'A blessing and a curse'
A look at life after selling a practice
When Joseph O'Bryan, MD, talks about the 1994 sale of his internal medicine practice to the giant Columbia/HCA Healthcare Corp., he quickly reveals the ambivalence that is common among physicians who have sold their practices.
For the first time in his professional life, the 58-year-old internist receives paid sick, vacation and continuing medical education (CME) time. In addition, cash from the buyout helped him complete some household remodeling and pay for his daughter's wedding.
At the same time, though, Dr. O'Bryan mourns the loss of the autonomy he once shared with his five internist partners. "For 25 years we were able to make decisions on our own," he said. That is no longer the case. "It bothers me," he said.
Dr. O'Bryan views his decision to sell as "a blessing and a curse," a sentiment shared by many physicians who have traded the responsibilities--and headaches—of running a busy practice for the financial security of a regular paycheck. As more and more physician-employees are quick to admit, selling a practice and learning to work for someone else can be an eye-opening experience.
From not being authorized to hire office staff or order office supplies to not being allowed to take home flu shots for the family, many physicians are finding themselves in a new position: living by someone else's rules. And there is an even darker side to selling, one in which employment contracts can be renegotiated or transferred to another entity, one in which doctors can be fired or laid off and even barred from working in their own community.
Despite such reports, however, the lure of financial security remains strong. Between 1983 and 1994, the number of physicians involved in patient care who work as employees rose from 24% to 42%, according to a study published in the Aug. 21 Journal of the American Medical Association. The study concluded that the majority of physicians will soon be employees as a result of changes in the health care market.
Dr. O'Bryan and his colleagues, for example, decided to sell in part because of increasing competition from other internists and in part because some of the group's older members were retiring. Initially, the practice was negotiating with the local hospital chain, Lee Memorial Health System, where the practice referred most of its patients. But when the hospital refused to buy the practice's building, the deal fell apart. That's when Columbia came on board, buying both the practice and the building, and merging Dr. O'Bryan's group with other primary care practices to create a 12-man group practice without walls.
By now, the story is familiar. The cash-flush Wall Street sweetheart immediately gave the building a fresh coat of paint and revitalized the practice's medical equipment. More recently, Columbia sold the building and moved Dr. O'Bryan and his colleagues to new quarters that include equipment they could never afford, such as special X-ray technology that can check for osteoporosis.
But there were problems. Columbia at that point was relatively inexperienced in managing physician practices, so billing and collections did not go smoothly. "For a long time, we weren't getting financial statements," Dr. O'Bryan explained. "Ordering supplies was an irritating adventure for my nurse."
Paul Mantell, ACP Member, an internist who sold his practice to Lee Memorial Health System, the Fort Myers hospital chain, has experienced similar problems. "Before, when we needed a copier, we used to take out our checkbook," he said. "Now we have to go through a bunch a people, and it takes a couple of months."
Kenneth Sanders, ACP Member, another internist who sold his solo practice to Lee, had a similar problem. His office wheelchair was stolen earlier this year, but he has to wait to replace it because funds aren't available in this year's budget.
As a practice administrator from Lee explained: "Physicians can't simply write a check out of their checkbooks any more. Now they have to ask for capital."
Sense of loss
These complaints may seem minor, something that the internists themselves admit. After all, vacationing physicians at some of these organizations can request a locum tenens doctor to staff their offices to avoid inconveniencing patients, for example, and nurses who take time off can be replaced by "pool" nurses so doctors are similarly not inconvenienced. And while doctors' offices and their staff get extra help dealing with regulations regarding the Occupational Safety and Health Administration and Clinical Laboratory Improvement Amendments (CLIA), the physicians themselves are given stipends to take CME courses in exotic locations.
Even so, many physicians interviewed for this article remain overwhelmingly unenthusiastic about their decisions to sell. Health care consultants explain that, while doctors sell because they are fed up with the business side of medicine, many still crave control. "Doctors covet control but they don't want to pay the price," said Hobart Collins of the Medical Group Management Association, a trade organization for group practices. "It's a conundrum."
That may account for the sense of malaise among some physicians who have taken the plunge. Dr. O'Bryan, for example, calls himself a "mid-level executive" in a large corporate bureaucracy.
Others are afraid to speak out. For example, an internist from the Southern United States who spoke on condition of anonymity, complained that since his hospital bought his practice, billing and collection efforts have been hurt. But because his pay is no longer affected by such details, he looks the other way. "It's not my problem anymore," he said.
Physicians' new roles are forcing them to make some psychological adjustments. "There is a grieving process as they mourn something intangible they lost—like pride of ownership," explained David Allen Jr., FACP, a health care consultant with the Minneapolis-based accounting firm McGladrey & Pullen LLP, which has arranged practice sales and acquisitions. "It's similar to the Kubler-Ross stages--denial, anger, bargaining, depression and acceptance."
Relationships gone sour
And not all deals work out. A 35-physician internal medicine clinic in Winterhaven, Fla., for example, claimed irreconcilable differences with PhyCor Inc., which owns approximately 2,500 practices. The practice, Gessler Clinic, sold in 1990 when it was looking for the resources to expand. But internist Alan Gasner, ACP Member, explained that a few years into the arrangement, doctors were fed up with PhyCor's management fees. "We assumed that as part of our annual fee, we would receive certain services," he explained. "We didn't feel we were getting our money's worth."
For six months, Gessler and PhyCor tried to resolve their differences, but without success. "We were so far removed from each other," Dr. Gasner said. "They were unhappy that we were unhappy with them." By 1994, the physicians had bought back their assets and regained ownership of the clinic in a deal Dr. Gasner described as "fair." (The settlement agreement prohibits physicians from divulging any details.) Dr. Gasner had this advice for physicians considering working with a physician practice management company like PhyCor: "If you're going to sell to someone who's charging a yearly fee, know what you're getting."
If a protracted battle with a new owner seems daunting, consider an even worse alternative: being fired and kicked out of a practice you helped build. "I've seen hospitals and independent practice associations that bought practices actually lay doctors off," said Maryann Szostak-Ricardo, a practice consultant in Manhattan Beach, Calif. "If business is down or doctors are not performing, they will be laid off."
In the new world order of physician-employees, many of the decisions come down to dollars and cents. "No longer are you judged on how good your clinical skills are," said David Himmelstein, FACP, a professor of medicine at Harvard Medical School and well-known critic of the current U.S. health care system. "All that matters is whether you are a money maker."
While some physicians may find the idea offensive, employers are vitally concerned about doctor profitability in the form of productivity. Organizations that acquire physician practices find physician production often plummets once a practice has been purchased, said experts in physician mergers and acquisitions.
"The joke is buy five practices and you get four physicians," said John Seitz, an Irvine, Calif. consultant. "A lot of doctors become disillusioned and cease to be motivated. They don't feel as needed or as vested in the business."
To combat what many new practice owners fear is a trend, nearly 80% of all physician contracts include productivity incentives, according to the Center for Healthcare Industry Performance Studies (CHIPS) in Columbus, Ohio. But doctors often don't understand how the incentives in their contracts work, and physician contracts are often restructured to create incentive packages that reward productivity and punish non producers. "Restructuring the terms of physician compensation and organizational structure is because very common across the country right now," said Cindy Ellins Collier, a CHIPS researcher. Ironing out productivity and incentive issues has become such a big business, in fact, that one practice consultant said his business has tripled in the last few years.
Two years into his contract, for example, Dr. Sanders, the Fort Myers internist who sold his practice to Lee Memorial, is renegotiating his compensation and productivity bonus. According to Lee's medical director, Robert Arnold, ACP Member, Lee doctors felt the original productivity incentive ceiling was set so high, doctors were not encouraged to put in extra hours to reach it.
Physician-employees may encounter other contract troubles. Sometimes, doctors who sell their practices to one entity may soon find that they are suddenly owned or being managed by another organization not of their own choosing.
The 1,600 physicians working for Caremark International, for example, were shocked to learn last year that they had been purchased by MedPartners Inc., a physician management company based in Birmingham, Ala. "It was a surprise," said Houston rheumatologist Michael Condit, MD, corporate medical director and chairman of the 280-physician Keysey Seybold Clinic, which had sold to Caremark in 1992. Dr. Condit said he received only 48 hours notice of the Caremark-MedPartners deal.
The purchase raised the possibility that the automatic assignment clause in physicians' contracts would take effect, allowing the practice's new owners to renegotiate the contracts of all physicians who had worked for Caremark. Experts say that assignment provisions exist in contracts with all kinds of organizations, including management service organizations.
Because Caremark became a subsidiary of MedPartners, the assignment clause never took effect, and the Caremark physicians continue to work for their new employer under the same terms they had negotiated with Caremark.
But circumstances don't have to be so dramatic to cause problems for physician-employees. For instance, there is always the possibility that contracts won't be renewed. While doctors who sold in the past retired, moved or went into research, doctors who sell today often remain in their practices and continue to treat the same patients. Having signed away their office equipment and patient charts, they face the same job instabilities as their receptionists and nurses.
Unlike receptionists, however, most physicians who have sold a practice face serious obstacles to finding work, most often in the form of restrictive covenants or non-compete clauses. "Doctors are basically out of business once they sell," explained Edward Krill, a Washington, D.C., health care attorney. "They have no leverage."
Restrictive covenants may prohibit physicians from starting a new practice near home, forcing them to leave town. Experts estimate that about 80% of hospital contracts include some sort of non-compete clause. These clauses typically prevent physicians from working within 25-miles of their old practice for two years, but some can keep physicians up to 500 miles away for as long as 10 years.
Despite the mixed experiences of veterans of the selling game, many physicians still view selling their practices as an option. For many, it is their only real option.
Doctors at San Luis Medical Clinic in San Luis Obispo, Calif., for example, felt hamstrung by what one doctor there called "an extremely competitive managed care environment." To remain viable, the group needed capital for bricks and mortar, equipment and to buy more practices. After a year of discussions, the 30-doctor practice with 200 support staff at six clinics decided to sell to Tenet Healthcare Corp. in Santa Barbara, the second largest U.S. for-profit hospital chain.
San Luis internist Stephen Hansen, FACP, said he expects his overhead to decline and his HMO contracts to increase. "Tenet has a hospital nearby with a dietitian and a physical therapist," he explained. "We have a dietitian and a physical therapist. We would hope there would be economies of scale that might allow overhead to decline."
And in Lexington, Ky., cardiac surgeon Thomas Donohue, MD, signed a 40-year contract with PhyCor to get not only badly needed capital, but better direction for his 125 multispecialty doctor group. "Some of our physicians were in bunker mentality," he said. "They did not want to contribute to a building program. We needed better management. We were not progressing as quickly as we should have."
And while success stories may be difficult to find among physicians who have sold, they do exist. Memphis cardiologist Dwight Clark, FACP, for example, is perfectly satisfied with his decision to sell to MedPartners, the physician management company based in Birmingham. He structured an arrangement that allowed him to keep his six-physician corporation and pay physicians out of
his corporate pot. MedPartners, which owns Dr. Clark's receivables and equipment, keeps some of that pot for a management fee, pays the 30-person support staff and all other overhead. "I still run the corporation, hire and fire doctors," he said. "I control the quality and extent of clinical practice, but I spend less time in the trenches hiring staff and paying bills. It's been very good."
It's the quest for exactly that type of situation that will likely motivate others like Bernard Harris, MD, to sell, no matter what they hear about the downside. "We sold out on the hope the new company can deal with managed care better than we could," says Dr. Harris, who sold his three-man otolaryngology practice in Miami to MedPartners. "Our pay was below what plumbers make. We're using [MedPartners] to get as many contracts as possible."
Maureen Glabman is a Miami-based freelance reporter who specializes in health care issues.
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