What Expenses are Making Private Practices Sellout to Hospitals

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TL;DR
Providers are looking to the benefits of selling their practice to a hospital of healthcare organization due to high costs of operating.

Private Practice Misconceptions

Contrary to the current trend, some experts believe that independent providers may have the advantage as cost reduction becomes increasingly important to the healthcare industry.

Providers across the country are selling their practices to hospitals. In doing so, they believe they’ll gain bargaining power and the healthcare system will deliver outpatient services for reimbursement at a higher outpatient rate. These beliefs have maintained the myth that it takes a large organization to successfully operate in today’s health industry. However, independent physicians have created ways to provide better quality care, reduce costs, and navigate the many requirements and regulations in an ever-changing healthcare system.

One of the most common reasons for greater costs in hospitals and large systems is facility fees. When an independent practice provides a patient with a service, there’s one payment. On the contrary, when a service is performed in a facility, Medicare pays both the facility and the provider. These fees are designed to cover hospitals for overhead that an independent practice would not carry. Hospitals are not paid for a majority of what they do, and therefore must charge these extra fees. These fees are costing billions, and contributing to an uneven struggle between independent practices and hospitals. Insurance coverage of facility fees varies, and many patients are stuck with staggering medical bills as a result.

According to a 2013 MEDPAC report, the fees charged for office visits, EKGs, and nuclear cardiology tests at hospital-owned practices are drastically higher than in independent practices. MEDPAC proposes lowering the rates for hospital outpatient facilities in order to reduce beneficiary cost sharing and program spending by millions. However, this consolidation would unfortunately shift more financial burden onto the patients.

Healthcare reformers are searching for ways to level the playing field. The American Hospital Association (AHA) has opposed site neutral payments claiming that it doesn’t take into account the dissimilarities between hospitals and independent physicians, such as higher cost structures and accreditation requirements. MEDPAC suggests that Medicare equalize fees for services that can be provided in a lower cost setting.

Patients have also challenged facility fees. Most patients don’t fully understand where the money from their medical bills goes. Much of the money goes to the physicians. While hospitals are able to negotiate costs, small independent practices don’t have that luxury. Hospitals are making it increasingly difficult for physicians to stay independent.

As reported in the AID, independent doctors decreased from 57% in 2000 to 36% in 2013. In order to remain independent, providers need to determine their strengths and use them to their advantage. Increasing productivity and flexibility can help increase reimbursements. Offering additional services can also help an independent practice. If these services are less expensive in an independent office, hospitals can use them to help lower costs in a risk-based reimbursement model. Many independent physicians are also joining ACOs and IPAs. This can help to increase revenue and reduce expenses while maintaining independence.

Author: Lauren Daniels