Every day you read about hospitals acquiring a physician practice or group. New physicians coming out of medical school are requesting employment agreements. It seems that employing physicians is the new reality, so your hospital is now in a new business. When purchasing a practice the hospital should evaluate current operations, cash flow, building & equipment, existing contracts, staff costs, and physician productivity. When hiring physicians, a hospital should set market-based and incentive income levels, practice benchmarks, productivity requirements, and total revenues collected.

1. Preparing for the Future
Operations Improvement Series # 12
Did you know?
Employing Physicians: The New Reality
Every day you read about hospitals acquiring a physician
practice or group. New physicians coming out of medical
school are requesting employment agreements. It seems
that employing physicians is the new reality, so your hos-
pital is now in a new business. Unfortunately, many
CEOs and most Governing Boards are unfamiliar with
owning physician practices or RHCs and unsure about
managing them. Purchases are made based on incorrect
valuations and employment agreements drawn up con-
tingent on aggressive financial projections. The end re-
sult is high costs to the hospitals and unhappy Governing
Boards. Moody's analysts recently said that Physician
employment is a major factor in negative projections for
nonprofit hospitals in 2012.
When purchasing a practice the hospital should evaluate current operations, cash flow, building &
equipment, existing contracts, staff costs, and physician productivity. A true in-depth valuation must be
done to insure compliance with federal rules and to set a reasonable acquisition cost. Basically, if you
are paying more for the practice than can be reasonably generated each year, you are paying too
much.
When hiring physicians, a hospital should set market-based and incentive income levels, practice
benchmarks, productivity requirements, and total revenues collected. In addition, they should review
efficiency of the physician practices or a regular basis to ameliorate projected losses.
In other words, move slowly and deliberately when buying a practice. Use reasonable & detailed valua-
tions. Set performance goals tied to compensation. Do this internally, if time and manpower permits. If
not, seek an outside firm that specializes in Practice Valuations & Practice Performance Improvement.
THE SOLUTION
Purchasing a physician practice is a complicated issue. A proper valuation must be conducted and
the arrangement structured within reasonable guidelines. Employing physicians can be extremely
costly and can have long term implications, good or bad, on the finances of the hospital. However,
the proper analysis and correct structure of the arrangement can multiply your chances of success.
When you’re ready to start or rework your current arrangements, BRHS will work with you to create
realistic Benchmarks for sustainable results.
BRHS is a results-oriented nationwide provider of healthcare consulting and financial advisory.
BRHS personnel have the expertise to perform equitable valuations and real world solutions. Call us
today for a no cost discussion on Practice Valuation & Practice Performance Improvement.
BRHS
Healthcare Consulting
17778 Carol Circle
Flint, Texas 75762
PH: (903) 825-6955
BRHS is a TORCH Endorsed Partner.
Email: bcharron@brhealthcare.com