Small physician practices in Mecklenburg County, N.C., may go the way of the Carolina parakeet if three of the area's hospitals have their way.
The hospitals, all based in Charlotte, N.C., are gobbling up physician practices at an amazing pace-they've acquired 26 during the past two years alone. Between 1985 and 1992, the three hospitals combined acquired just four physician practices.
Their actions are examples of how not-for-profit hospitals with plenty of excess revenue are spending money to protect or expand their turf, with physicians as the building material.
"Obviously, this is a move by the hospitals to create their alliances and build their own networks to face whatever reform is passed at either the federal or state level," said Carolyn Scruggs, executive director of the Mecklenburg County Medical Society.
Ms. Scruggs said about 100 of the society's 1,020 physician members are solo practitioners, and that number is "declining rapidly," she said. Some 400 members belong to large group practices, with the balance either already employed by the hospitals or practicing in smaller groups.
The hospitals battling for the society's unattached physician members are 808-bed Carolinas Medical Center, 590-bed Presbyterian Hospital and 276-bed Mercy Hospital. The Charlotte-Mecklenburg Hospital Authority, which operates Carolinas Medical Center, also operates 116-bed University Hospital in Charlotte.
Buying spree.The first entry in the physician acquisition race was Carolinas, which bought its first physician practice, the Davidson Clinic, in 1985. Since then, the hospital has acquired 14 more, including 10 in the past year and a half. The total number of physicians represented by the acquired practices is 186.
"It became obvious in the early 1980s that hospitals could no longer exist in isolation, and that we would have to bring doctors and hospitals together with the same cost and quality incentives," said Harry Nurkin, president and chief executive officer of the hospital authority that oversees Carolinas.
Under the Carolinas model of practice acquisition, the authority acquires the practice's assets, and the physicians subsequently become employees of the authority under the banner of the Carolinas Health Network. The employed physicians continue to practice at their offices or clinics.
"We acquire practices on an ad hoc basis when the opportunity arises," Mr. Nurkin said.
Joining the race in 1992 were both Presbyterian and Mercy.
To date, Presbyterian has acquired seven physician practices ranging in size from one to 33 physicians, for a total of 64 doctors. Some 29 other physicians have signed letters of intent to have their practices be acquired.
Girding for reform."Managed care will continue to grow, and capitation will be the dominant form of payment," said Tom Hardy, Presbyterian's vice president for health systems development. "The only way to survive is to be totally integrated with your physicians, so you'll both have the same incentives to do the same things."
Under Presbyterian's practice acquisition model, the hospital's physician-hospital organization, Presbyterian Healthcare Associates Corp., acquires the assets of the practices, and the physicians become employees of the hospital's PHO.
Mercy, meanwhile, has acquired one more practice than Presbyterian, but the size of the practices has been much smaller. In total, Mercy has bought eight practices representing 18 physicians and one physician assistant. However, all 18 of the physicians are primary-care physicians, the most sought-after prize in the hunt.
"Our general goal is to develop a sufficient number of primary practices to ensure good geographic coverage for patients," said Edward Schlicksup Jr., Mercy's president.
Acquired physicians become employees of Mercy Medical Service, a not-for-profit subsidiary of the hospital's parent corporation.
Physicians for sale.The intense competition in the market among the hospitals for physician practices has changed the medical dynamics of the marketplace, the executives said.
"It's a seller's market for primary-care physicians because there are so many buyers," said Mr. Hardy, citing competition for practices from two managed-care plans and larger group practices. "The prices are inflated somewhat, but they're not out of line."
The three hospitals would not disclose how much they're paying for the practices or what percentage of their operating budgets are devoted to practice acquisition.
The only publicly available information about how much hospitals are spending on group practices comes from tax rulings from the Internal Revenue Service, which judges the impact of a practice acquisition on a not-for-profit hospital's tax exemption.
The latest ruling cleared Rockford (Ill.) Memorial Hospital's acquisition of the 100-physician Rockford Clinic for about $30 million, or about $300,000 per physician (April 18, p. 10). However, the sale included the clinic's 26,000-enrollee managed-care plan.
"Practices typically are approaching the hospital that they've had their initial loyalties to," Mr. Schlicksup said.
"Traditional affiliations are remaining," Mr. Hardy said. "And once a practice starts shopping itself around, its credibility suffers and there's less interest."
Carolinas' executives, meanwhile, maintain they're above the fray.
"Our philosophy is we do not compete. We're approached by physicians," Mr. Nurkin said.
Aggressive.Ms. Scruggs at the county medical society saw things differently. She said there's intense competition among the hospitals for physicians, with Carolinas being "the most aggressive."
Regardless, the three hospitals have plenty of money to throw around. In 1993:
The Charlotte-Mecklenburg Hospital Authority earned $33.2 million on total revenues of $640.4 million.
Presbyterian earned $25.4 million on total revenues of $282.1 million.
Mercy earned $9.2 million on total revenues of $100.7 million.
Also, Carolinas and Mercy are working out the final details of a partnership agreement that would place both hospitals under the control of a common management company, increasing their purchasing clout with physician practices. They'd also control more than 60% of the inpatient business in Charlotte, excluding the 116-bed University Hospital operated by the hospital authority.