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Saturday, August 03, 2002Unfortunately, it’s not an uncommon story. A decade ago, the rage in the medical business world was “integration.” Hospitals and medical management companies thought they would make vast amounts of money by buying up physician practices. Hospitals thought by doing so they could capture patients for the hospital referral services like x-ray, labs, and specialized testing as well as hospitalizations. They thought that possessing a network of physician practices would give them money-saving “economies of scale” with which to bargain with insurance companies and medical supply companies. It didn’t quite work out that way. Patients are people and not cogs in a machine. They sometimes have very definite preferences of where they want to go for testing and hospitalization. A doctor can’t force them (nor would most of us want to force them) to go to the hospital of his choice if they prefer another. “Economies of scale” may work in other fields of business, but not in medicine. Vaccines are only made by one or two companies who thus have the market advantage in pricing. Insurance companies set their rates by the current Medicare fee schedule, not by what physicians demand. But the biggest reason the integration venture has failed is that physician offices do not have a large profit margin. They are small businesses, very small businesses. They usually consist of a doctor or two and a couple of employees. Most privately run doctor’s offices don’t offer benefits to their employees. They can’t afford them. When they become “integrated” by larger management entities, the cost of doing business goes up. The hospitals and management companies, being larger corporations, have to offer benefits. They also add a layer of administrative overhead that isn’t present in a normal doctor’s office. Someone has to pay the salaries of the hospital vice president who runs the integrated network of practices and all of his underlings, and that someone is the doctor, the only person in the entire scheme who generates revenue. (Hospitals generate revenue, but when they own a network of practices they usually consider the network a separate entity and don't use hospital funds to run them.) It has proven to be a burden that doctor’s offices can’t shoulder. Doctors offices aren’t assembly lines. There’s a limit to how many patients a day a doctor can safely see, and in our system of corporate socialist medicine, there’s a limit to how much he can charge. So now, the buzz word is “disintegration.” The medical management companies were the first to fall, and now hospitals all over the country are beginning to divest themselves of physician practices. The administrators of the Indiana hospital in the article haven’t realized the no-win situation they are in yet. They hired another doctor to take Dr. Wagner’s place, thinking that she will be a more productive unit. She won’t be; and even if she is, she’ll never generate enough revenue to cover the overhead. My advice to Dr. Wagner: start your own practice in town. Five years from now you’ll still be standing. The hospital-owned practice won’t. posted by Sydney on 8/03/2002 08:24:00 AM 0 comments 0 Comments: |
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