Are Physician-Owned Large Groups Better Than Employment?

Large, physician-owned group practices are gaining ground as a popular form of practice, even as the number of physicians in solo and small practices declines, and employment maintains its appeal.

As physicians shift from owning private practices to employment in hospital systems, this countertrend is also taking place. Large group practices are growing in number, even as solo and small practices are in decline.

Do large, physician-owned groups bring benefits that beat employment? And how do large groups compare with smaller practices and new opportunities, such as private equity? You’ll find some answers here.

Working in Large Group Practices  

Large group practices with 50 or more physicians are enjoying a renaissance, even though physicians are still streaming into hospital systems. The share of physicians in large practices increased from 14.7% in 2018 to 17.2% in 2020, the largest two-year change for this group, according to the American Medical Association (AMA).

“Physicians expect that large groups will treat them better than hospitals do,” says Robert Pearl, MD, former CEO of Permanente Medical Group, the nation’s largest physicians’ group. 

Compared with hospitals, “doctors would prefer working in a group practice, if all other things are equal,” says Pearl, who is now a professor at Stanford University Medical School.

Large group practices can include both multispecialty groups and single specialty groups. Groups in specialties like urology, orthopedics, and oncology have been growing in recent years, according to Gregory Mertz, managing director of Physician Strategies Group in Virginia Beach, Virginia.

A group practice could also be an independent physicians association — a federation of small practices that share functions like negotiations with insurers and management. Physicians can also form larger groups for single purposes like running an accountable care organization.

Some large group practices can have a mix of partners and employees. In these groups, “some doctors either don’t want a partnership or aren’t offered one,” says Nathan Miller, CEO of The Medicus Firm, a physician recruitment company in Dallas, Texas. The AMA reports that about 10% of physicians are employees of large practices.

“Large groups like the Permanente Medical Group are not partnerships,” Pearl says. “They tend to be a corporation with a board of directors, and all the physicians are employees, but it’s a physician-led organization.”

Doctors in these groups can enjoy a great deal of control. While Permanente Medical Group is exclusively affiliated with Kaiser, which runs hospitals and an HMO, the group is an independent corporation run by its doctors, who are both shareholders and employees, Pearl says.

The Cleveland Clinic and Mayo Clinic are not medical groups in the strict sense of the word. They describe themselves as academic medical centers, but Pearl says, “Doctors have a tremendous amount of control there, particularly those in the most remunerative specialties.”

Pros of Large Groups 

Group practices are able to focus more on the physician participants’ needs and priorities, says Mertz. “In a hospital-based organization, physicians’ needs have to compete with the needs of the hospital,” Mertz says. “In a large group, it can be easier to get policies changed and order equipment.”

However, for many physicians, their primary reason for joining a large group is having negotiating leverage with health insurance plans, and this leverage seems even more important today. It typically results in higher reimbursements, which could translate into higher pay. The higher practice income, however, could be negated by higher administrative overhead, which is endemic in large organizations.

Mertz says large groups also have the resources to recruit new doctors. Small practices, in contrast, often decide not to grow. The practice would at first need to guarantee the salary of a new partner, which could require existing partners to take a pay cut, which they often don’t want to do. “They’ll decide to ride the practice into the ground,” which means closing it down when they retire, he says.

Cons of Large Groups

One individual doctor may have relatively little input in decision-making in a large group, and strong leadership may be lacking. One study examining the pros and cons of large group practices found that lack of physician cooperation, investment, and leadership were the most frequently cited barriers in large groups

Physicians in large groups can also divide into competing factions. Mertz says rifts are more likely to take place in multispecialty groups, where higher-reimbursed proceduralists resent having to financially support lower-reimbursed primary care physicians. But it’s rare that such rifts actually break up the practice, he says.

Private Practice vs Employment

Even as more physicians enter large groups, physicians continue to flee private practice in general. In 2020, the AMA found that the number of physicians in private practices had dropped nearly 5 percentage points since 2018, the largest two-year drop recorded by the AMA.

The hardest hit are small groups of 10 physicians or fewer, once the backbone of US medicine. A 2020 survey found that 53.7% of physicians still work in small practices of 10 or fewer physicians, compared with 61.4% in 2012.

Private practices tend to be partnerships, but younger physicians, for their part, often don’t want to become a partner. In a 2016 survey, only 22% of medical residents surveyed said they anticipate owning a stake in a practice someday.

What’s Good About Private Practice?

The obvious advantage of private practice is having control. Physician-owners can choose staff, oversee finances, and decide on the direction the practice should take. They don’t have to worry about being fired, because the partnership agreement virtually guarantees each doctor’s place in the group.

The atmosphere in a small practice is often more relaxed. “Private practices tend to offer a family-like environment,” Miller says. Owners of small practices tend to have lower burnout than large practices, a 2018 study found.

Unlike hospital-employed doctors, private practitioners get to keep their ancillary income. “Physicians own the equipment and receive income generated from ancillary services, not just professional fees,” says Miller.

What’s Negative About Private Practice?

Since small groups have little negotiating power with private payers, they can’t get favorable reimbursement rates. And while partners are protected from being fired, the practice could still go bankrupt.

Running a private practice means putting on an entrepreneurial hat. To develop a strong practice, you need to learn about marketing, finance, IT, contract negotiations, and facility management. “Most young doctors have no interest in this work,” Mertz says.

Value-based contracting has added another disadvantage for small practices. “It can be harder for small, independent groups to compete,” says Mike Belkin, JD, a divisional vice president at Merritt Hawkins, a physician recruitment company based in Dallas, Texas. “They don’t have the data and integration of services that are necessary for this.”

Employment in Hospital Systems

More than one third of all physicians worked for hospitals in 2018, and hospitals’ share has been growing since then. In 2020, for the first time, the AMA found that more than half of all physicians were employed, and employment is mainly a hospital phenomenon.

The trend shows no signs of stopping. In 2019 and 2020, hospitals and other corporate entities acquired 20,900 physician practices, representing 29,800 doctors. “This trend that will continue,” Pearl says. “The bigger will get bigger. It’s all about market control. Everyone wants to be wider, more vertical, and more powerful.”

Pros of Hospital Employment 

“The advantages of hospital employment are mostly financial,” Mertz says. Unlike a private practice, “there’s no financial risk to hospital employment because you don’t own it. You won’t be on the tab for any losses.”

“Hospitals usually offer a highly competitive salary with less emphasis on production than in a private practice,” he says. New physicians are typically paid a guaranteed salary in the first 1 to 3 years of employment.

“You don’t have any management responsibilities, as you would in a practice,” Mertz says. “The hospital has a professional management team to handle the business side. Most young doctors have no interest in this work.”

“Employed physicians have a built-in referral network at a hospital,” Miller says. This is especially an advantage for new physicians, who don’t yet have a referral network of their own.”

Cons of Hospital Employment

Physicians employed by a hospital lack control. “You don’t decide the hours you work, the schedules you follow, and the physical facility you work in, and, for the most part, you don’t pick your staff,” Mertz says.

Like any big organization, hospitals are bureaucratic. “If you want to purchase a new piece of equipment, your request goes up the chain of command,” Mertz says. “Your purchase has to fit into the budget.” (This can be the case with large groups, too.)

Many employed doctors chafe under this lack of control. In an earlier Medscape survey, 45% of employed respondents didn’t like having limited influence in decision-making and 32% said they had less control over their work or schedule.

It’s no wonder that a large percentage of physicians would rather work in practices than hospitals. According to a 2021 Medicus Firm survey, 23% of physicians are interested in working in hospitals, while 40% would rather work either in multispecialty or single-specialty groups, Miller reports.

Doctors Have Differing Views of Hospital Employment

New physicians are apt to dismiss any negatives about hospitals. “Lack of autonomy often matters less to younger physicians, who were trained in team-based models,” Belkin says.

Many young doctors actually like working in a large organization. “Young doctors out of residency are used to have everything at their fingertips ­— labs and testing is in-house,” Mertz says.

On the other hand, doctors who were previously self-employed — a group that makes up almost one third of all hospital-employed doctors — can often be dissatisfied with employment. In a 2014 Medscape survey, 26% of previously self-employed doctors said job satisfaction had not improved with employment.

Mertz says these doctors remember what it was like to be in charge of a practice. “If you once owned a practice, you can always compare what’s going on now with that experience, and that can make you frustrated.”

Hospitals Have Higher Turnover

It’s much easier to leave an organization when you don’t have an ownership stake. The annual physician turnover rate at hospitals is 28%, compared with 7% at medical groups, according to a 2019 report.

Belkin says changing jobs has become a way of life for many doctors. Staying at a job for only a few years is no longer a red flag,” he says. “Physicians are exploring different options. They might try group practice and switch to hospitals or vice versa.”

Physicians are now part of a high-turnover culture: Once in a new job, many are already thinking about the next one. A 2018 survey found that 46% of doctors planned to leave their position within 3 years.

Private Equity Ownership of Practice

Selling majority control of your practice to a private equity firm is a relatively new phenomenon and accounts for a small share of physicians — just 4% in 2020. This trend was originally limited to certain specialties, such as anesthesiology, emergency medicine, and dermatology, but now many others are courted.

The deals work like this: Physicians sell majority control of their practice to investors in return for shares in the private equity practice, and they become employees of that practice. The private equity firm then adds more physicians to the practice and invests in infrastructure with the intention of selling the practice at a large profit, which is then shared with the original physicians.

Pros of Private Equity

The original owners of the practice stand to make a substantial profit if they are willing to wait several years for the practice to be built up and sold. “If they are patient, they could earn a bonanza,” Belkin says.

Private equity investment helps the practice expand. “It’s an alternative to going to the bank and borrowing money,” Mertz says.

Cons of Private Equity

Physicians lose control of their practice. A client of Mertz’s briefly considered a private equity offer and turned it down. “The private equity firm would have veto power over what the doctors wanted to do,” he says.

Belkin says the selling physicians typically lose income after the sale. “Money they earned from ancillary services now goes to the practice,” Belkin says. The selling doctors could potentially take up to a 30% cut in their compensation, according to Coker Capital Advisors.

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