Hospitals eye emergency groups, and they may be looking to buy
As large practice management firms begin to pose competitive threat, many institutions are considering acquisition of emergency medicine practices. What does this mean for ED physicians?
Is there a buying binge in emergency physician groups on the horizon? Hospitals have long been courting other specialty group practices for possible acquisition. But they’ve been largely bypassing single-specialty emergency groups, remaining content either to contract with physicians or to place them on salary.
Meanwhile, some practitioners have asked: What’s wrong with emergency medicine?
"Being overlooked was possibly a good thing," concludes former hospital administrator Donald Wegmiller, now president of MCG HealthCare, a Minneapolis, MN physician compensation firm.
The acquisition market created by hospitals in pursuit of physician groups accelerated to a heady pace a few years ago but has since lost much of its steam, Wegmiller observes. "Hospitals discovered they lack the know-how to run physician organizations effectively," Wegmiller adds.
Two events will fuel physician demand
But hospitals may soon be revisiting their buy-or-lease alternatives, this time with the inclusion of emergency physicians on their shopping lists.
Two eventsone, a recent development, the other, an ongoing trendcould together fuel a sharp resurgence of interest by both hospitals and physician contract management firms in forging closer ties with emergency medical groups, some physicians say:
Medicare physician billing rule. The first involves a recent warning by the Health Care Financing Administration regarding physician billing practices. In July, the Baltimore-based Medicare/Medicaid agency began enforcing a decades-old regulation that effectively bars corporations that don’t formally employ physicians from submitting Medicare claims on their behalf.
Hospitals are permitted to bill Medicare for the physician if the facility was the site where the medical service was rendered. And physician professional corporations are also approved if they maintain physicians on salary. The HCFA rule allows individual physicians to submit claims through a billing service.
In effect, the regulations prohibit many entitiescontract management firms, for examplethat commonly retain physicians as independent contractors from receiving Medicare payments for them.
HCFA’s stated enforcement of the regulation has particular importance for emergency physicians due to their close association with hospitals and the growing number who work as independent contractors with ED staffing concerns.
The enforcement could strengthen hospital affiliations and simultaneously blunt the growth of practice management firms.
"This was obviously enacted before the advent of health maintenance organizations, but, for many large group practices, it upsets everything," notes Pamela Bensen, MD, a consultant and emergency physician in Oxford, ME.
Management firms will obviously have to stop billing for their contracting physicians, which will increase their physicians’ own costs, Bensen adds.
Growth of large management contract entities. The second event is the emergence of large, multi-hospital emergency medical groups into formidable practice management concerns.
Emergency physicians have banded together into ever larger entities, and they’re beginning to pose a significant threat in negotiating with hospitals and managed care organizations (MCOs), says Bensen.
Many of these groups have recently bought each other out in a consolidation trend that may be tilting the center of power toward group practices.
Last year, FPA Medical Management, a San Diego, CA, physician practice management firm acquired Sterling Healthcare Group based in Miami, FL. The acquisition turned Sterling into one of the nation’s largest emergency physician organizations with about 120 hospital contracts and some 1300 contracted physicians.
And earlier this year, Canadian transportation giant Laidlaw, based in Burlington, Ontario, acquired two already large emergency practice management concerns.
Buy-or-lease decisions are potent idea
In July, Laidlaw purchased Dallas, TX-based EmCare with its 1,800 emergency physicians and 131 hospital contracts. In October, the company also acquired St. Louis, MO-based Spectrum Emergency Care with 2,000 physicians and 185 hospital contracts.
Both recent events could effectively force some hospitals into re-evaluating their present relationships with emergency physicians and make them more attractive to practitioners, Bensen says. [For a comparison of pros and cons to the buy-or-lease alternatives, see the chart on page 115.]
Buy-or-lease decisions that bring together hospitals and physician groups in strategic relationships are still a potent idea, Wegmiller says. The right combination can give both entities enormous clout in MCO contract negotiations, Wegmiller adds.
And there are other underlying factors leading hospitals to reappraisals of their emergency physicians:
Hospitals are depending more and more on emergency medicine to help lead the way in cost-reduction programs. A number of hospital administrators continue to see opportunities to cost-shift payment shortfalls to the EDs as more lucrative inpatient reimbursements dry up, says Ronald Hellstern, MD, chairman of Dallas-based Medical Edge Healthcare Group.
[Editor’s note: This month’s issue features an interview with Dr. Hellstern on the future of emergency physician group practices on page 115.]
For now, hospitals are standing pat
There are several reasons hospitals may begin to consider buying ED practice groups or permanently retaining emergency physicians.
EDs continue to be an important gateway for non-urgent and primary care services for millions of health plan enrollees.
A growing number of single-specialty emergency medicine practices are developing a primary care patient referral base, which appeals to hospitals. Purchasing a medical group would mean also acquiring the group’s patient load.
Hospitals need strong alliances with emergency physicians to help stanch the heavy cost of uncompensated care associated with emergency visits.
For now, many hospitals are standing pat, preferring to maintain traditional relationships with their practitioners. Regional and economic factors play a role, says Joseph Calabro, DO, chairman of emergency medicine at Newark (NJ) Beth Israel Medical Center.
Independent group practices tend to thrive in regions where competition and managed care penetration are relatively high, Calabro says.
But in those markets as well, hospitals may opt to purchase group practices as a defense strategy. The purchase may aid the hospital in leveraging better payment rates or lessening a competitive threat. Says Wegmiller: "The motivation would be, I’d better buy before someone else does."
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