Facing financial losses and yearning for independence, a 225-physician medical group owned by Lovelace Health System, Albuquerque, plans to spin off into a private practice, pending negotiations with the parent company.
This gives us an opportunity to get back to our roots in patient care, research and education, said Harry Magnes, chief executive officer of the Lovelace Medical Group. It allows us to partner with Lovelace, but bring decisionmaking to physicians.
In 2003, Ardent Health Services, Nashville, purchased the Lovelace system, which included the medical group, 191,000-member health plan and the 254-bed hospital, for $225 million from Cigna Corp., which had owned the system since 1991. Founded in 1922, Lovelace had been a physician-driven system until it partnered with HCA in 1985.
But Lovelace physicians quickly became disenchanted with Ardent as the health system laid off 100 employees and divided the organization into three subsidiarieshealth plan, hospital and medical groupthat no longer shared profitable ancillary services, said Richard Rolston, the former CEO of Lovelace Medical Center and Lovelace Medical Group.
None of the ancillary revenue was attributed to the physician group and its bottom line after this breakup of the old Lovelace structure, said Rolston, who left Lovelace in 2005. As a result, the medical group began to lose money, he said. Rolston is now president and CEO of Prevea Health, an integrated two-hospital system with a 150-physician group practice based in Green Bay, Wis.
A Lovelace spokesman confirmed the medical group has lost money. However, the financial performance of the group has been improving, she said.
I have great respect for Lovelace and the people there, said Rolston, a pediatrician at the group for 11 years. The reason the group is choosing to do this is because Ardent took it down a path that has devastated the group. Lovelace is trying to get back to where they were before and to regain the trust of the community.
In 2005, when Rolston resigned, there were 350 physicians employed by the medical group. The group now has 225 physicians. The number of physicians who have left is impressive, especially in some subspecialty areas, he said.
Magnes, an internist who joined Lovelace in 2005, acknowledges higher than average turnover of more than 10%. He said some physicians have left the system and formed their own groups. One of the chief reasons for the spinoff is to improve physician recruiting, Magnes said. Doctors have wanted independence since I arrived, he added.
However, experts say the Lovelace divorce seems to be going against national trends. Since 2004, hospitals have gone back to the 90s strategy of purchasing physician groups to build integrated systems. One reason is that tougher federal anti-kickback laws have limited physician recruiting inducements and created incentives for doctors to become employed.
Hospitals and physician groups are aligning themselves across the country, and here you see the opposite has happened, Rolston said. Formed in 1996, Prevea Health is 50% owned by physicians and 50% owned by two Green Bay hospitals, 269-bed St. Vincent Hospital and
94-bed St. Marys Hospital Medical Center. Although details are still under negotiation, Lovelace Health System plans to help the group gain financial independence and support it with administrative services like information services, billing and communications, said Ron Stern, the systems president and CEO. We will help them form the infrastructure to be successful, Stern said. Both Stern and Magnes declined to comment on whether the system would loan physicians money to purchase the group.
Rolston said one of the critical unanswered questions is whether an independent Lovelace group will include such profitable outpatient ancillary services as imaging, ultrasound and laboratory services. The group continues to provide pathology, hospitalists and radiology services, Magnes said. The group has lost money ever since Ardent took over and (moved) ancillary services to the system, Rolston said. Its unclear whether the group will take the ancillary services with them or whether they will have to go out and purchase that. They need ancillary service revenue to be successful.
Under the preliminary plan, the medical group will form a limited liability company in which physicians will purchase memberships of small, unspecified dollar amounts. Those physicians who join the group will become employees and other doctors will become independent contractors, Magnes said.