The year 2020 marked a turning point for American medical practice.
The year 2020 marked a turning point for American medical practice: For the first time, fewer than 50% of doctors were working in a practice that was wholly physician owned — i.e., in private practice.
It was a watershed moment that no doubt would have bewildered Dr. Smith and, for that matter, most doctors practicing before the 2010s. Until then, it was the norm for doctors to own their practices, either alone or in small groups. It represented a kind of consistency during a time when so much else about health care was changing radically.
“In 1981, an older doctor could have walked into just about any practice and the look of it and how they practiced medicine would have felt familiar,” says William Miller, M.D., chair emeritus of the Lehigh Valley Health Network and author of the preface to the 2021 NASEM report. “Today that’s no longer true. And the biggest difference would be that in 1981 most practices were independent and in 2023 most physicians are employees.”
That’s not to say that doctors working for someone other than themselves has been just a 21st century development. A 1963 Medical Economics article stated that hospital-centered practice was the fastest-growing category of practice in the country, and that approximately 46% of practicing doctors got at least some of their income from salaried work.
Still, as late as 2012, 53% of physicians were practice owners, whereas 44% were employed. By 2020 the percentage of practice owners had dropped to 44%, and employees had risen to just over 50%.
What happened in the 2010s to shift the balance between employment and independent practice so dramatically? As is often the case in health care, much of it was caused by financial considerations. Squeezed by rising overhead costs and stagnant or declining reimbursements, many independent practice owners faced the choice of selling to a hospital system or other corporate entity or closing. Potential buyers eager for new sources of patients — especially those with good insurance coverage — were happy to oblige.
Other significant developments from this period were the spread of electronic health records (EHRs), the emergence of value-based payment models and the growing number of payment roadblocks, such as prior authorization requirements thrown up by insurance companies.
These created cost and regulatory burdens for all health care providers, but small independent practices found them especially onerous, according to Cheryl L. Damberg, Ph.D., a senior economist at the RAND Corporation and director of its Center of Excellence on Health System Performance.
“If you’re a small practice now having to dedicate resources to EHRs and other forms of information technology as well as managing claims processing, it can become really overwhelming,” she said. “Go into a doctor’s office today and there’s like 10 people just managing the paperwork because of the billing complexity and the payers throwing claims back at you because it didn’t include the right billing code or it wasn’t preapproved or some other reason.
“Physicians look at that situation and say, ‘I want to spend my time practicing medicine, not managing all this regulatory stuff and navigating all these different payment systems.’ So they join a health system to offload the administrative burden in return for giving up their autonomy,” Damberg says. She adds that for some self-employed doctors, especially those nearing the end of their career, the motivation to sell their practice stems from not wanting to buy and learn to use EHRs.
The desire to escape regulatory hassles was part of a larger shift in physician attitudes contributing to the decline of independent practice. More and more doctors, especially younger ones, prefer the regular hours, predictable income and lack of administrative burden that come with an employed position over the headaches and financial risk of practice ownership. A 2018 Physicians Foundation survey revealed that 53% of doctors 45 years or younger worked for a hospital or hospital-run group, compared with nearly 29% of physicians 46 years or older.
Yet another reason for the decline of independent practices in the 2010s stemmed from the federal government’s effort to develop and implement alternatives to the fee-for-service payment models through the Affordable Care Act and the Medicare Access and CHIP Reauthorization Act of 2015. Participation in many of these so-called alternative payment models required assuming some financial risk based on patient outcomes.
The only way for small practices to succeed under these models, Damberg explained, was to spread the risk over a larger patient base than most of them possessed. “I think having to manage risk is what pushed a lot of these practices into hospital systems,” she said.
The early 2020s saw another blow to independent practices with the arrival of the COVID-19 pandemic. As patient visits dried up, particularly in the early months, many doctors either left practice or took employed positions. From the beginning of 2020 through the end of 2021, the number of doctors working for hospitals or some other corporate entity jumped by 8.3%, from 391,000 to 423,800.