Pros, Cons of Provider-Based Conversions

Image Credit: empics/shutterstock.com

When the local hospital approaches you about selling your practice and converting it to a provider-based outpatient department, you may want to hear them out. There are many benefits to becoming a department of the hospital, but what would it mean for you and the practice you worked tirelessly to build?

What Does It Mean to Be “Provider Based”?

A provider-based facility is a department of the hospital and provides healthcare services under the name, ownership, administrative and financial control of the hospital. Clinical services are billed under the hospital’s provider number. The department comprises the physical facility and the personnel and equipment needed to deliver the healthcare services.

When a physician practice is converted to a provider-based department of a hospital, the hospital can bill Medicare for the technical component of the services provided, which is reimbursed at a much higher rate than if billed by an independent physician practice. The reason for the difference is that when a hospital is reimbursed for the technical component, the payment includes the additional overhead and expenses associated with operating a hospital (e.g., administrative costs, maintenance expenses and the cost of housekeeping).

You Agree; Now What?

Saying goodbye to your brand. One of the provider-based requirements is that the facilities be held out to the public as departments of the hospital, such that when patients enter the facilities, they are aware that they are visiting a department of the hospital and will be billed accordingly. After years of building your brand, the hospital’s name and trademark will now be the face of the practice. This can be confusing for patients. However, it can also be a good thing, because patients often find comfort in knowing that their doctor’s office is now part of a larger platform for delivering professional services.

Employment arrangements. Once a physician practice converts to provider based, all non-physician staff must be employed by the hospital. However, physicians have flexibility when it comes to their own employment arrangements and can decide between hospital employment and a professional services arrangement. They often believe they will make more money in private practice than as a hospital employee, but that is not always the case. There are many advantages to being a hospital-employed physician, including:

• Eliminating overhead and other operating expenses;
• Not having to pay costly malpractice insurance premiums;
• Taking advantage of the hospital’s employee benefits package, including vacation time and health insurance; and
• Eliminating the stress of running your own practice.

These factors can lead to greater earning capacity as a hospital-based physician. So why doesn’t every physician close their practice and head over to the local hospital? The answer is often freedom. As hospital employees, physicians are bound to the hospital’s policies and procedures and often lose the autonomy they enjoyed in private practice. They become subject to hospital ownership changes and lose control over their staff, who must be employed by the hospital and report to its administrators.