business

Purchasing medical practices drags down for-profit hospital finances

Medicare rates and a decline in patient admissions are stifling short-term growth, but hospitals aren’t shying away from the deals.

By — Posted April 2, 2013

Print  |   Email  |   Respond  |   Reprints  |   Like Facebook  |   Share Twitter  |   Tweet Linkedin

Moody’s Investors Service expects for-profit hospitals to see weak growth in earnings, in part because of their interest in acquiring physician practices.

In a report issued in March, the bond ratings agency gave the sector a “stable” outlook, which is better than the “negative” outlook it gave to nonprofit hospital finances in a similar report released Jan. 22. Negative means that the financial situation is expected to worsen.

However, Moody’s said the same issues were affecting for-profit and nonprofit hospitals — namely, cuts to Medicare pay; a decline in admissions; and costs associated with acquisitions, including physician practices. Like nonprofit hospitals, for-profit hospitals have said they intend to buy more practice assets and then employ doctors as a way of generating outpatient income and strengthening referrals. For the moment, Moody’s said, those acquisitions, along with purchases of other hospitals, are not showing financial returns for for-profit hospitals.

“Pressure on margins will remain as hospitals continue to employ physicians and acquire physician practices and smaller or struggling hospitals with relatively low margins, which will further dilute margins, at least initially,” the Moody’s report stated.

HCA, the largest for-profit chain, does not break out in its financial reports how much it is spending on physician practice acquisitions and hiring. However, it said in its annual report that it will continue to commit to those efforts, especially with other hospitals making the same efforts. HCA is notable in that it plans to expand residencies at its hospitals, with an expected 400 to 600 slots at four hospitals in western Florida coming on board in 2014. It expects that $90,000 of the annual $150,000 cost of training a resident will come from Medicare.

LifePoint, another large for-profit hospital chain, stated in its annual report that it spent $19 million in 2012 in “ancillary service-line acquisitions” that included physician practices. It did not say how many practices or physicians that represented.

Higher earnings predicted

For-profit hospitals are expected to experience an upswing in earnings in 2014 due to the Affordable Care Act, which will result in more insured patients, Moody’s stated.

The report comes on the heels of the negative outlook issued in January for nonprofit hospital finances. The bond rating agency noted that the facilities have improved their bottom lines in recent years.

Physician acquisitions have helped these hospitals stabilize their market shares and find ways to cut costs. The report said revenue growth declined in recent years because of federal health care cuts, limited payments from health care insurers, lower patient volumes and a struggling economy.

The Moody’s report stated that the greatest challenge for the industry is lower payments from government and business sectors. Hospitals are looking at a drop of more than $300 billion in Medicare payments in the next seven years due to ACA reforms.

Back to top


ADVERTISEMENT

ADVERTISE HERE


Featured
Read story

Confronting bias against obese patients

Medical educators are starting to raise awareness about how weight-related stigma can impair patient-physician communication and the treatment of obesity. Read story


Read story

Goodbye

American Medical News is ceasing publication after 55 years of serving physicians by keeping them informed of their rapidly changing profession. Read story


Read story

Policing medical practice employees after work

Doctors can try to regulate staff actions outside the office, but they must watch what they try to stamp out and how they do it. Read story


Read story

Diabetes prevention: Set on a course for lifestyle change

The YMCA's evidence-based program is helping prediabetic patients eat right, get active and lose weight. Read story


Read story

Medicaid's muddled preventive care picture

The health system reform law promises no-cost coverage of a lengthy list of screenings and other prevention services, but some beneficiaries still might miss out. Read story


Read story

How to get tax breaks for your medical practice

Federal, state and local governments offer doctors incentives because practices are recognized as economic engines. But physicians must know how and where to find them. Read story


Read story

Advance pay ACOs: A down payment on Medicare's future

Accountable care organizations that pay doctors up-front bring practice improvements, but it's unclear yet if program actuaries will see a return on investment. Read story


Read story

Physician liability: Your team, your legal risk

When health care team members drop the ball, it's often doctors who end up in court. How can physicians improve such care and avoid risks? Read story