Hospital and Group Practice Profit Motive Poses as Big a Threat as Insurers

May 28, 2021

Topics: Insurer Profit Motive

Recent Changes in Physician Practice Arrangements: Private Practice Dropped to Less Than 50 Percent of Physicians in 2020, AMA Economic and Health Policy Research, May 2021, By Carol K. Kane

“2020 was the first year in which less than half (49.1 percent) of patient care physicians worked in a private practice—a practice that was wholly owned by physicians. This marks a drop of almost 5 percentage points from 2018, when 54.0 percent of physicians worked in physician-owned practices, and a drop of 11 percentage points since 2012. In 2020, almost 40 percent of physicians worked directly for a hospital or for a practice at least partially owned by a hospital or health system.

The shift toward larger practice size, which has been ongoing for many years, also appears to have accelerated between 2018 and 2020. The percentage of physicians in practices with at least 50 physicians increased from 14.7 percent in 2018 to 17.2 percent in 2020.

Fifty percent of physicians were employed, 44.0 percent had an ownership stake in their practice, and 5.8 percent were independent contractors in 2020. The employee percentage was up from 47.4 percent in 2018 and 41.8 percent in 2012.”

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Comment by Steffie Woolhandler and David Himmelstein

The rapid shift from private practice to employment by large corporate organizations – a shift that’s even more marked among doctors under 40, 70% of whom were employees by 2020 – has important implications for health care reform. Insurers’ profit-seeking is the main threat to the clinical independence of doctors in private practice. But pressure from employers seeking to bolster their bottom line is an additional threat – sometimes the main one – for those whose paycheck comes from a hospital, health system, group practice or private equity firm. Private practitioners lose income if they offer free care to an uninsured patient, open their practice to Medicaid patients who bring scant reimbursement, or advise patients to hold off on undergoing a lucrative procedure. Employed doctors risk losing their jobs for repeated offenses against their organization’s profitability.

Hence, this latest AMA survey data highlights the importance of eliminating profit incentives that bend clinical priorities in both non-profit and for-profit health care institutions. For-profits should be banned, as Medicare used to do in its home care program. Non-profits should be paid global operating budgets and prohibited from retaining any surpluses or using the money not spent on patients for outrageous executive compensation or profit-based bonuses for employees.