What’s next for the independent practice?
Is the independent physician practice a relic of the past, or a viable model for the future? It may depend on your perspective.
Two studies – one by the American Medical Association and the other by the Deloitte Center for Health Solutions – agree that hospital acquisition of physician practices is picking up. But whereas the AMA emphasizes the continuing strength of private practice medicine, Deloitte leans toward the inevitability of hospital ownership.
The AMA study shows that the percentage of physicians who were practice owners in 2012 decreased 8 percentage points from 2007-2008. But despite the increase in hospital employment, more than half of physicians (53.2 percent) remained self-employed in 2012, and 60 percent worked in practices wholly owned by physicians. Only 23 percent of physicians worked in practices that were at least partly owned by a hospital, and another 5.6 percent were directly employed by a hospital.
Meanwhile, the Deloitte Center for Health Solutions’ 2013 survey of U.S. physicians cites data showing that two pathways to hospital employment are trending upward: 1) acquisitions of medical groups (139 percent growth in deals from 2010-2011), which can lead to employment; and 2) direct employment (45 percent growth from 2000-2010). Sixty-six percent of respondents expect physician-hospital integration to increase in the next one to three years.
“Increasing physician-hospital employment is a hot topic in health care, even though it has been occurring in waves for the past 30 years,” according to the authors. This latest cycle is different, though, and is mainly a response to the structural changes taking place in the U.S. health care system, specifically:
- Delivery model transformation driven by the government and the Affordable Care Act.
- Physicians’ generational attitude shifts regarding work-life balance and loss of compensation due to reimbursement cuts.
Healthcare reform initiatives around avoidable readmissions, bundled payments, and value-based purchasing call for a closer and interdependent working relationship between hospitals and physicians, according to Deloitte. Hospitals depend upon physicians for care delivery and patient volumes, while a growing number of physicians depend upon hospitals for stable employment and income preservation.
Why it will work this time around
This time around, hospitals will be more successful in incorporating their newly acquired practices than they were 20 years ago, predicts Deloitte. They have to be.
“The 1990s wave of physician-hospital consolidation, driven by health plan capitation and the creation of integrated delivery systems, ended for many with divesture due to hospitals’ struggles to effectively incorporate physicians into their organizations,” according to the authors. The deals of 20 years ago were characterized by:
- Lack of integration. Newly combined organizations failed to align structure, governance, leadership, and care delivery models.
- Poorly structured compensation packages. Physicians were not always incentivized to meet organizational goals.
- Financial challenges. Many hospitals that acquired medical groups struggled with physician profitability.
- Regulatory complexities. Regulators increasingly targeted physician-hospital relationships for compliance with Stark and anti-kickback laws. (This is still happening, according to the authors.)
“There also was a general lack of understanding in the 1990s that the hospital enterprise and the physician practice enterprise operate under different business models (e.g., billing, staffing, revenue) and have some different regulatory requirements,” according to the study’s authors. “This time around, hospitals cannot afford to fail, because the need to integrate and the competition for essential physicians are heightened by the health care system’s overall transformation. Hospitals need to identify, employ, and align with the right physicians or risk being left behind.”
To read the AMA study, “Policy Research Perspectives: New Data On Physician Practice Arrangements: Private Practice Remains Strong Despite Shifts Toward Hospital Employment,” go to
To read the Deloitte Issue Brief, “Physician-hospital employment: This time it’s different,” go to
Sidebar: Acquisition trends
Medical groups are a growing acquisition target for hospitals and IDNs. Recent activity shows:
Medical group acquisition deals by all acquirers grew 32 percent from 2008-2012.
Medical group acquisition deals by hospitals and IDNs grew 139 percent from 2010-2011.
Hospitals and IDNs represented 51 percent of medical group acquirers in 2011.
Medical group acquisitions declined 37 percent from 4Q12 (19 deals) to 1Q13 (12 deals), although deals declined in all healthcare sectors during this traditionally slow M&A time period.
Source: Deloitte Center for Health Solutions