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Is Private Practice Finished?

By Laura A. Petersen

Increasing Physicians Are Moving Toward Hospital-Based Ownership/Employment

An increasing number of private practice individual and group practice physicians are shifting to other options, primarily hospital-based employment.  According to a New York Times article, more than 2/3 of medical practices were physician-owned in 2005, while it is less than half today.  A 2010 survey through The Physicians Foundation showed that 41% of practices were owned by a hospital or other large entity.  The survey also revealed that a minority of physicians planned to stay in private practice:  26% planned to continue practicing as they had been; 14% planned to switch to locum tenens work; 11% planned to take hospital jobs; 16% planned to switch to concierge or cash practices; and 16% planned to retire.  It has been estimated that as much as 80% of medical school graduates are looking for salaried positions with hospitals or large medical groups.

Why is There a Trend Towards Hospital-Based Ownership/Employment?

Many sources attribute the change to the new generation of physicians.  Young physicians need to repay large student loans and want more work/life balance than their predecessors had.  Younger physicians are comfortable with giving up the benefits associated with owning their own practice for the flexibility that comes with being part of a large group or hospital-based practice.  They also prefer to avoid the risks of opening their own practice. 

Economics are also a large reason for this change.  Private practice risks have increased with the decline in reimbursement rates.  In a small practice, physicians have little negotiating power against large insurance companies.  If the physician is part of a hospital-based group, he avoids those risks because the hospital system has greater bargaining power when negotiating reimbursement rates. Concerns about the impact of the health system reform and Medicare pay’s instability have also increased physicians’ worries about the risks of private practice.  The Physicians Foundation survey revealed that physicians felt that both the Medicare sustainable growth rate formula and healthcare reform had an equally large impact on their practices and their decisions regarding the future of their practices.  Additionally, many physicians who are stressed by rising overhead and flat reimbursements like the idea of focusing on patient care as opposed to these issues.  Another economic issue is the increasing cost of malpractice insurance coverage, which is borne by the hospital with hospital employment. 

Increasing administrative and regulatory burdens are another basis for moving toward a hospital-based practice.  One example is that electronic health record systems are expensive and time consuming for physicians to install and maintain.  Hospitals, on the other hand, can reap the benefits of the quality of care and system efficiency due to being a large organization. 

Hospitals are also aggressively pursuing physicians as employees.  One reason is that  primary care physicians are in short supply.  In addition to meeting a patient need, this ensures the hospitals a steady stream of patients.  Employing physicians also helps hospitals have a stable medical staff and a consistent number of specialists among varying clinical disciplines.  Another problem many hospitals are experiencing is the lack of physicians willing to cover emergency department calls; having hospital-employed physicians avoids this problem.  Hospital-based practices also help  the hospitals control operating costs, implement quality initiatives, and prepare for changes related to health reform including the accountable care organizations (ACO’s) and bundle payments.  It also reduces competition from physician-owned ancillary facilities. 

Is Hospital-Ownership/Employment the Answer?

Many physicians are considering hospital employment or selling their practices to a hospital.  However, this is not the answer for everyone.  While there are many benefits, there are also disadvantages for physicians associated with a hospital-based organization. 

The primary complaint by physicians who have switched from private practice is that there is less independence.  Physicians are used to making decisions on their own and having the outcome occur quickly.  That is not possible with a large organization.  Examples of this are requisitioning new equipment for the practice or making staffing changes within the office.  Private practice physicians are used to making these decisions relatively quickly by themselves or with the input from their partners.  With a hospital-based practice, the decisions ultimately belong to the hospital, and it may take months for the physician to be told that he cannot have a new office chair or that he must retain an incompatible employee in his office. 

Studies have traditionally found that private practice offers greater financial reward than hospital employment.  Even with productivity bonuses, a hospital-employed physician typically does not earn as much as he did in private practice, where he received a much higher percentage of gross income.   However, the gap is decreasing with reduced reimbursement rates and many hospitals’ offers of guaranteed salaries and large signing bonuses.

Another problem with hospital affiliation is that there are issues with hospitals and physicians creating cultures that have common goals.  A related problem is that the increased trend in hospital-employed physicians will deepen the divide between hospital-employed physicians and those who are still in private practice.

Hospitals are not the only option under the new healthcare paradigm.  The Patient Protection and Accountable Care Act (PPACA) alters many of the ways by which healthcare is provided and paid.  Medicare-certified ACO’s allow physicians to maintain their private practice while still  fitting within the PPACA structure.  To do this, physicians could organize into clinically integrated groups to be eligible to qualify as a Medicare certified ACO.  This allows the physicians who are providing the care to also be in control of determining the following:  the methods by which reimbursement and shared cost savings are distributed; the best ways to create savings while still providing optimum care; and the best clinical environment for their practice.  This could be structured in many ways and would include primary physicians, specialists, mid-level providers, ancillary services, or any combination of the above.   

Conclusion

The current trend in the hospital community is to buy physician practices, rendering those physicians employees of the hospital.  Additionally, many new physicians are staring their careers as hospital employees.  There are benefits to both physicians and hospitals through these arrangements; however, there are also drawbacks.  The bottom line is that each individual physician and his practice is unique; there is no one size fits all answer for each physician’s practice.  Accordingly, physicians should weigh all their options carefully.

Originally published in the Spring 2011 edition of Quinn Quarterly.