-quality care for the patient.

6.  Patients become dissatisfied

One study published in Health Services Research, showed that patients who were admitted in areas with high hospital consolidation rated their experience lower than those who were admitted to hospitals with low consolidation. Patients also preferred areas of high insurance consolidation.

The study showed a positive correlation in patient satisfaction and increased insurance concentration. As more insurance options become available patients have a wider range of accepted options. This leads to less struggle during their visit. Inversely, there was a negative correlation between satisfaction and increased hospital concentration. This was due to a reduction in options and market competition.

The Health Services Research study showed that patients who moved from a market with low insurance concentration and high hospital concentration to a market with high insurance concentration and low hospital concentration saw an increase in hospital patient satisfaction scores.

Simply put, an ideal situation for patients is one with a high degree of options, both for insurance and competition. Patients enjoy the ability to select from a wide variety of insurance plans. They also enjoy the ability where to receive care from a variety of locations without hospital consolidation.