A defensive blunder: hospitals, Highmark face hefty losses from their medical practice purchases. (Highmark Blue Cross Blue Shield)

Hospitals, Highmark face hefty losses from their medical practice purchases

Call it an expensive, defensive gamble.

To secure their positions in a competitive market, many of the regions hospitals and Highmark Blue Cross Blue Shield gobbled up physician practices at a furious pace during 1995 and 1996.

It's doctors, after all, who refer patients to hospitals - and "owning" physician practices helps ensure that patients come through a hospital's doors.

But instead of providing a steady base of patients, the strategy to acquire medical practices has produced a steady stream of red ink for local health care players.

While numerous hospitals have bought physician practices, UPMC Health System and Allegheny General Hospital's parent have been this region's two biggest acquirers.

Neither they nor Highmark would reveal the size of losses in their physician subsidiaries, but industry sources said they have been sizable.

A "nightmare" is what one hospital executive called the experience - and the financial hemorrhaging has several organizations rethinking whether they want to own these practices or not.

"I know that the acquisition of physician practices by hospitals has slowed down dramatically," said Greg Harbaugh, chairman of the Downtown law firm, Houston Harbaugh, and an expert in health care law.

"I also know that one of our local institutions is negotiating with physicians whose practices they bought to get out of its contracts and is divesting itself of some of the practices," he added, declining to name the institution.

That example, Mr Harbaugh predicts, will become more and more common.

"I think (local hospitals) are going to be offloading them. Give it about another five years. You'll see more and more physician practices …