PHILADELPHIA – With hospitals buying up physician practices, many doctors are tempted to take the bait, but Alice G. Gosfield, a lawyer who specializes in physician practice ownership strategies, called this the “employment delusion” and the “acquisition fantasy.”

Many physicians don't recognize that “the common law term for the employer-employee relationship is 'master-servant,'” she said. The master “gets to tell you who, what, where, when, and why and how, and if you think that a contract can prevent that from happening, you would be wrong.”

Ms. Gosfield gave the meeting audience a real-world dose of how even the best-laid plans go awry when physicians sell out to hospital groups. She also shared strategies on how doctors can avoid selling their practices to hospitals but still affiliate with hospital groups.

She debunked myths about how selling out to a hospital group can guarantee financial security. “The hospital is getting paid under the same stupid reimbursement formula that you are,” she said. “The only way that revenue stream ends up being more than what you're getting in your practice is if they are paying you for doing other things besides clinical work.”

Another delusion is that the contract is a safeguard. “A contract is only as good as the will of the parties to abide by it,” Ms. Gosfield said. Not infrequently, one party will break the contract with little recourse outside the courts, “and litigation is a really, really bad way of solving business problems,” she added.

She singled out two strategies for selling a practice to a hospital: the sale of physical assets, including diagnostic “toys and weapons” but not the practice per se; and noncompete covenants. “It has to be fair-market value under the Stark regulations,” she said of the latter, “and somebody – not a lawyer – has to do a valuation.”

But hospitals will not pay for good will. “They're not going to make you whole for what it took you to build your practice,” she said. “I don't care how long it took, what your sweat equity was, what all the pains were – you are not going to get that back from a hospital in terms of an acquisition or lease or other kind of arrangement.”

For self-preservation, she implored physicians to adopt the quality improvement measures that will provide the basis for Medicare reimbursement in 2012. “Now is the time to change your clinical and administrative processes,” she said. “Don't wait until the conditions they're going to be focused on are published. We all know what the conditions are.” That information is already available from the National Quality Forum, she said.

Among alternatives to selling, Ms. Gosfield suggested leasing the practice to the hospital, entering into comanagement contracts, having the hospital place a new physician in the practice, gainsharing, giving the hospital the right of first refusal if another entity offers to buy the practice, having the hospital provide CME for practice physicians and ancillary staff, leasing practice staff to the hospital, and having the practice provide contract services to the hospital.

“Your group stays as your group,” she said in describing the leasing process.” you reassign your right to get paid to the hospital. They pay you a salary. They will require productivity measures, but they can pay you irrespective of whether they get paid, which is not how your system works when you're in private practice.”

A comanagement contract involves the physician's providing on-call services or advising the hospital on its care delivery systems. This could include performance bonuses when the hospital achieves specified results, she said, but she advised against getting paid an hourly fee. “Swapping an hour in your office for an hour of their time – you can't make it up,” she said.

Having the hospital place a physician in the practice should be carefully structured, Ms. Gosfield said. Her preferred arrangement would have the hospital subsidize the up-front costs with a loan, then forgive the loan for each month the doctor stays in the community after the subsidy ends. One problem with this approach, she pointed out, is that “you can't then have a restricted covenant which prohibits this young doctor that you brought in and introduced to your patients from opening up next door,” she said.

Physicians can benefit from the right collaboration with a hospital, she said. “The things that unite you with the hospital are more than the things that divide you,” Ms. Gosfield noted. “You will do better holding hands crossing the dangerous street of health care in the future with the hospital, but you need to maintain your own identity.”

Ms. Gosfield reported no disclosures.

Work With a Hospital Without Working for It