Managed Care

Not quite the Midas touch

Profitability of physician practices tends to drop after acquisition by a hospital or integrated health care organization. The purchaser almost always loses money on the practice during the first year of ownership, with one estimate suggesting that losses between $50,000 and $100,000 per physician per year are common and that losses of $200,000 per physician are not unheard-of.

While selling a practice guarantees the physician a steady income — often higher than what the physician averaged when solo — financial losses can lead a buyer to implement stringent productivity measures. A model by Voluntary Hospitals of America demonstrates the effect of practice acquisitions, based on a typical solo practice with annual net revenue of $300,000.

SOURCE: SETTING FOUNDATIONS FOR THE MILLENNIUM, VOLUNTARY HOSPITALS OF AMERICA INC., IRVING, TEXAS, AND DELOITTE & TOUCHE, DETROIT, 1998

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