Why local doctors are selling their practices to national companies

A large anesthesia provider in Minneapolis is being acquired by a Florida company as the trend of national firms buying physician practices gathers steam.

Florida-based Mednax Inc. said this month it's buying Northwest Anesthesia, P.A., a private practice with 37 anesthesiologists and 91 nurse anesthetists who care for patients at Abbott Northwestern Hospital in Minneapolis.

Financial terms were not released.

More physicians are consolidating through investor-owned companies to better handle cost pressures, consultants say, and to match the bargaining power of bulked-up health insurers and hospitals.

"It's a war for leverage," said Ron Calhoun, a managing director with the consulting firm Aon PLC.

Mednax is a publicly traded company with a network of more than 3,300 doctors in all 50 states. Mednax tells physicians that by selling, it can focus on medicine and hand off chores like collecting patient bills and negotiating reimbursement arrangements with health insurers, said Steve Collins, the company's senior vice president for business development.

"We felt that Mednax was the best strategic partner to help us grow our practice and navigate the changes occurring in the health care arena," Dr. Steven Dentz, who will serve as the practice's medical director, said in a statement.

A spokeswoman for Allina Health System, which operates Abbott Northwestern, said the hospital hasn't seen any changes with the deal.

"Physician leaders say they think the new affiliation will maintain, and in the long run improve, program excellence," said Gloria O'Connell via e-mail.

Consolidation among hospital-based physicians like anesthesiologists has been accelerating in recent years, said Jeff Swearingen, a managing director with Edgemont Capital Partners.

The investment banking firm says there are about 46,000 anesthesiologists in the U.S. providing about $20 billion worth of health care services per year. Half of those providers are employed by the medical centers and university hospitals where they practice, Edgemont estimates, and 42 percent are local private groups.

The remaining 8 percent are operated by one of four practice management companies, including Mednax. Ten years ago, only one of the four companies was in the anesthesia business, Swearingen said, with a market share of roughly 1 percent.

"A lot of physicians are saying: 'Look I've had a lot of pride in being a small-business owner, and owning my own practice, but the nonclinical burdens and requirements are getting to be overwhelming,' " he said.

Doctors in hospital-based practices, such as anesthesiologists and radiologists, are pursuing deals to gain leverage in negotiating financial terms with the hospitals where they work, said Calhoun of Aon. Doctors and hospitals, he said, negotiate how payments from insurers are divided within new contracts that ask providers to take financial risks in exchange for the chance at sharing in any savings.

"What we're seeing is kind of a backlash to the hospital consolidation that we've seen over the last couple of years," Calhoun said.

Health insurers increasingly are making purchases, too, said Halee Fischer-Wright, president and chief executive of the Medical Group Management Association, a trade group. There's a sense that nontraditional clinic owners might be better suited for innovative changes the system needs.

"There's potentially a lot of money to be made … for the group that can figure out how to provide high-quality, low-cost care," Fischer-Wright said.

The trend isn't unprecedented. The 1990s saw the rise of companies like Tennessee-based PhyCor, which promised to boost efficiency in health care by acquiring physician practices, driving out costs and relieving doctors of the business headaches.

What's different today, Fischer-Wright said, is that big groups have a much better chance to efficiently care for a large group of patients because information systems are more sophisticated.

Plus, health care keeps swallowing a bigger share of the nation's gross domestic product.

"We know something has to change," Fischer-Wright said.

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck