Why You Must Know About A University's Captive Medical Group Filing Bankruptcy

On November 7, 2018, the medical group affiliated with Michigan’s Wayne State University Medical School, University Physician Group, which does business as Wayne State University Physician Group (“WSUPG”), filed Chapter 11 bankruptcy.

How is that even possible, you ask? After all, you were told that there’s safety in what is essentially hospital employment.

Well, it’s not only possible, it’s likely the tip of the iceberg, not only for “stand alone” captive physician groups like WSUPG with its 873 employees, but for entire hospital hospital systems made more fragile, not stronger, by their size.

Hospital systems across the country suffer from bloated fixed costs, huge payrolls, layers and layers of bureaucracy, and management by managers, not by entrepreneurial thinkers.

Instead of bringing what the proponents of hospital-centricity promised would be stability, the actual result is becoming much different: The larger the hospital-centric system is, the more sensitive it is to declining payments from private payors, and the movement of procedures out of their facilities to freestanding, and often independent facilities, from clinical laboratories, to imaging facilities, to ASCs. And now, the federal government is getting increasingly into the act: It has cut reimbursement to hospital outpatient clinics, and has signaled its decreasing support for outpatient surgery performed in hospital outpatient departments (“HOPDs”)as opposed to in freestanding ambulatory surgery centers.

Hospital employment was hardly ever a good deal for any physician. The difficulty in holding a hospital together is tough enough. The difficulty in holding a hospital system together is even greater.

But both pale in comparison to the challenges of holding a hospital system plus its directly or indirectly employed physicians together. A shock that could have been absorbed by the pure hospital-side of the business can be fatal to the enormously expense-ridden hospital-plus-physician structure.

Why You Need to Know

1. Employment, directly or indirectly, with hospitals is far from “safe.” In fact, it may be far riskier for physicians.

2. In the event that a tightly aligned physician group fails, the employed physicians have no offices, no patient records, no staff, no “nothing” readily available to them to re-start independent medical practice.

3. For outside groups, the failure of a hospital-controlled medical group presents the ability to cherry pick physicians who may be desperate for quick reemployment. That is, unless those physicians are barred from accepting employment in the area due to ill negotiated covenants not to compete, assuming that they are enforceable.

4. The failure of a hospital-affiliated medical group will disrupt referral patterns, presenting opportunities on both the services-side and the facility-side for independent physician practices and their affiliated facilities.

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