Physician Employment: How Hospitals Hire Doctors

The landscape of physician employment is changing, with an increasing number of physicians becoming employees of hospitals, health systems, and corporate entities. This shift has been accelerated by the COVID-19 pandemic, with many independent physicians choosing to sell their practices to hospitals or other corporate entities due to financial uncertainty and burnout. As of 2024, around 74% of physicians are employed by hospitals, health systems, or corporate entities, with a steady increase observed from 62.2% in January 2019. This shift has raised concerns about the impact on the patient-physician relationship and clinical autonomy, as well as the potential conflict between ethical responsibilities to patients and fiduciary responsibilities to shareholders. Hospitals employing physicians face challenges related to financial losses and physician satisfaction, which they aim to address through various strategies, including governance structures and compensation models.

Physician burnout and strain

The healthcare industry has seen a shift in the employment of physicians, with an increasing number being employed by hospitals, health systems, and corporate entities. This shift has been accelerated by the COVID-19 pandemic, with physicians leaving independent private practices to join larger organizations. As of 2024, nearly 80% of physicians are employed by these entities, with more than 44,000 practices acquired between 2019 and 2024. This shift has raised concerns about the impact of corporate influence on medical practices and patient care.

Research has shown that the prevalence of physician burnout is significantly higher than in the general working population, with rates reaching up to 50% in some studies. The COVID-19 pandemic further exacerbated this issue, with record levels of burnout reported during and after the pandemic. Factors contributing to physician burnout include system inefficiencies, administrative burdens, increased regulations, and technology requirements, such as the implementation of electronic health records (EHRs).

The impact of physician burnout extends beyond the individual. Burned-out doctors are more likely to leave practice, reducing patients' access to care. Additionally, burnout can negatively affect patient safety and care quality due to impaired attention, memory, and executive function in physicians. The financial implications are also significant, with increased physician turnover and reduced clinical productivity resulting in substantial costs for healthcare organizations.

To address physician burnout, organizations can take several steps. These include establishing a well-being committee, conducting burnout surveys, and implementing interventions tailored to the specific needs of the organization and its physicians. Creating a physician-centered culture, improving governance structures, and aligning compensation with business goals can also help reduce burnout and improve financial outcomes. By recognizing the systemic nature of burnout and taking proactive measures, healthcare organizations can improve physician well-being and enhance the quality of patient care.

Corporate acquisition of physician practices

According to a report, between January 2019 and January 2024, more than 44,000 practices were acquired, with a significant acceleration in acquisitions from 2022 to 2023. As of January 1, 2024, approximately 30.1% of physician practices were owned by corporations, payers, private equity firms, and large pharmacy chains, surpassing the 28.4% owned by hospitals and health systems. This shift has raised concerns about the potential impact on medical care, as corporate entities prioritize profits over patient health.

The acquisition of physician practices by corporations has led to a change in the landscape of medicine in the United States. With corporate entities assuming control, there are concerns about the ethical responsibilities of physicians being compromised. While physicians have a duty to prioritize patient health, corporate entities are motivated by financial gains and shareholder interests. This conflict of interest has sparked discussions about the potential impact on the quality of care provided to patients.

To address the challenges posed by corporate acquisition, health systems must proactively develop strategies. These strategies should focus on improving the day-to-day practice environment, reducing administrative burdens, and addressing physician burnout. Additionally, strengthening the relationship between hospitals, health systems, and physicians is crucial, ensuring that physicians have a voice in decision-making processes. Developing alignment models, such as clinically integrated networks, can enhance physician revenue and support their ability to adapt to new care models.

Furthermore, health systems can retain and attract physicians by offering student loan relief, providing opportunities for professional growth, and fostering a culture of engagement and ownership. By empowering physicians and valuing their contributions, health systems can create a competitive advantage and mitigate the impact of corporate acquisition on the physician workforce.

Physician compensation

The traditional model of physician compensation involves a straight salary, where physicians receive a set wage for performing their job responsibilities. This model offers security and is often preferred by physicians starting their careers as it provides financial stability while dealing with student debt, living expenses, and malpractice insurance premiums. However, it may discourage physicians from advancing their skills or participating in practice growth initiatives.

Another model is the salary-plus-bonus or salary-plus-incentive structure, which is one of the most common compensation methods according to the American Medical Association. This model includes additional bonuses or incentives for physicians who meet or exceed performance and productivity targets, providing financial incentives for good performance. The incentive structure can be designed in various ways, such as offering a certain bonus amount based on billing targets or providing a monthly stipend that decreases as the physician's income increases.

The production-based or fee-for-service (FFS) compensation model pays physicians a percentage of their billings or collections. This model motivates physicians to increase patient loads and rewards highly productive doctors. However, it may also lead to concerns about unnecessary services being ordered to boost income. The FFS model also includes the resource-based relative value scale (RBRVS), which assigns different units to certain procedures or patient visits.

Impact of Hospital Employment on Physician Compensation:

The shift towards hospital employment has had varying effects on physician compensation. While joining larger systems may be associated with increased compensation, there is uncertainty about the impact of vertical integration on physician income. Hospital market power increases can lead to reduced wages for employees, and vertical integration may result in monopsony markets, depressing worker compensation. However, physicians in larger systems may be able to negotiate higher reimbursement rates, and markets with concentrated physician labor markets have shown higher earnings.

Hospitals can reduce financial losses by replicating the productivity-based compensation model of private practices and giving physicians meaningful control over medical practice decisions. Creating an environment where physicians feel valued and engaged can also contribute to better financial performance.

Physician-owned practices vs. hospital-owned practices

The number of physicians employed by hospitals, health systems, and corporate entities is increasing. An Avalere study sponsored by the Physicians Advocacy Institute found that over 77% of U.S. physicians are employed by these entities, with a 5.1% increase in physician employment from 2022 to 2023. This shift may be attributed to the consolidation in healthcare, with hospitals and corporations aggressively acquiring physician practices, and physicians seeking relief from the administrative burden of operating a private practice.

However, this trend raises concerns about the potential conflict between ethical responsibility to patients' health and corporate entities' fiduciary responsibility to their shareholders, which may motivate them to prioritize profits. Additionally, physician-owned practices argue that they can provide higher quality care and retain the ability to make decisions in the best interest of their patients. They also offer advantages such as direct access to specialists without referrals, specialized care, and cost savings through efficiencies.

In contrast, hospital-owned practices offer a different dynamic, and hospitals can take steps to make their employed physicians feel valued and engaged. Replicating the multispecialty group model, where physicians define the strategic vision and make key decisions, can drive high performance and reduce financial losses. Additionally, giving physicians meaningful control and establishing a physician-led governance board can improve financial results and create a culture of ownership.

While physician-owned practices offer benefits such as specialized care and quick adoption of the latest research, hospital-owned practices can also create a positive environment by providing physicians with a sense of ownership and involvement in decision-making. Both models have advantages, but the primary concern is ensuring that patient health remains the top priority while managing the financial aspects of healthcare delivery.

Physician employment trends

The overall employment of physicians is projected to grow by 4% from 2023 to 2033, with about 23,600 openings projected annually over the decade. This growth is expected to result from the need to replace workers who transfer to different occupations or exit the workforce.

In recent years, there has been a notable shift in physician employment trends, with an increasing number of physicians being employed by hospitals, health systems, and corporate entities. As of 2024, nearly 80% of physicians are employed by hospitals or other corporate entities, marking a significant decline in independent physician practices. This trend has been particularly prominent in the Midwest and the South, with overall physician practice acquisitions growing fastest in the Northeast.

The COVID-19 pandemic accelerated this shift, as revenue disruptions during the early stages of the pandemic drove physicians towards employers for stable income. From 2022 to 2023, the percentage of employed physicians grew by 5.1%, with 19,100 physicians becoming employees of hospitals or corporate entities. During the same period, more than 44,000 practices were acquired, with 58.5% owned by non-physicians as of January 1, 2024.

While this trend has led to greater consolidation in healthcare, it has also raised concerns about the impact on patient care. Critics argue that corporate entities prioritize profits over patients' health, potentially leading to conflicts of interest. Additionally, hospitals face financial losses on employed physicians due to factors such as supply and demand, with physician compensation driving up costs. To mitigate these losses, hospitals can adopt a multispecialty group model, establish a physician-centered culture, and align physician compensation with business goals.

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