How Can Private Practice Survive Hospital Onslaught?

Kenneth Terry, MA


June 21, 2012

In This Article

A Growing Trend

Across the country, an increasing number physicians are taking positions in hospital groups. In 2008, the Medical Group Management Association (MGMA) estimated that 37% of doctors worked for hospitals.[1] A 2011 article in the New England Journal of Medicine said that hospitals and healthcare systems employed more than one half of practicing doctors.[2]

It's not that most physicians desire hospital employment. A recent survey of younger physicians found that although 58% of them worked for medical groups, only one third of those were hospital-based. Of the hospital employees who worked for large groups, fewer than one half would select such an arrangement if they had a choice. Whereas just 10% of hospital-based specialists had some ownership stake in their practices, 32% preferred to be owners, the study found.[3]

Yet, hospitals offer many things that private practices can't, making it harder for the independents to recruit new physicians, notes Kevin Kennedy, a Seattle-based principal of ECG Management Consultants. "Even if hospitals don't offer more in terms of wages, they will almost always offer a better benefit plan. And a hospital is going to look and feel a lot more stable than a smaller independent practice," says Kennedy

Not all physicians in areas with a high percentage of hospital-employed doctors are suffering. Some doctors may have a specialty that the hospital group isn't competing with, or they may have concierge practices that insulate them from economic upheavals, Kennedy notes.

Indirect Impact on Finances

Competition and referrals are only 2 of several issues that affect independent practitioners. The employment tsunami has affected Ma and his partner in other ways.

Because the hospitals pay their nonphysician staff more than private practices in Peoria have traditionally paid, he says, he has had to raise his staff salaries, too. "So my overhead is a lot higher because of these hospital system-run practices."

In addition, the employed hospital groups can negotiate better rates with payers than his practice can. The hospital also receives higher reimbursement for ultrasonography because it gets a facility fee in addition to the professional fees of its doctors.

Although Ma has had an electronic health record (EHR) for 7 years, he sees many of his independent colleagues struggling to buy and implement EHRs. He predicts that when physicians have to start using the International Classification of Diseases, 10th edition (ICD-10), diagnostic code set, "that will kill private practice. The larger hospital organization typically has this pile of money so they can weather the storm, but private practices typically don't."


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