Healthcare Transformation Undermines The Future of Private Practice
Physicians choose salaried employment in reaction to rising costs and complexity
Pam Kahl
Looking to retire after 31 years in private practice, Dr. Chuck Hoffman, a primary care physician with a thriving 5,000 patient internal medicine clinic in Baker City, Oregon began thinking about next steps. Not able to find a provider interested in taking over the practice, Hoffman ended up selling to Saint Alphonsus Health System in 2012. His scenario is an example of a significant trend in the healthcare market –a rapidly declining number of private practitioners as a result of retirement and/or choosing to opt-out to become employees of hospitals and/or large multi-specialty practice groups.
According to the 2013 State Physician Workforce Databook published by the Association of American Medical Colleges, there were 817,850 physicians actively practicing in the United States as of December 2012. Respondents from an AMA survey released during the same time period indicated 53.2% owned their own practice (18.8% solo practitioners), 60% of whom were 55+ years old. In 2012, there were 8,185 physicians employed in Oregon, according to the Oregon Employment Department.
Recent surveys show the number of physicians employed by hospital systems grew by 34% between 2000 and 2010. A survey conducted by Jackson Healthcare showed the number of hospital-employed physicians increased from 20-26% between 2012 and 2013 alone.
Larry Mullins, CEO of Samaritan Health System, says he’s hired more than 100 providers to staff its five hospitals and medical clinics in a permanent or temporary capacity, representing a 25% increase from five years ago. Similarly Oregon Health & Science University’s physician staff has grown to 1,061 representing a 13% increase since 2010.
The shift is being driven by three key factors and is a direct result of the Affordable Care Act and Oregon’s healthcare transformation initiative.
First, the growing complexity, higher costs and stagnant reimbursement rates make running a private practice more financially prohibitive. When Hoffman opened his practice in 1981, the office staff consisted of two physicians (Hoffman and his business partner), a nurse and an office manager. When he sold the practice, running the business required three front-office staffers, two billing representatives, three medical assistants and one RN representing an annual payroll of more than $250,000 with an additional $200K to cover provider salaries.
Oregon’s healthcare transformation requirement that all physicians implement an electronic health record system would have cost Hoffman an additional $35K out-of-pocket to install and almost $10K annually in hardware and software maintenance fees. Moribund reimbursement rates mean that revenue for seeing patients remains flat while cost of doing business has increased dramatically.
“Doctors have been pretty much frozen in Medicare rates since 1997,” laments Dr. Bud Pierce, a principal at the Hematology Oncology of Salem Clinic.
Second, the new Triple Aim model calls for tighter care coordination between physical, behavioral and dental healthcare providers, lower costs and greater focus on preventative care. The move to a more vertical approach and maximizing economies of scale favors larger health system employers such as multi-specialty practice groups and hospitals.
For hospitals, in particular, increasing the number of on-staff primary care practitioners promises to help make up for lost revenue as a result of cost-saving efficiencies and lower hospitalization rates. Of the 75-80 new physicians hired last year, Mullins said, the number of primary care providers vs. specialists represented a 3:1 ratio.
“As we make this transformation into population health, there’s less reliance on revenue from the hospital side and more emphasis on primary care side,” he notes.
And third, lifestyle choices among newly minted physicians and those who would prefer to focus on medicine instead of running a business contribute to the trend toward salaried employment. According to a recent Merritt Hawkins study, 61% of residents plan to pursue fully employed positions.
“Doctors are saying, I went into this profession to practice medicine, and now I’m having to be a contracting agent, a HR person, an IT person and a marketing person.
It’s not that they can’t do it. It’s just that they’re choosing not to do it,” says Dr. Mark O’Halleran, vice president of strategic outreach at Oregon Health & Science University.
Predictable hours and income, less time spent on administrative processes and lower risk are just some of the perceived benefits. Larger health system employers can often offer more lucrative salaries and loan repayment incentives, giving them the edge when it comes to recruiting the best and the brightest.
“Even with the income tax and federal loan repayment incentives for rural health practitioners, it was difficult for me to recruit new providers. I can’t think of a single time I didn’t have to pay a physician more than I was making,” says Hoffman.
For patients, larger multi-specialty practices and/or hospital-based care often translate to easier access to both primary and specialty healthcare services and can increase collaboration between doctors. As Gerry Ewing, director of corporate communications at Tuality Healthcare explains, “It’s easier to walk down the hall.”
But several doctors warn that there are significant downsides that shouldn’t be ignored. Larger organizations tend to be slow to innovate and are prone to bureaucracy and over-emphasis on quantitative “productivity” measurement that maximizes revenue.
Dr. Josh Reagan, a family physician, who worked in private practice and for a local federally qualified health center before joining Providence Medical Group notes, “There is significant potential for disconnect between large clinics and hospital-owned groups and primary care physicians. Top-down decision makers need to have an appreciation for not just the size of the patient panel, but the amount of time it takes to provide adequate care.”
Pam can be reached at
[email protected].
Jan 7 2015
