Why hospital-owned medical groups lose money.

By David N. Gans, MSHA, FACMPE, vice president, MGMAACMPE Innovation and Research, [email protected] In the mid-1990s, many hospital systems adopted strategic plans that included hiring physicians or purchasing medical groups to build vertically integrated delivery systems (IDSs) of providers and locations of care. This strategy worked well for many health systems, but others hemorrhaged money. By the end of the decade, monetary losses caused many IDSs to move from expanding services to “stopping the bleed” and divesting their providers. Just like the fashion industry, healthcare goes through repeating cycles. And once again, many hospital systems are pursuing strategies to purchase physician practices and expand the size of their medical groups. These systems continue to report operating losses. IDS-owned multispecialty medical groups lost $189,910 per full-timeequivalent (FTE) physician, according to the MGMA Cost Survey: 2011 Report Based on 2010 Data, which calculates a net profi t or loss excluding operating subsidies. This loss compares with a reported median net profi t of $3,376 per FTE physician for physician-owned medical groups. The graph and chart provide a comprehensive view of practice fi nancial performance. They show that while median total medical revenue per FTE physician for IDS-owned multispecialty groups was 74 percent of the $866,444 per FTE physician reported by physician-owned multispecialty groups, median total operating cost per FTE physician was 43 percent less. As a result, IDS-owned groups only had $140,430 median total medical revenue after operating cost per FTE physician to pay nonphysician provider and physician compensation and benefi ts. Since IDSs need to have competitive compensation packages for physicians, median total physician compensation and benefi t cost per FTE physician is almost identical to the compensation of physicians who own practices, and the IDS-owned medical practices required a heavy subsidy. After examining Cost Survey data, it is possible to speculate on the cause for this operational loss. The most obvious reason Why hospital-owned medical groups lose money DATA MINE Extracting wisdom from the numbers