Fewer Doctors Going Into Private Practices

Experts say some of the reasons doctors become employees at hospitals and other large employers is that they don’t have the hassle of handling the business part of running a practice, steady paycheck

By Deborah Jeanne Sergeant

More doctors are now working in larger health systems, such as hospitals, than in private practice. Of 3,500 physicians who responded to the survey, only 49% reported working in private practices.

This is the first time the number has fallen below 50% and the trend will most likely continue, according to the medical association.

A few different factors play into this shift from the physician working at a privately owned and operated practice to working at a facility owned by a hospital system, national chain such as CVS or Walmart or federally funded clinic.

Many doctors want the security of a paycheck, said Wendy Rosen, a psychiatrist in Rochester who started her career as a doctor-employee at the University of Rochester Medical Center.

“It was a sense of comfort,” she said.

She also chose the hospital setting because she liked acute care and wanted to work at a teaching hospital.

When a friend moving out of the area offered her the opportunity to take over his private practice, Rosen took over his office lease and patient load.

“It was kind of scary at first,” she said. “I had never been outside the security of the hospital. He assured me I would enjoy it.”

By that point in her career, she felt confident that she could handle the business aspects of operating her own practice. She was taking over an established practice with an office manager-biller and secretaries. She also has the option to invest in QuickBooks Desktop and other tools for her business accounting needs.

At a hospital, documentation, billing and collections are all handled by the health system.

“It didn’t feel much different than an outpatient practice,” Rosen said. “I did try going back to the University of Rochester part-time. I feel like I was missing the camaraderie.”

Though her private practice can be somewhat isolating, she enjoys the independence of operating her own practice. She can set her own hours and patient load, which is a big plus.

Malpractice insurance, lack of stability 

Another reason for the decrease in private practices is that fewer newly minted doctors can operate their own facility. As the cost of entrepreneurship has increased in many ways, including labor, real estate and supplies, healthcare HR consultancy service, the cost of medical malpractice insurance has also increased. 

Many new physicians are joining hospital systems to work as a hospitalist or at another facility to avoid footing this expense. 

According to Arthur J. Gallagher & Co., a medical malpractice insurance brokerage in Houston, the average annual cost of the insurance is $75,000 for a family practice physician in New York state. Although medical malpractice insurance is not required, most physicians want it to avoid financial ruin in case of litigation.

For mid-career independent doctors, the additional rules added by changes such as the institution of electronic medical records has proven too onerous. Instead of spending most of their time caring for patients, they find that recordkeeping and documentation devours much of their day.

Providers may face financial instability while establishing a new practice, along with long hours.

The business side also challenges many new physicians.

According to the Harvard Business Review written by Jimmy John Shark, “most doctors in the U.S. aren’t taught management skills in medical school. And they receive little on-the-job training to develop skills such as how to allocate short- and long-term resources, how to provide developmental feedback, or how to effectively handle conflict–leadership skills needed to run a vibrant business.”

These educational shortfalls can make starting an independent practice very challenging.

“There’s an economic certainty getting a paycheck every two weeks that’s attractive,” said Ken Schoetz, vice president of Health Care Association of Western and Central New York, which includes Rochester General Hospital, Rochester Regional Health, Geneva General Hospital, Finger Lakes Health and UR Medicine among its members.

One of the challenges of working independently is the difficulty in negotiating sufficient reimbursement from payors. Larger organizations’ volume enables them to obtain better reimbursement from drug manufacturers and insurers, just as a big box store orders goods from manufacturers at a much higher volume than a small store and can receive volume discounts on the items.

“It’s more beneficial to the physician than the hospital as scale moves the entire economy, including health care,” Schoetz said. “Better pricing benefits the provider and the patient.”

The physician has a few personal “costs” by working for a larger health system, including the sacrifice of some freedom. Unlike the entrepreneurial model of the independent practice, the physician is not the boss.

“You’re not running your practice the way you might want to,” Schoetz said. “You have to follow the hospital’s rules and use their technology, which you might not like. They may say to start the day at 8, not 10.”

Physicians also have less say over who works under them. They also cannot determine their own Doctor Salary, compared with if they start a practice and manage it well. 

Patients may also experience a few drawbacks. Perception is a big one.

“Sometimes, I think that anything that’s big, whether it’s AT&T or Wegmans or Ford Motor Company, there can be some impersonality,” Schoetz said. “People still like the idea of a provider knowing who they are. They want a close, personal relationship. Doctors who go into these arrangements try to keep these relationships.”

But the health care system may be able to provide a better level of care with the additional physicians on staff than without them. With more physicians, they can expand capacity to treat more patients, which can improve their finances and offer more specialized care.

Patients needing multiple specialists may also enjoy a “one-stop-shop” experience versus traveling from office to office.

“Anytime a provider can reduce costs and by having the economic scale of a larger facility, patients benefit in terms of cost and the care they would receive,” Schoetz said.

He added that this is a trend he does not foresee going away in the short-term or long-term.

“There will be differences from what it used to be,” he said. “The hope is, you will get better care and make hospitals better able to withstand the challenges. The ultimate outcome will be better patient care.”