What Happens When A Physician Sells Their Practice?

Posted Dec 9, 2022 under:

The Impact of Selling Your Practice

What physicians must consider when selling a practice.

What physicians must consider when selling a practice.

Considering selling your practice to a hospital? Take these factors into consideration.

This article was updated on Nov. 10, 2023 to reflect current statistics.

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.

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 Medscape’s 2023 Physician Income Report, self-employed physicians made an average of $374,000 per year, while hospital-employed physicians earned $344,000 per year. However, it is important to note that a portion of this income does divert to overhead costs, such as payroll, utilities, equipment, and more.

In total, independent physicians elect for higher compensation rates on average in exchange for financial risks. Hospital employed physicians may see increased job security at the cost of additional oversight and loss of autonomy.

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 Victoria Bailey of RevCycleIntelligence.com, data shows that procedures see drastically increased costs when performed in a hospital outpatient department in comparison to ASCs.

In 2022, the average cost of a colonoscopy screening performed in a hospital setting cost $1,224, according to Bailey. In comparison, the same procedure performed in an ASC cost $925, a 32-percent decrease in cost to the patient. Similarly, diagnostic colonoscopies cost 58-percent less in an ASC setting ($1,646 vs $1,022) in comparison to a hospital outpatient department.

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. The data shows that a decrease in competition, and increase in consolidation, leads to increased costs for patients.

The cost of outpatient services increases

A 2022 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.

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.

A reduced rate of consolidation provides patients with options when seeking care, allowing for increased competition and in turn, lower costs.

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.

The study also 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.

Conclusion

If you are a physician considering selling your practice, think about how your decision will impact you, your staff, and the patients in your community. Alternatives to hospital consolidation, such as partnering with SCA Health, provide independent physicians the opportunity to retain their seat at the table in the decision-making process, receive clinical, operational, and back office support, and plan for the future without hospital intrusion.

To learn more about SCA Health and how we help independent practices and ASCs, click here.

Resources

Becker’s ASC Review: https://www.beckersasc.com/asc-transactions-and-valuation-issues/what-happens-when-physicians-sell-their-practices.html?utm_campaign=asc&utm_source=website&utm_content=most-read

Health Affairs: https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2021.01007

Medscape: https://www.medscape.com/slideshow/2021-compensation-orthopedist-6013857#7

Health Affairs: https://www.healthaffairs.org/doi/10.1377/hlthaff.2018.0472

JAMA Internal Medicine: https://jamanetwork.com/journals/jamainternalmedicine/fullarticle/2463591

Journal of Health Economics: https://www.sciencedirect.com/science/article/abs/pii/S0167629616301679?via%3Dihub

Shemmassian Academic Consulting: https://www.shemmassianconsulting.com/blog/how-much-do-doctors-make

RevCycleIntelligence.com: https://revcycleintelligence.com/news/healthcare-services-cost-more-at-hospital-outpatient-departments

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