Sunday, July 17, 2011

What Do Hospitals Look For When Buying A Practice?

Hospitals today are aggressively engaging in practice acquisitions in their local markets.  Medical Group Management Association (MGMA) statistics reveal that over 50% of physician practices are now owned by hospitals.  Before buying a practice, hospitals assess the practice’s value in terms of its patient volumes, number of hospital referrals, estimates of patient turnover, and so on.


Hospitals usually avoid buying practices that are in the last stages of their life cycle. Practices that cannot offer sustainability do not make good prospects as they lack future planning and goals. It is true that hospitals get tempted to buy out retiring physicians only because of their reputation and respect in the medical community. However, a growing number of hospitals have started to realize the importance of the asset value of a practice in terms of its long-term sustainability, to make the acquisition profitable.

Financial Stability of the Practice

The practice under consideration must be financially stable. A thorough financial and performance evaluation of the practice is conducted by hospitals in order to ascertain the feasibility of the acquisition. The profitability of the practice is determined by reviewing its financial history. Trends, patterns and discrepancies in the practice’s records help hospitals estimate their return on investment and revenue growth from the acquisition.


Hospitals look to expand their referral networks and increase profits by acquiring private practices. This not only widens the hospital’s patient base but also reduces outpatient competition with local physicians. Practices that will add to a hospital’s inpatient and outpatient referral base will naturally be considered better buys.

Communication Skills

Medicare has been pressing hospitals to address inpatient medical errors that seriously affect patient-safety.  As a result, hospitals are looking for practices and physicians that value patient-doctor communication as well as communication between the doctor and other employees. Many hospitals conduct a communication audit of the physicians in the practice to ensure high patient-safety standards and quality of medical care.

Unity of Service and Quality Goals

Hospitals are looking to overcome the historic physician – hospital clash that has lead to many failed acquisitions. They are looking for practices that share similar service and quality goals in order to improve the acquisition’s strategic alignment.
Practices where the physicians support hospital goals and are more agreeable to work in collaboration with the hospital’s service, quality and organizational objectives are considered better prospects.

Agreement Contract

The physician employment contract is of crucial significance in determining a practice’s rank in the acquisition process. Hospital boards want physicians to align themselves to hospital goals and work ethic. Physicians, on the other hand, are not known to compromise on their autonomy and independence. Compensation is another major issue. Practices that agree to balance the terms and conditions of both parties without demanding a contract that sways majorly in their favor are naturally preferred.

Practice acquisitions require hospitals to review and consider a number of financial, administrative and personal factors that determine the feasibility and profitability of the deal. It is important for both the players to respect each other’s objectives, concerns and work cultures. Open communication and a collaborative approach will allow practices and hospitals attain higher profitability without compromising on their individual professional and personal goals.




poona said...

I actually enjoyed reading through this posting.Many thanks.

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David K. Waltz said...

As a fiance guy, I was surprised by the 50% figure in this post, I did not realize hospitals were that acquisitive within their communities.

Within the hospital, is this activity conducted on the medical side, the finance side, or the business development side?


Nrip Nihalani said...

Both the clinical and business development sides.

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