Number of Independent Physician Practices Continues to Decline, House Committee Told

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Financial pressures linked to falling Medicare and Medicaid and private health plan reimbursement and rising costs are causing many physicians in private practice to move to hospital-owned practices, witnesses told the House Small Business Committee July 19.

“Continued cuts in Medicare reimbursement, combined with increasing overhead costs, increased regulation, unfunded mandates, and an uncertain, cloudy future are making it difficult for practices to remain viable,” Missouri cardiologist Jerry D. Kennett told the committee at a hearing on the future of small and solo physician practices.

Mark Smith, president of the physician search and consulting firm Merritt Hawkins, cited five reasons why small physician practices are going out of business or being absorbed by hospitals:

• flat or declining reimbursement;

• growing regulatory and administrative paperwork;

• malpractice insurance costs;

• implementation of health information technology; and

• effects of the health care reform law, most notably the rise of accountable care organizations.


For the year ending March 2012, 63 percent of Merritt Hawkins's physician search assignments featured hospital employment of the physician, up from 56 percent the previous year and 11 percent in 2004, Smith testified.

“If this trend continues, we project that in two years, 75 percent of all newly hired physicians will be hospital employees,” he said. “In short, no one wants to be Marcus Welby anymore,” he added, referring to the folksy family practitioner in the television show that ran from 1969 to 1976.

Inadequate Reimbursement.

Smith said Merritt Hawkins surveys have found that 68 percent of physicians say Medicaid pays them less than their cost of doing business, while 43 percent say some health maintenance organizations and preferred provider organizations pay them less than their costs.

More than 36 percent of physicians surveyed said Medicare does not pay enough to cover their costs, he added.

Others testified that continued short-term fixes by Congress to Medicare's physician payment system also are causing financial uncertainty for physicians in solo or small group practices. Physicians' Medicare reimbursement will be cut about 30 percent in 2013 unless Congress intervenes.

The lack of adequate reimbursement makes it difficult for small practices to keep their doors open and makes employment at a hospital-based practice more attractive, Smith told the committee.

“Employment by a hospital, medical group or other entity provides physicians with the security of a salary and the freedom from fear that their practices will go under,” he said.

Several witnesses testified that the move to electronic health records in physician offices has been a particularly difficult challenge for physicians in small group practices, despite the availability of federal financial help.


If trends continue, “we project that in two years, 75 percent of all newly hired physicians will be hospital employees.”  



--Mark Smith, Merritt Hawkins

Louis McIntyre, an orthopedist who used to work in an independent practice but is now employed by White Plains Hospital in New York, testified that EHR costs for his former business were a serious drain on financial resources.

“Even though we had implemented an [EHR system], the meaningful use criteria accompanying the regulations still represented a significant burden for us in terms of data collection and quality reporting rules,” McIntyre said.

“Complying with the new rules would further increase our cost with no increase in reimbursement, and the $44,000 per physician available from the [Health Information Technology for Economic and Clinical Health Act] to offset the cost of purchasing an [EHR system] would not even cover half our investment in the technology,” added McIntyre, who testified on behalf of the American Association of Orthopaedic Surgeons.

In addition to start-up costs and maintenance costs averaging $17,000 per physician associated with implementing an electronic health care system, small physician practices “must re-engineer workflow for both physicians and staff to accommodate the additional time needed for electronic documentation,” Kennett said. He testified on behalf of the American College of Cardiology.

“Practices in the early stages of implementation typically experience significant lost revenue due to reduced productivity,” Kennett said. “The payments offered under the EHR Incentive Program for those who qualify can offset some of those costs, but the challenges of making an upfront investment, retraining staff and physicians, and marshaling the necessary expertise can be too much for an independent practice to manage on its own.”

Some witnesses testified that the Patient Protection and Affordable Care Act may help spur the demise of small group practices, particularly because they may not be able to participate in ACOs. At the same time, the law is likely to increase the need for physicians, they said.

Defense of ACOs.

But testifying on behalf of the American Osteopathic Association, Joseph M. Yasso, director of a small group practice in Missouri owned by the Hospital Corporation of America, said that neither ACOs nor patient-centered medical home models require physicians to be employed by a hospital or large health care system to be successful.

Both these models “allow for the sharing of resources such as equipment and facilities that a small or solo practitioner might not normally possess,” Yasso said.

With the number of small physician practices rapidly declining, McIntyre said a new generation of physicians will never experience private practice and the business of medicine. Physicians also may see less need to join and maintain memberships in medical societies, which in the past have been oriented toward private practice, he added.

“If private practice disappears, patient access to care, local employment, and tax revenue will all suffer,” he said.

By Steve Teske  

Information on the hearing is at