5 Factors Spurring Physician Employment
By: Ben Ulrich, AVA
As physicians continue to weigh the benefits and drawbacks of independent ownership and hospital
employment, changes in the healthcare industry are gradually pushing physicians toward alignment with health
systems. Data from the American Hospital Association has indicated that the number of physicians employed by
hospitals has increased 34% from 2000 to 2010 and approximately 25% of all physicians are employed by
hospitals. There are 5 key market trends that would suggest those numbers will continue to climb over the next
few years.
1. Reimbursement Risk – The Center for Medicare and Medicaid Services has projected a 27% cut in
Medicare payment rates for 2013. The proposed cuts will be particularly directed towards radiation
therapy, radiation oncology, radiology, and cardiology. Given this trend and the sharp rise in the
uninsured population, physicians are seeking hospital employment as a means of mitigating any
potential declines in future income.
2. Healthcare Reform Challenges – The onset of healthcare reform has fundamentally changed the
payment industry that physicians are accustomed to. The shift toward bundled payments, accountable
care and independent healthcare delivery models all require physicians to make larger investments in
practice infrastructure (ex. EMR systems). Although there are mandates within the proposed legislation
that are designed to assist physicians with these investments, they are still expected to incur significant
costs that could be avoided through hospital employment.
3. Practice Expense Risk – Physicians who own their own practices have the responsibility of incurring,
monitoring, and maintaining the business. The tasks of ensuring that fixed costs do not drown the
business and any variable expenses fluctuate appropriately can be burdensome. Lags in receivable
timing and soaring malpractice premiums are headaches hospital-employed physicians can avoid.
4. Financial Stability – Many physicians coming out of residency are saddled with large amounts of medical
school debt. Newer physicians are being increasingly lured by the attractiveness of guaranteed income.
The risk in owning your own practice is that it takes time to ramp up patient volume and develop the
business. Additionally, the uncertain nature of future earnings is a vital drawback to physicians needing
income immediately.
5. Work-Life Balance – Physicians within medical practices have the responsibility of driving earnings and
developing a business infrastructure. The increased administrative time necessary to direct and maintain
a practice can be taxing. Typical employment agreements include mandated hours and may even
compensate physicians for any administrative work. It’s much easier for a physician under an
employment setting to connect compensation with actual hours worked.
While these factors may influence physicians to seek hospital employment, hospital employment could also
have drawbacks for physicians. Losing autonomy over the direction and growth of your practice along with
having less control over future earnings can be particularly discouraging. With these 5 trends in mind, it will be
interesting to see how the industry will react over the next few years as newly employed physicians are
approached in renewing their employment agreements.
Sources:
Medscape Medical News. “Number of Physicians Employed by Hospitals Snowballing.” January 24, 2012
http://www.medscape.com/viewarticle/757386.
Center for Medicare & Medicaid Services
The Kaiser Commission on Medicaid and the Uninsured. “The Uninsured A Primer” October 2011.
http://www.kff.org/uninsured/upload/7451-07.pdf.
MGMA Physician Compensation & Production Survey: 2012 Report Based on 2011 Data.