The University of Michigan Hospitals is buying up local physician practices in an effort to strengthen its position in primary-care education and delivery as managed care gains ground.
Over the next 20 months, UM Hospitals will buy 40 small practices within a 30-mile radius of Ann Arbor.
"This is all part of the big scheme," said Ellen Gaucher, senior associate director of UM Hospitals. "We have to meet the changing demands of the healthcare system."
UM's medical school has revised its curriculum to train more primary-care physicians and will need physicians' offices and clinics to train students. It also is competing for market share against other large healthcare companies.
UM Hospitals already has bought six practices and is awaiting lawyer approval on five more. The organization has singled out 29 more practices it wants to buy. It also is buying some specialist practices.
Prices vary for each practice, said Ms. Gaucher, who has not specified a total cost for the strategy.
The sales also indicate physicians are becoming resigned to the end of private practice and the inevitability of managed care.
Community hospitals have been buying physician practices for almost a decade. Now bigger hospitals and hospital systems, such as UM Hospitals and the Detroit Medical Center, are getting into the act.
Academic medical centers understand that physician practice acquisition "is important to their future," said Don Potter, president of the Southeast Michigan Hospital Council, a not-for-profit Southfield trade association representing 57 hospitals. "Physicians are the source of patients."
Leroy Fahle said the 1980s strategy of buying practices to generate admissions "worked fairly effectively" for the hospital he ran, "but the times have changed."
Mr. Fahle, now president of Compliance Management Associates, a Birmingham, Mich.-based environmental healthcare consulting company, bought nearly 20 physician practices when he was president and chief executive officer of Mount Carmel Mercy Hospital, a community hospital in Detroit. The hospital closed in 1990.
"In the ultimate managed-care system, the hospital will be the most expensive component in your whole cost curve. The whole dynamic of hospital operations is changing dramatically, requiring adjustments to the marketplace," he said.
Mount Carmel paid for a physician practice based on the physician's annual earning capacity. The total payment often reached the low six figures, Mr. Fahle said.
UM Hospitals pays for a practice based on the fair market value of office assets and then negotiates a salary based on the physician's income of the past few years, Ms. Gaucher said.
Buying practices is cheaper than building clinics from scratch, she said. UM Hospitals will provide support services, such as marketing and physician recruitment.
In the first year, UM expects to add between 50 and 60 physicians.