Private practice vs. hospital employee: Where we are today and why

Practice Management

This article is a portion of a book titled "Challenges, Risks and Opportunities in Today's Spine World " edited by Stephen Hochschuler, MD, Frank Phillips, MD, and Richard Fessler, MD. You can find links to the previous chapters at the end of this article.


Whether a physician chooses to enter into private practice or to be employed by a hospital is not only one of the most important decisions a graduating resident will make, it is also a decision which will continuously re-present itself throughout one’s career.

The Physicians Foundation Survey reported that the number of physicians self-identifying as independent decreased from 48 % in 2012 to 32 % in 2016. Similarly, the number identifying as being employees of either a hospital or large medical group increased from 41 % in 2012 to 57 % in 2016. These percentages varied by subspecialty, state and age.

For each individual there are many factors to be considered in evaluating the benefits of each pathway. Factors cited as benefits of owning one’s own practice include autonomy, ease of decision making, possibly increased income, and the comfort of being one’s own boss. There is freedom to make one’s work schedule and style of practice. On the other hand, this comes with significant cost. Running a “small business” requires the owner wear many hats. You are responsible for hiring and firing employees, accounting, supplies, negotiating with vendors, workers compensation and insurance agencies, ownership vs rental decisions, facility maintenance, payroll, and even cleaning and lawn care. In addition, due to the MACRA regulations of the ACA, you have the additional expenses incurred from the electronic medical record, such as purchase of hardware and software, IT support, creating protocols and standing orders, not to mention keeping up with frequently changing compliance issues. These factors as well as the desire for a better work/life balance, increasing debt load, payment uncertainty, Medicare cuts to office-based imaging services, increased documentation requirements from the ACA such as “meaningful use” provisions have all contributed to a shift toward employment rather than practice ownership.

On the hospital side, there are many incentives which contribute to this shift. These include uncertainty in the future of the health care market, the desire to “lock up” referrals and market share, continuously decreasing reimbursement, frustration at negotiating with multiple private practices or groups, and the desire to provide a unified quality of care in an environment of reimbursement based on quality rather than quantity of care. The theory is that by employing physicians, and controlling the delivery of care, hospitals would be able to negotiate better reimbursement rates from insurers, control clinical volume, better position their organization for value-based payments, and perform more efficiently under capitated contracts.

It turns out, however, that many of these theories and considerations are not exactly true. For example, some hospitals report losing an average of $196,000 per employed physician. 58 % reported losing at least $100,000 per employee. Much of this, however, is made up on downstream revenue. In addition to salary, other factors which contribute to this loss include employee benefits, insurance, unemployment compensation, retirement, and the cost of compliance with regulations imposed by the ADA, FMLA, Title VII, and ADEA. Additional legal requirements introduced by employing physicians which must be negotiated by the hospital, and which add to the cost, include professional liability insurance, collecting federal and state taxes, specifying duration of employment, hospital privileges, harassment and discrimination policies, circumstances of termination, tail insurance, confidentiality, and non-compete clauses.

Clearly, the decision between private practice and hospital employment is quite complicated for both the individual physician and the hospital or large medical group. If a physician does choose to enter into practice, there are options, which can help. One recent development is the move toward “concierge” medicine. States such as Wyoming have seen as many as 38 % of its physicians choose this route. An alternative is to find a partner to lessen the administrative burden. An association between the Tennessee Medical Association and BCBS to provide supportive services is one example of this. Perhaps due to options such as these, the trend toward hospital employment seems to have leveled off over the last few years.

Previous chapters:

Challenges, risks and opportunities in today's spine world

Spine care - Balancing cost with innovation

What are big data and predictive analytics

Predictive Analytics and Machine Learning

The HSS Spine Care Model, Part 1

The HSS Spine Care Model, Part 2

The Rothman Model, Part 1

The Rothman Model, Part 2

The History of Texas Back Institute

Texas Back Institute, Part 2

Copyright © 2023 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.


Featured Webinars

Featured Podcast

Featured Whitepapers