The Truven Health Blog

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Three Reasons Why Doctors are Choosing Employment Over Independence

By Truven Staff
Mike Taylor imageA recent commentary notes the shifting of doctors from self-employment to being employed by a heath system. Fully 60% of pediatricians and family medicine physicians are now employed, with 50% of surgeons employed. The number is expected to rise to nearly 75% over the next several years. What is driving that trend? There are at least three compelling answers: debt level, work-life balance, and the hospital’s need to develop market share and control referral patterns.

A recent report states the average medical school student graduates with a debt of nearly $280,000. In 1978, the average debt was $13,000. The student may also have debt obligations from college. Newly trained physicians with that staggering level of debt often don’t want to incur more debt by starting a private practice. The average annual salary of a family medicine provider is $224,000, but for newly trained physicians in private practice, initial revenues are much lower, and it may take several years to get to the average level. Add a home and car mortgage, as well as other personal expenses, and it becomes clear why it’s becoming impossible to absorb the start up costs of a medical practice, which often run as high as $100,000 for a solo practice. By working for a hospital or health system, physicians can avoid all the office costs and the professional liability insurance, while knowing they have a guaranteed salary.

I believe a strong second reason physicians are choosing employment rather than independent practice relates to the difference in lifestyle and work life balance. Most newly trained physicians were born after 1980, and the prospect of managing an outpatient practice and hospitalized patients 24/7 is just not appealing for many of these younger physicians. Working as an employee in a healthcare system that provides a guaranteed salary, utilizes hospitalists, and covers all practice-related expenses is too compelling to turn down. Young physicians also find having personal time off from work very important.

A third reason is the changing market itself. As the country moves away from a fee-for-service payment model to a value-based system, hospitals are moving into risk contracting or capitated payments. The best strategy for hospitals and health systems is to exert more control over the markets in which they serve. By employing physicians, hospitals can transfer office-based services into their own outpatient labs and radiology suites. Hospitals with employed physicians can more effectively direct patient admission choices. As Accountable Care Organizations (ACOs) mature, they will assume financial responsibility across the entire care continuum, from outpatient services to admissions, rehabilitation and long-term care. ACOs will drive the need for more efficient care with less wasteful spending. Hospitals can drive that efficiency with smart IT investments, treatment guidelines and care coordination. This can be done without employing physicians, but it’s more efficient to employ physicians and have them be a part of the process. To fully support care, a newer trend is for hospitals to employ specialists in addition to primary care physicians.

One potential advantage of employing physicians is the opportunity to reduce the variation in medical care that is rampant in the U.S. today. Reducing variation should improve the quality of care and reduce costs by avoiding wasteful and unneeded treatments that may be costing the U.S. up to 30% of the total medical spend. Aligning physicians and hospitals to the triple aim – better care for individuals, better care for the population, and slowing medical inflation is best accomplished in an organized approach – and individually owned practices are less likely to deliver on that promise.

Michael L. Taylor, MD, FACP
Chief Medical Officer