If physician practice management companies are having trouble managing doctors, what made hospitals think they could do the same?
That's the question the nation's two largest for-profit hospital chains are asking. The answer appears to be: We can't.
Columbia/HCA Healthcare Corp. and Tenet Healthcare Corp. both have acknowledged they are considering getting out of the practice management business.
"I would bet the only reason any integrated delivery network or facility-based provider owns a physician practice is because they had to buy it and they can't sell it," said Sheryl Skolnick, healthcare analyst at BancBoston Robertson Stephens in New York. "I just don't see why it is worth the risk."
Buying physician practices was once viewed as a way to align the interests of doctors and hospitals, lure referrals and increase leverage for managed-care contracts. But many hospitals now see their physician practices more as a ball and chain, with the guaranteed salaries paid to physicians far exceeding the revenues the doctors generate.
In its annual report filed late last month with the Securities and Exchange Commission, Tenet acknowledged that its physician practice business has not been profitable.
"The company is in the process of re-evaluating its physician strategy in every one of its markets and is developing plans to allow a significant number of its existing contracts to expire," the report states.
Tenet spokesman Harry Anderson said the company has never considered physician practices to be a core part of its business. The Santa Barbara, Calif.-based company owns 129 hospitals in 18 states, and it is in the process of selling 20 of them.
"Unlike some others, we have not had an aggressive plan to acquire physician practices," he said.
Tenet owns or manages roughly 1,300 practices, some of them purchased by the company but most of them inherited from the previous owners of hospitals or systems Tenet acquired.
For example, Tenet inherited 300 physician practices last year when it bought eight Philadelphia-area hospitals out of bankruptcy from Pittsburgh-based Allegheny Health, Education and Research Foundation for $345 million. In 1997 Tenet's purchase of three-hospital Deaconess Incarnate Word Health System in St. Louis added to its physician practice holdings.
So far, Tenet has divested 200 of the 300 AHERF practices, Anderson said.
"It's no secret that virtually every company that has been involved in the management of physician practices has had financial stress," he said. "This has not been a successful business for us; they've produced losses, and in this current economic environment for the hospital industry we are looking for every opportunity to improve our operating efficiency."
Anderson stressed that Tenet would not exit the physician business overnight but rather market by market and contract by contract, evaluating each one individually.
And if it chooses to get out of the business, the company will help doctors go back into private practice by offering assistance in areas such as malpractice insurance, office supply costs, and managed-care contracting, he said.
Tenet expects to incur significant charges from settling contracts with the physicians if it does give up its physician practices. The financial benefits of exiting the business are not expected to kick in until fiscal 2001, according to the annual report.
Columbia owns or manages the practices of about 1,000 physicians, said Jeff Prescott, a spokesman for the Nashville-based chain of 220 hospitals.
At its peak, there were about 1,500 physicians whose practices were owned or managed by the company, he said.
"In general, though, it's something we're evaluating on a market-by-market basis, and not something that we're really interested in long- term," he said.
Prescott said the re-evaluation comes as part of Columbia's overall restructuring effort. While he would not say how much the doctor groups were costing the company, analysts have said the cost to the company could be upward of $100 million annually.