New article analyzes trends and risks involved in merging established physician practices

As an increasing number of physician groups opt to be acquired by hospitals and healthcare systems, the acquiring entities may be able to improve quality and efficiency through better clinical integration. A new article from Lockton analyzes the trend, what's driving it, and the risks involved in merging established practices with larger healthcare providers.

The article—Challenges to Physician Practice Acquisition and Integration—offers insights into some of the risks and exposures hospitals may face when acquiring physician groups.

"According to a 2010 survey by the American Hospital Association, hospitals in the US now employ more than 210,000 physicians. That's almost 25 percent of all active physicians," said Johnnye Dennis, Senior Claims Consultant for Lockton and co-author of the article.

Dennis added, "Physicians have experienced stagnant reimbursement rates and rising costs of private practice. Navigation though the complex changes in the insurance and delivery systems under healthcare reform may be done with less effort when employed by a hospital."

Integrating private practices with hospitals does not come without risk. Due diligence should include and assessment of the liabilities, claims and compliance history of the potential acquisition. This helps the acquiring entity determine whether or not to move ahead with the purchase, as well as the overall "insurability" of the physicians.

Other potential risks areas include:

• Post acquisition malpractice premiums are paid by the hospital for its employed physicians, but some physicians will request tail coverage or run-off coverage. Physicians' continuing liability for prior activity can be a significant risk for the acquiring hospital.

• The risk assessment may also be needed for the physician's corporate entity, practices, and compliance with federal and state laws. For example, the hospital may be responsible for payment of any Medicare violations of the acquired practice.

• Since physicians are expected to be significant sources of revenue for the hospital, they should be viewed as a "key person" insurable asset. As such, a new approach toward life, disability and retirement products will be needed to attract, retain and protect highly valued physician employees.