Hospital interest in acquiring physician practices grows
■ A survey finds that more health systems are seeking to improve their bottom lines, but regulators are keeping an eye out for market-dominant entities.
By Sue Ter Maat — Posted April 1, 2013
Hospitals are increasingly interested in buying physician practices — and analysts say the Federal Trade Commission is becoming more interested in whether these deals are creating antitrust issues.
In its first survey of hospital executives, staffing company Jackson Healthcare found that 52% of the 118 surveyed said their facilities planned to acquire physician practices in 2013 — up from 44% who closed such deals in 2012. Jackson’s report, based on a survey in late 2012, was released March 12.
The interest in primary care was overwhelming. Fifty-four percent of executives planning acquisitions sought family practice physicians, and 26% set their sights on general internal medicine practices, making those the top two specialties by far.
Hospitals don’t need to search long and hard for willing partners. Seventy percent of executives said one reason for making deals is that physicians are approaching hospitals with offers to sell. However, the executives have their own strategic goals in mind: 58% said they were considering acquisitions to build a competitive advantage, and 57% said they would do so to maintain a competitive advantage. Executives could choose more than one reason for wanting to make a deal.
Jackson’s survey echoes other recent statements describing growing hospital interest in physician practices. A Jan. 22 report on nonprofit hospital finances by Moody’s Investors Service noted that facilities increasingly seek out physician practices because they help stabilize their market share and improve their bottom lines.
As hospitals’ interest in physician practices grows, so does the FTC’s in making sure such deals aren’t violating antitrust laws. “The FTC is just responding to what is happening in the marketplace,” said Alison Cuellar, PhD, associate professor of health administration and policy at George Mason University in Virginia.
Most recently, the FTC, along with the Idaho attorney general, is trying to block the acquisition of the state’s largest independent multispecialty physician practice group by a major hospital operator, St. Luke’s Health System.
The FTC said in a complaint issued March 12 — the same day as Jackson’s report — that the Boise-based hospital’s acquisition of Saltzer Medical Group, which has more than 40 physicians, means it would have too much market power to set rates. FTC officials said St. Luke’s would have about a 60% share of the primary care market.
St. Luke’s acquired Saltzer’s personal property and equipment on Dec. 31, 2012. Saltzer physicians entered into a five-year professional service agreement with St. Luke’s.
The complaint is related to another federal lawsuit filed in November 2012 by St. Alphonsus and Treasure Valley Hospital that seeks to void the acquisition, citing similar concerns. They said St. Luke’s, the state’s largest hospital system, has purchased 22 practices with 200 physicians. A judge did not grant the temporary injunction sought by the two hospitals, so the Saltzer deal went through.
St. Luke’s officials said in a statement that the hospital entered into the agreement to better coordinate care based on the Affordable Care Act, which would reduce rates, not increase them, as the FTC contends.
In the last few years, the FTC has said it would review hospital-physician deals more closely. In August 2012, the FTC ordered Renown Health in Reno, Nev., to allow at least 10 cardiologists to be released from noncompete agreements after the agency found that the health system’s purchases gave it 88% of the local cardiac care market.
However, the FTC approved a “clinical integration model” on Feb. 13 that created the Norman (Okla.) Physician Hospital Organization, a partnership between the Norman Regional Health System and the Norman Physicians Assn. The hospital did not buy the practice, but the two, under the PHO, would be permitted to negotiate joint contracts with insurers. One factor in the FTC’s approval was that physicians would have the right to negotiate contracts with insurers that choose not to sign deals with the joint network.