March 25, 2019

A Possible Shift Back to Private Practice?

By Christopher L. Graff, JD, CPA, CPBCA

A little over a decade ago, hospitals and other major healthcare players employed private practice physicians with the likely intention of capturing a greater market share of ancillary revenues and facility fees. Today, several indicators point to a potential swing back in the opposite direction, in which physicians may find greener pastures in private practice again.

Over the past decade, I have seen a decline in the lucrative extended contracts once offered by hospitals to lure independent physicians into hospital-controlled employee positions. Unlike the guaranteed salaries of as much as 40 percent over extended periods approaching 10 years, many of the local systems currently appear to be reducing employment offers closer to actual market rates and minimizing or eliminating guaranteed salaries. In fact, many employment agreements now include contractual language capping compensation at 90 percent of the industry standard Medical Group Management Association (MGMA) statistics. With fewer incentives, more physicians are at least considering defection or retirement from larger systems, with more and more of them seeking freestanding, fee-for-service, or concierge models.

Several changes in the healthcare industry appear to be driving this trend. Some insurance companies are financially incentivizing certain services, such as diagnostics, to control manageable costs like ancillary revenues and facility fees that typically exist in hospital systems, especially non-profits. This trend may well benefit lower-cost, free-standing non-hospital facilities, while providing less motivation for hospitals to continue to carry physician salaries on their payrolls without being able to control and capture diagnostic revenues and maintain facility fees. Additionally, recent rifts between insurance companies and some larger doctors’ networks have proven to be a boon for independent practices that can continue to accept those plans.

The push for integrated care models under the Affordable Care Act – as highlighted by Accountable Care Organizations – also has clashed with consumer struggles to find affordable health insurance plans. Increasingly, patients seem to be attracted to a fee-for-service or private concierge practice model, where they at least have an idea of the costs they will incur before receiving services and potentially have better access to care.

The government’s current general trend towards deregulation appears to be easing some of the red tape that had burdened and overwhelmed many smaller independent practices over the past decade, requiring additional employees to handle increased paperwork, privacy and information technology requirements – and then driving many practices to seek relief by turning over some responsibilities to larger partners.

Independent, private physicians also appear to be developing more methods to streamline their workloads and maximize profits. These strategies include automating patient scheduling systems, collecting day-of-service copayments and deductibles, and hiring more non-physician providers such as nurse practitioners and physician assistants to “keep the rooms full”.

Although very few healthcare prognosticators have a clear idea of changes we will see in healthcare in the near future, this particular shift may very well occur in a relatively short period of time, as the shift in the healthcare systems’ drive to purchase private practices over a decade ago was relatively abrupt.  Especially if you are a physician weighing your career options, you should take these indicators into consideration as you seek employment or look to build your own practice.

Christopher L. Graff is an attorney and a medical practice consultant and accountant with The Medical Management Consulting Group, Inc., a full-service consulting and accounting firm based in Virginia Beach.