The Rebirth of Private Practice Physicians: Understanding Trends in Physician Employment

Is there such a thing anymore as private practice physicians?

Yes, of course. But they’re becoming a rare breed.

Physician employment is becoming more corporatized. Whether this is a good thing or a bad thing is up to your interpretation. However, to form a solid opinion on the matter, it’s important first to understand the trends.

In this report, I’ll highlight the history of physician employment, reveal the current trends, dive into the corporatization of American healthcare, and discuss if we can revive the “private practice physician.”

In the early 20th century, physicians commonly operated solo practices, forming deep personal connections with their patients.

Can you believe that?

These small, independent offices were the cornerstone of healthcare, where doctors intimately knew each patient's history. Home visits were a significant part of care delivery—physicians often visited patients in their homes, carrying a satchel of exam tools and medications. This personalized approach allowed them to evaluate and treat patients in the comfort of their own homes, fostering a strong doctor-patient relationship.

Fast forward a couple of decades to the 1970s and 80s, when we saw the rise of Health Maintenance Organizations (HMOs). HMOs introduced a more organized and preventative approach to healthcare, emphasizing cost control and efficiency (two words we hear frequently). This period began a trend where physicians started joining group practices and larger healthcare organizations. The promise of shared resources, reduced administrative burdens, and a collaborative work environment made group practices increasingly attractive.

We then arrive at the 1990s and 2000s, when we see the emergence of Physician Practice Management Companies (PPMs or PPMCs), which played a role similar to that of private equity firms today. These companies acquired and managed multiple physician practices, offering administrative support and economies of scale. While this allowed physicians to focus more on patient care, it also marked a step towards the corporatization of medical practice.

PPMCs would roll up practices, integrating them into larger organizational structures and streamlining operations, much like the consolidation strategies employed by private equity firms in recent years. However, PPMCs often faced significant challenges, including financial instability and operational inefficiencies, ultimately leading to a wave of closures and bankruptcies.

Around the same time in the 1990s and early 2000s, hospital employment became a prominent trend, with many physicians opting to become employees of larger health systems. This move was driven by the allure of stable salaries, benefits, and improved work-life balance.

This period essentially solidified the move away from independent practice, setting the stage for the corporatization of healthcare we see today.

Hospital and corporate physician employment is approaching 80%, increasing by 25% between January 2019 and January 2024. In other words, nearly eight in ten physicians now work for a hospital, health system, or corporate entity such as an insurer, retailer, or private equity firm.

Source: PAI-Avalere Report on Physician Employment Trends and Acquisitions of Medical Practices:  2019-2023

Breaking it down further, 55% of physicians were employed by hospitals or health systems in January 2024, up approximately 20% from January 2019. Similarly, around 23% of physicians were employed by a corporate entity in January 2024, marking a nearly 50% increase from January 2019. Yes, you read that right—50%.

This trend isn’t just about physicians leaving their practices to join larger organizations. While that’s part of the story, a significant factor is the rapid acquisition of physician groups.

Source: PAI-Avalere Report on Physician Employment Trends and Acquisitions of Medical Practices:  2019-2023

A relatively recent report by the AMA, showed significant employment trends related to age and specialty among physicians.

First, younger physicians were increasingly less likely to be practice owners than their older counterparts. In 2012, ~45% of physicians under 45 were owners, but by 2022, this percentage had dropped to ~32%. In contrast, ~50% of physicians aged 55 and over were owners in 2022.

Specialty-wise, surgical subspecialists had the highest percentage of private practice ownership at around 63%, followed by Obstetricians/gynecologists, anesthesiologists, and radiologists.

Source: AMA Physician Practice Benchmark Survey

If you’ve been reading my Inefficiency Insights newsletter, you know I like a good root cause analysis, so let me quickly perform one for you right now.

Problem: A vast majority of physicians are employed by a hospital/health system or corporate entity, which has become more prominent over the past couple of years.

The root cause is further confirmed by the AMA study I cited above, which surveyed physicians, asking them why they sold their practice to a hospital.

Source: AMA Physician Practice Benchmark Survey

Below, I list the top three physician employers. It shouldn’t surprise you.

The catalyst of the corporatization of American healthcare was the pandemic. If you look at any of the trend graphs, you clearly see the tipping point. But what’s the substrate? Sorry, bringing in my chemistry background.

The substrate is relaxed corporate practice of medicine laws. Essentially, each state has Corporate Practice of Medicine Laws designed to prevent non-licensed individuals from owning or controlling medical practices. The strictness of these laws varies by state. Some states prohibit non-physician-owned corporations from owning medical practices, while others only prohibit the unlicensed practice of medicine.

Corporations typically use two models to comply with these laws:

These models allow private equity firms and retailers like CVS Health, Walmart, and Amazon to operate medical services within legal frameworks while maintaining control over business operations.

However, California is moving to make the corporate practice of medicine more difficult. A pending bill would impose stricter regulations on the friendly PC model, which could hinder corporate entities from investing in and managing healthcare practices.

Exactly two years ago (when this article was published), I wrote about The Death and Life of the Private Practice Physician. It was a short article. I mentioned how few medical graduates are starting their own practices or joining other private practices, evidenced by the above data I shared. However, I discussed the pendulum of private practice vs. employed physicians.

I think the entity-employed physician trend may be on a pendulum. Right now, we’ve swung all the way to the right, where a supermajority of physicians are now employed by some other entity. I predict in the next couple of decades, we’ll see the pendulum swing back to the left as physicians crave the autonomy they once had, or want to experience it for the first time.

What will be the catalyst?

However, a catalyst is nothing without the right conditions to enable the reaction. Again, sorry for bringing in chemistry. The necessary conditions will include policies that favor the private practice physician. This means CMS increasing outpatient reimbursements, increased scrutiny of corporations running physician practices, and physician loan forgiveness for those starting independent practices.

Additionally, one significant gap in medical education is training on the business side of healthcare. How would we promote the independent physician when medical students know little about how physicians are even paid!? Incorporating education on physician compensation and practice management may encourage more medical students and residents to consider private practice. This is one of the reasons I started Healthcare Huddle—to teach physicians about the business side of healthcare.

The landscape of physician employment has undergone a profound transformation over the past century, moving from predominantly solo practices to a landscape dominated by corporate and hospital employment. This shift, significantly accelerated by the financial pressures of the Covid-19 pandemic, has seen nearly 80% of physicians employed by large entities. While the corporatization of healthcare offers stability and administrative ease, it raises concerns about autonomy and the quality of patient care.

However, there’s a growing movement toward reviving private practices, driven by the desire for independence, technological advancements, and potential financial incentives. Achieving this resurgence will require supportive policies and a reformed medical education that equips future physicians with the business acumen necessary to thrive independently. The balance between corporate control and physician autonomy remains a critical discussion in shaping the future of American healthcare.

A version of this article was first seen on Healthcare Huddle.