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Hospital-Sponsored Practices

by Patrick C. Alguire, MD, FACP
Director, Education and Career Development, ACP

Over the past several years hospitals have assumed major roles in office practice by buying practices, sponsoring practices, or starting their own office-based practices. The stated reason behind this move is to capture the loyalty of physicians who will, in turn, refer patients to the hospital for care and other services. While there are some obvious advantages to hospital affiliations, there are downsides as well. This article will summarize the major advantages and disadvantages of hospital-sponsored practices. Content for this article was taken from "Planning Your Entry into Medical Practice" by Patrick J. Malloy.

The trend in the recent past has been for hospitals to purchase practices in order to create primary care networks linked to the hospital. However, some hospitals continue to provide incentives and services short of ownership of the practice. For the purposes of this article, the strategy of providing office practices incentives and services short of ownership will be defined as hospital-sponsored practices. Common incentives include extra income for teaching or administrative duties, links to the hospital's computer system, billing and collection services, and staff. These services may be provided as part of a loan that must be paid back, or as an incentive to bring your practice into the hospital's service area. The important take-home message here is that the IRS will expect you to pay taxes on any financial assistance you received that you were not required to pay back. Inform your accountant of these services so that they may be valued and reported to the IRS.

As part of the sponsorship, you may be offered full or partial salary support. This is usually limited in time (1 to 2 years). You may find that the salary support is not quite what you were offered from a practice group. Nevertheless, do not turn the hospital's offer down without looking at the total compensation picture. The total benefit package could more than make up for the salary. For example, you could be offered reimbursement for relocation expenses, help with office rent, or low to no-interest loans to defray start-up costs. Hospitals may manage and provide marketing assistance to help ensure the success of your practice. The bottom line is to look at the entire package and compare before making a decision.

Some hospitals will offer to do your billing. This saves you the expense of hiring your own staff, but this service rarely comes for free. The hospital may request a percentage of the collections as their fee, usually around 10%, but it could be as high as 15%. Remember that after paying your overhead, 10% of the collections could represent from 20% to 30% of the profits! Before entering into this arrangement, determine if you can do it more cheaply. Also, find out how successful the hospital is in performing this job. Get the statistics from the hospital that details their collection rate and talk with some of their other physician customers to get a sense of overall satisfaction.

Some hospitals may help in other ways with your billing. This may be accomplished by either training your staff or hiring a consultant to come to the office and provide this service. Obviously, understanding the mechanism of billing is essential, and expert advice is always needed. Local experts can help you identify the average fees in the area as well as third-party payment requirements. This advice can prevent you from setting fees that are inadequate for covering your office expenses. Hospitals can also train you and your staff on insurance coding, Medicare requirements, relative value scales, and other business issues.

Before you accept a hospital's offer of sponsorship, however, you need to consider its financial health. The past five years have been unprecedented in the number of hospitals and even academic medical centers that have gone bankrupt and been forced to close. A careful review of the hospital's financial status is important, particularly if you are receiving major financial assistance, such as your salary, office-space, or staffing. It would probably be best to pay your accountant to review the hospital's financial health before committing yourself to a sponsorship arrangement.

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