Valuing Medical Practices
Who shall decide when doctors disagree?1
—Alexander Pope, 1732.
Marcus Welby, MD, might not recognize the medical profession today. Ticker symbols for physician management companies stream across Wall Street broker screens every day. Companies like PhyCor, Pediatrix, and MedPartners have emerged in response to the push for marketbased healthcare, an effort to rein in costs, provide higher quality, and focus on customer satisfaction. Once a cottage industry, medicine is becoming “corporate-tized.”
The move toward corporate medicine is related to the perception of uncontrolled healthcare costs. Total U.S. expenditures for healthcare exploded from approximately $75 billion in 1970 to more than $989 billion in 1995. Over the same period, expenditures for physician services increased from $14.3 billion to $202 billion, and the number of active physicians grew from approximately 311,000 to 646.000.2 This is a 675 percent increase per active physician in the cost of physician services, an increase much higher than the CPI, the traditionally utilized measure of inflation in the United States. Median physicians' net earnings increased from $55,000 in 1975 to $160,000 in 1995.3 Designed as a way of controlling costs without burdensome government intervention, managed care has driven changes in the healthcare industry for the past ten years. Though managed care efforts have sue-