Hospitals woo physicians away from private practices

The fight between health care giants Highmark Inc. and UPMC is fueling a race to gobble up private physician practices in Western Pennsylvania.

Doctors are essential to the financial success of health systems, experts say.

"The hospitals can't admit patients without physicians," said Jordan Battani, an expert with CSC Healthcare Group, a consulting company in Falls Church, Va. "No one goes there unless they're directed by an ambulance or a provider."

At the same time, changes in national health care policy are pushing doctors to link up with large organizations, said Dr. Frank Civitarese, president of Preferred Primary Care Physicians, a 31-doctor private practice based in Scott. Technology demands, cuts in Medicare payments and pressure from large organizations to sell make it "absolutely more challenging" to remain independent, Civitarese said.

"I think it'll remain to be seen whether we as an independent medical group can continue to push the envelope" of providing quality care while investing in technology and people, he said.

Each doctor can bring millions of dollars annually to a health system, according to a 2010 study by Merritt Hawkins, a physician search and consulting company in Irving, Texas.

On the low end, a pediatrician can generate more than $850,000 a year for a hospital while earning a salary of $171,000, the study shows. On the high end, a neurosurgeon can be worth more than $2.8 million in hospital revenue while earning $571,000 a year. In the middle are family practice doctors, which earn $173,000 on average but can generate more than $1.6 million a year for a health system.

For that reason, Highmark and UPMC aren't the only ones in the hunt. Smaller systems around the region recognize the importance of physicians to their bottom lines.

Jameson Health System in New Castle, with eight employed physicians, intends to hire 20 doctors by 2015, said Patty Eppinger, director of medical staff services.

In 2010, Jameson's leaders noticed two trends that led the hospital to begin recruiting doctors, Eppinger said. Many of the private practice doctors in the New Castle area were nearing retirement age and patients increasingly were traveling to other hospitals for treatment.

"As a small community hospital, you need admissions," she said.

Highmark, the state's largest health insurer, needs doctors because it's seeking to prop up financially ailing West Penn Allegheny Health System and create a medical services organization to compete with UPMC, the region's dominant hospital and physician network.

By 2013, fewer than one-third of American physicians are predicted to remain independent of a health system, down from 57 percent in 2000, according to Accenture, a New York consulting company. Western Pennsylvania is there, with an estimated 30 percent or less of its doctors in private practice. In Allegheny County, it may be as low as 25 percent, the county medical society said.

For doctors, employment with a large organization can be a blessing or a curse, depending who you ask.

"I think it really compromises the integrity of medical care," said Dr. Scott Tyson, CEO of Pediatrics South, a 10-physician private practice in the South Hills. "This has become an industry ... not focused on patient care."

On the other hand, some physicians tire of running a business and sell their practices to a hospital system for "the sigh of relief that they can just take care of patients," said Dr. Leo McCafferty, president of the Allegheny County Medical Society and a Shadyside plastic surgeon with an independent practice.

Being employed by a hospital can be good when government mandates make remaining in private practice more difficult.

A hospital offers a consistent paycheck even when government reimbursements for Medicare and Medicaid are cut back, experts say. Billing and negotiating with insurance companies is complicated. And health systems have the money to invest in electronic record systems, which the government mandates.

"It's difficult for solo doctors and smaller groups to incur the expense of creating infrastructure to meet the goals of the government," Civitarese said.

The group, likely the largest independent practice in the Pittsburgh region after the acquisition of Premier Medical Associates, invested heavily in people and technology in order to survive cutbacks, Civitarese said. His group is committed to remaining independent, despite the challenges, because "as physicians we believe there's no one better to make decisions regarding care than physicians."

Tyson intends for his practice to remain independent because he doesn't want a large organization influencing how he cares for patients. But the market dominance by UPMC and Highmark makes him wonder how long he'll hang on.

"In an atmosphere where everything is driven by finances ... you think everyday, is it time to just hook into one of the major entities and be done with it?"

In Pittsburgh, UPMC outcompeted smaller rival West Penn Allegheny to employ doctors for years. But with Highmark providing $475 million to acquire the health system, West Penn Allegheny will have the resources to counter UPMC, said Keith Ghezzi, West Penn Allegheny's interim CEO.

Inquiries from doctors have been "robust" since Highmark announced its plan to buy West Penn Allegheny in June, Ghezzi said.

Highmark has its own plan to assume primary care practices. Last month, it said it acquired Premier Medical Associates, a Monroeville private practice and the largest in the region. Highmark CEO Dr. Kenneth Melani has said the insurer will spend $500 million to build outpatient centers and acquire physician practices.

"I don't think we're seeing anything brand new; it's just revved up a little bit with what's transpired in the last six months," McCafferty said.

Falling admissions at West Penn Allegheny accelerated the health system's financial losses in recent years and led to Highmark's decision to step in. That caused UPMC to break off negotiations with Highmark on reimbursement contracts, leading many Highmark members to wonder if they'll continue to have in-network access to UPMC's 19 hospitals and more than 3,200 doctors in Western Pennsylvania.

There are 9,120 licensed doctors in the 10-county Pittsburgh region, according to the Pennsylvania Department of State. UPMC hired about 400 doctors last year. West Penn Allegheny, by comparison, employs 640 doctors, including 50 recruited since July. It expects to announce several high-profile hires soon, Ghezzi said.

With Premier Medical Associates' 60 physicians, Highmark and West Penn Allegheny employ a combined 700, or about 20 percent of UPMC's total.

Additional Information:

Under control

UPMC employs a third of the 9,120 doctors in 10 Western Pennsylvania counties.

UPMC: 3,040 (33 percent)

Independent: 2,740 (30 percent)*

Other hospitals: 2,640 (29 percent)

Highmark/West Penn Allegheny Health System: 700 (8 percent)


Source: Tribune-Review research

Additional Information:

Physician value

An employed doctor can mean millions of dollars for a health system.

Position, annual revenue, salary:

Neurosurgeon, $2.8 million, $571,000

Heart surgeon, $2.2 million, $475,000

Orthopedic surgeon, $2.1 million, $481,000

Family doctor, $1.6 million, $173,000

OB/GYN, $1.4 million, $266,000

Psychiatrist, $1.3 million, $200,000

Pediatrician, $856,000, $171,000

Source: Merritt Hawkins