More Physicians Are Now Employees Rather Than Owners

This is the main story in a series examining how trends in healthcare ownership are impacting physician practice. Click here for a sidebar on what physician autonomy means today, and here for a sidebar on how private equity in particular is driving employment trends.

Sterling Ransone, Jr., MD, is a third-generation family physician.

But even one generation ago, the practice of medicine was much different.

Though Ransone followed in his father’s footsteps as a rural family doctor, he didn’t do so in the same shoes.

From 1957 to 1990, his father practiced solo for years, then added a partner, and ultimately returned to a one-doc shop. However, when Ransone finished his residency at a hospital near his Virginia hometown in the mid-90s, he and his wife formed a practice as part of the health system, and started their careers as employed physicians.

“One of my memories that I will never forget was walking into the kitchen listening to my dad and my mom debate having to increase the price of an office visit from $7 to $10,” Ransone told MedPage Today in an interview in late September, just a few days before beginning his year-long tenure as president of the American Academy of Family Physicians (AAFP). “They were just struggling to justify, but they couldn’t see how they could continue to pay the employees, the electricity bill by getting $7 per office visit.”

Ransone’s parents worried that patients wouldn’t show up if they raised the price. But they knew that they couldn’t afford to keep the office open if they didn’t.

“It’s one of those memories that really stuck with me when I came out of residency,” Ransone said. “I thought about it a lot.”

“I realized that a lot of my training was not business training at all; my training was how to practice medicine,” he added. “I didn’t feel as confident with the business management aspect of running a practice.”

Increasingly, physicians are pursuing a similar path, whether from the get-go, like Ransone, or after experiencing financial or administrative strife. An American Medical Association survey revealed in May that for the first time, the majority of U.S. physicians (50.2%) are now employees — suggesting the nature of how and where physicians practice is at an inflection point.

That report also showed that the share of physicians who are practice owners dropped to 44%. The statistic represented a drop of almost 10 percentage points from 2012, the AMA said, when 53.2% of doctors were practice owners.

When Ransone completed his residency, about a third of physicians were employed. Currently, about 70% of AAFP’s members are employed in some manner. Half of that 70% are employed by a hospital system or a large group. And half are with smaller groups, physician-owned groups, or other entities.

“The number of one- and two-doc shops that we’re seeing is probably 10%, or so,” Ransone said.

As for AMGA (formerly the American Medical Group Association), the organization told MedPage Today that in 2010, 50% of its members were independent medical groups, and 50% were integrated with a health system. Ten years later, in 2020, about 25% of AMGA’s members were independent medical groups, and 75% were integrated with a health system.

Physicians as well as economic experts agree that consolidation, financial pressures, changing generational perspectives, and the pandemic will continue to drive and accelerate the trend toward employment. But that doesn’t mean an industry-wide shift to one way of practice is what’s best for doctors and patients.

“We need to keep an environment where all forms of practice are viable so that we can give our patients the best service they can have,” Ransone said.

In order to do so, experts told MedPage Today that more attention must be paid to the factors that are driving down the number of independent physicians.

The Big Are Getting Bigger

The concept of sprawling entities expanding their reach isn’t new. But, lately, it’s gained more steam.

“This has been going on for probably 40 years,” said Joseph Sellers, MD, president of the Medical Society of the State of New York. “There has been a change from physicians working in solo practice into group practices, into larger groups, and into groups affiliated or groups owned by a health system, similar to the consolidation of our hospitals from individual hospitals into systems.”

In fact, as of this year, the nation’s top eight health systems, ranked by number of affiliated physicians, boasted more than 20,000 physicians each.

Also, the top 25 health systems, ranked by net patient revenue, raked in annual revenues ranging from more than $11 billion to $44 billion. And the largest hospital within each of the top 5 systems pulled in no less than $1 billion.

Hospitals and health systems are constantly looking for ways to increase their leverage in the marketplace, Glenn Melnick, PhD, a healthcare economist at the University of Southern California, told MedPage Today.

“They’re going to do whatever they can to continue to expand their market share in the region, so that when they sit down with [a major insurer] they’ve got more leverage,” Melnick said.

“What that inadvertently means is, to the extent that you’re an independent doc, they’re going to be doing things that are going to reduce the flow of patients to you, so that patients go to their doctors,” he added. “That’s going to put more pressure on independent docs.”

In July, President Biden issued an executive order to encourage competition in the American economy. In the order, Biden acknowledged that, due to unchecked mergers, the 10 largest health systems control a quarter of the market, and that hospitals in consolidated markets charge far higher prices than those in markets with several competitors.

The FTC has also moved to collect data from insurers and health systems to study the effects of physician practice mergers and hospital acquisitions of physician practices.

“The policymakers are starting to turn their guns towards these issues,” Melnick said. “Most of these organizations are winning because the rules are too easy to create market power.”

New Bosses: Insurers, Private Equity

However large they may be, health systems aren’t the only entities eyeing medical groups and services. The interest has extended to private equity firms, insurers, and contract management groups (CMGs).

For private equity firms, that means maximizing the rate of return on their investments.

“They don’t care if it’s razor blades or cancer patients,” Melnick said.

Though many physicians have acknowledged a need for investment, they’ve also remained wary when it comes to private equity. They’ve questioned whether boosting revenues and cutting costs could have a deleterious impact on how they provide patient care. (See sidebar on the impact of private equity in healthcare.)

Additionally, physicians may want to consider the potential threat of monopsony buyers of their services, whether that comes from large health systems or consolidated groups under private equity, Melnick said.

“If there are fewer and fewer entities that control the flow of dollars into my specialty, there eventually could be like a single payer — instead of government, it’s a private entity,” Melnick said. “And they’re not going to give me a raise next year.”

Insurers are also employing physicians, with the most well-known example being United Health Group’s Optum subsidiary, which boasts more than 50,000 physicians.

Melnick said insurers investing in medical services can make sense from an economic perspective. For example, it can give insurers more control over their financial outlays.

“The worry is [if] they get control of a local market’s physician supply are they going to use that to disadvantage competing health plans,” Melnick said. “I control all the docs in the county — I give myself a good price and I charge all the other plans 30% more.” Then, “within a couple years, their premiums are going to be way above mine, and I’m going to control the insurance market.”

“That’s one worry about that vertical integration — whether it can contaminate other pieces of the market,” he said.

On the other hand, if an insurer “runs medical groups efficiently, then it gives them a low-cost benchmark,” Melnick said. “And if they run most of their patients through there, it keeps their premiums low, and that’s good for everybody.”

Other entities circling the market have included CMGs, or staffing firms, which are often backed by private equity.

Emergency medicine physicians in particular, are “increasingly employed through these large, national contract medicine groups,” said Mercy Hylton, MD, MBA, an emergency physician in central Indiana. “But there are many other hospital-based specialties — like anesthesia, hospitalists, intensivists — that are being bought up by CMGs.”

“The reason why CMGs are beating out small groups is because they have economics of scale to lower their overhead costs, their administrative costs,” said Hylton, who is also a board member of the advocacy group Physicians for Patient Protection.

“And,” from a physician standpoint, “very often they use some questionable staffing practices,” Hylton added.

That has included the utilization of non-physician practitioners, such as nurse practitioners, physician assistants, and certified registered nurse anesthetists, she said.

Access to Capital

When it comes to what is driving physicians toward affiliation or integration with larger entities, including health systems, “Number 1 on the list is access to capital,” Jerry Penso, MD, MBA, president and CEO of AMGA, told MedPage Today.

Physician groups need capital for strategic investments to stay competitive in the future, Penso said. They need money to invest in information technology, population health, equipment, and facilities, he said. And they need a partner for that.

“If the move to value-based, risk-based contracts continues, they need reserves if they’re going to take on downside risk,” Penso said.

Physicians also look to hospital partners for billing, contracting supply chain management, and to help with operational issues, he added. The independent groups that want to move to the next level — especially if they want to make additional investments — need a “more robust infrastructure that would be present in most large systems.”

Jonathan Slotkin, MD, chief medical officer at Contigo Health — part of healthcare improvement company Premier — and a neurosurgeon at Geisinger, concurred.

Slotkin reiterated that the ongoing shift to value-based care has increased the need for new digital technologies, and compliance and adherence, all of which are expensive and federally mandated, and need to be maintained over time.

Those are things that large health systems are just better at doing at scale than smaller providers, Slotkin said.

Perspectives Are Shifting

In this shifting landscape, autonomy has come to mean different things to different generations of doctors. (See sidebar on physician autonomy.)

“It’s hard enough just to keep up with the practice of medicine,” Ransone said. “And then adding the things you need to do to keep your business open, it takes a special person to do that.”

“The freedom to practice medicine the way you were trained and see fit, I think, is something that is very attractive for all physicians,” Ransone added. “But sometimes, the reality is that we have to give up a little bit of our freedom — freedom from administrative burden — in order to practice medicine, the way we were trained to do.”

Hylton said many physicians completing residencies no longer see independent practice as a viable option.

“They’re not interested in joining private practice with increased financial risk,” Hylton said, as most are coming out of residency with a quarter million dollars of student debt.

“People come out, and they have this huge ball and chain that really has to color what type of job they’re able to take,” Hylton said.

Sellers noted that there are issues of recruiting and retaining staff, and maintaining a decent lifestyle that may weigh on physicians entering the workforce.

“We talk a lot in medicine about pajama time,” he explained. “That’s after you have dinner, put the kids to bed, you put on your pajamas and sit in front of a screen and push buttons on the computer to finish up documenting all the work you did in the day.”

“We know that physicians nationwide … are experiencing burnout, experiencing stress in their relationships, in their personal lives,” Sellers said.

Pandemic Is Fueling the Fire

The pandemic remains a primary stressor that has depleted physicians and accelerated an exodus from independent practice.

From the early scramble to get personal protective equipment, to halts on elective procedures that many medical practices rely on to pay their bills, “It will be some years before all that is sorted out, and everybody can get back fully on their feet,” Sellers said.

“And there certainly will be some practices or physicians that decide they want to join up with an employed relationship, or with some sort of a group or system, because of the resources needed to recover,” Sellers added.

Melnick concurred: “For a bunch of individual docs, their business went down, their cash flow went down, so if the opportunity came along to sell out, or partner … to deal with that kind of shock,” they took it, he said. “These trends were here already,” but, “COVID, I think, has accelerated them.”

Ransone said about 4% of AAFP’s members closed their practice due to the pandemic. That’s according to AAFP’s latest member survey, which was conducted in March of this year.

The pandemic also exposed some of the burdens affecting later-career physicians, who ultimately decided it just wasn’t worth it anymore, he added.

“I think it’s sad for our society that we’re not supporting some of the folks who could probably practice for another 10 years or so,” Ransone said.

Of his own experience, he said that as an employed physician, he had access to certain supports that others did not.

“Because of the power of group purchases, we were able to get a fair amount of personal protective equipment for our physicians to begin with,” Ransone said. “Some of my friends who weren’t able to find that had to severely restrict their practice because they couldn’t keep their staffers safe.”

Consolidation Continues for the Foreseeable Future

Most experts agree that the trends driving down the number of independent physicians will continue. But they also concur that maintaining a diversity of physician practice is essential to the field.

“There are countervailing forces that are starting to grow,” Melnick said. “So, I fully expect there will be greater attention by policymakers — federal and state — to look at these arrangements. And then, eventually, we’ll see regulations that may either unwind some of these consolidations and collaborations, or limit their impact.”

In the meantime, Hylton proposed several smaller fixes, such as banning or restricting non-compete clauses for physicians, reducing medical school debt, and encouraging direct care physician practice, such as cash-based practices that are transparent in cost.

Hylton further said it’s important to encourage young doctors to gain business skills, and to make private practice something that seems attainable.

Sellers said the following of the ownership landscape in his own state: “I think that having a variety of ways medicine is practiced is a strength to New York state. Because what fits one community may not fit another, what fits one specialty may not fit another.”

Regardless of the arrangement, there should be a single focus, he said.

“The economics, the cost, the complexity of healthcare does seem to be pushing into consolidation more and more,” said Sellers. “But as we do that consolidation … we need to make sure we keep our eye on why we go into healthcare, and that is to take care of patients.”

“There is a great balance,” Ransone said. “I think that there are a lot of people out there who, if an independent situation were more palatable, would absolutely jump on it. But the general environment in which we’re practicing these days is difficult.”

Asked whether he believes that independent doctors are ceasing to exist, Ransone hearkened back to his father.

“I don’t think they’re dinosaurs,” Ransone said. “My dad used to like to say he was. But I think every generation likes to think we’re the last of the people who do this.”