When Private Practice Physicians Become Hospital Employees

During his residency in emergency medicine for the Medical College of Pennsylvania back in the early 1980s, Richard MacKenzie, M.D., got a piece of memorable advice from his mentor on the topic of physician independence. "He told me to just give it up. He said, 'you'll always work for the man; it's just a question of who the man is.' Physicians are never totally independent. Even in private practice, you have to follow the rules of the federal government or you won't be in practice long. For most traditional group practices, independence is more of a mindset than a financial benefit."

MacKenzie is now ensconced in his role as a physician employed by the Lehigh Valley Physicians Group. He serves as senior vice chair of operations for the emergency department, which handles some 150,000 annual visits. The Allentown, Pa.-based group practice consists of some 500 physicians and, in theory at least, maintains an arm's length distance from Lehigh Valley Health Network, its three-hospital, 900-bed corporate partner. But in reality, "the group supports the mission of the health network. We have shared governance. On paper, it is a separate ownership. In reality, it's their group." Physicians are not contractually obligated to admit solely to Lehigh Valley, but the opportunities to work with competing hospitals are few, MacKenzie says. "As physicians get bought up, and allegiances form, there is no longer an opportunity to work at a competing hospital. If a doctor is bought up by Lehigh Valley, they declare themselves as a Lehigh Valley physician."

MacKenzie's got plenty of company industry-wide. During the last few years, physicians have been abandoning their once-cherished role as independent practice owners and opting for employment with medical groups owned by hospital-based health systems. At the dawn of the century, nearly 60 percent of the nation's physicians were independent, according to research by Accenture. Entering 2013, that figure had dwindled to just over 36 percent and the trend continued to accelerate even as the number of physicians increases overall.

Several factors are converging to entice physicians to trade their independence for W-2s. They have plenty of buyers, as health systems are seeking to expand their employed physician base-once the domain of a small group of hospitalists. Health systems are seeking to expand their market, if not shore up their referral base. And faced with the demise of fee-for-service reimbursement, they want tighter alignment with physicians than afforded by the conventional medical staff model.

Common information systems also are part of the new mix. Physicians are seeking to sell for similar reasons. In addition to reimbursement cuts, they face mounting practice management overhead-not the least of which is I.T. infrastructure which the government has for all intents mandated with its meaningful use program.

But the risks to both buyer and seller are considerable. I.T. figures prominently in the industry makeover, but it is also a potential landmine waiting to be stepped on. For that reason some observers have declared the death of the private practice-but others are not so sure.

Learn more in Gary Baldwin’s cover story, “A Risky Transition,” in the March issue of Health Data Management.