Tom McFarland, CFP
[Editor's Note: This guest post was submitted by Tom McFarland, president and founder of The Darrow Company, a fee-only wealth management service in Massachusetts. Like every other post on this site, “the material contained in this article is for general information only and should not be construed as the rendering of personalized investment, legal, accounting, or tax advice.” Mr. McFarland may be a financial advisor, but he probably isn't your financial advisor.]
Traditionally, many doctors began their careers as employees – whether at a hospital, medical group, or other employer. As they gained experience, many ventured out to start a practice or acquire an existing one. Today, with the uncertainty around the future of healthcare reform and constantly changing regulations and reimbursement policies, the number of self-employed doctors seems to be falling. Many independent practices are being acquired by hospitals or sold off as the challenges of staying independent mount and the economics no longer seem to make sense. This isn’t the case for all physicians, though, and since it is difficult to imagine a world without any independent practices, the two roads are still worth comparing.
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The Bottom Line
On average, self-employed physicians at a private practice have greater income potential than “employee” physicians at a hospital. According to the 2014 Medscape Physician Compensation Report, on average and across all types of medicine, self-employed physicians earned 23% more than employed physicians.
It often isn’t just about salary, though. Owners have overhead expenses, such as administrative salaries, insurance, equipment, and operating costs, which can eat into profits. It can be stressful to run a medical practice also. Changing regulations such as ICD-10 add a significant expense to a smaller practice. Keeping up with insurance requirements and reimbursements can make accepting certain patients prohibitive.
When you work for a hospital, you are a salaried employee and will most likely receive benefits like a retirement plan and insurance. This could make your compensation less variable, which limits your downside, but also the upside as well. The hospital pays for all the overhead, so you won’t need to worry about staffing or equipment. Hospitals often pay for some type of malpractice insurance coverage, although the exact amount or type of coverage may be subject to negotiation.
A Day In The Life
Employed physicians tend to spend more time on paperwork than self-employed physicians at a private practice. According to the Medscape survey, 35% of physicians at hospitals report spending more than 10 hours a week on paperwork compared to 26% of physicians at private practices. This could be explained by owner-physicians opting to rely on administrative staff more heavily or perhaps the nature of large bureaucracies.
According to the 2014 Survey of American’s Physicians, employed physicians have a slightly longer average work week than their self-employed counterparts. Self-employed physicians also report seeing about 8.5% more patients per day on average than employee doctors. It is important to note that this doesn’t necessarily mean they are spending more time with patients.
Currently Trending or Here to Stay?
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There is a clear trend of physicians choosing hospital employment over private practice due in large part to the changing economics of healthcare and uncertainty around reforms. According to the Physicians Foundation report, only 35% of doctors classify themselves as independent practice owners, a -14% drop in only two years.
The study also found that the industry is changing so dramatically that nearly 46% of self-employed physicians indicated they planned to speed up their retirement. In contrast, only about 36% of employee doctors reported the changes in healthcare would cause them to accelerate retirement. Of course, age is also a factor, making the option to even consider early retirement a lot more feasible for those closer to it. Independent owners tend to be older – only 22% of physicians under 45 were practice owners under 45, compared with almost 42% of owners 46 and older.
One of the main downsides of working for a hospital is that there is less autonomy. The hospital can control patient flows and may require certain services. The employer also can determine which shifts you work and may not provide regular support staff. Some hospital employment contracts include clauses that could restrict you from practicing in the same area if you leave, limiting your future employment options or the feasibility of taking patients with you.
Whether private practice or hospital employment is right for you depends on a number of factors. Often, physicians will begin their career in a hospital while they pay down their medical student loans and establish themselves. Of course as the industry changes or you gain more experience, you may decide to change your path.
What do you think? Are you an employee or self-employed and why? What would it take for you to change to the “other side?” What do you see as the biggest issues with the trend toward employment for physicians? Comment below!
Proud to be an independent doctor, part of a group of about 6 IM docs with 2 PAs. I just started in our group out of residency but I was the one who looked into joining with them even late in medical school. My dad was a rural FP doc and had his own clinic for many years and then eventually sold to one of the two main hospitals in the state, so I am familiar with both aspects. Our group is extremely well run with a great business manager, the EMR works smoothly even getting ready for ICD10. We have onsite lab, xray, DEXA, ultrasound and treadmill stress testing with Echo. These are tremendously useful. I am able to actually take care of my patients and even do most of the testing while they are still in the clinic. I would say that 90% plus of the patients are extremely satisfied to the point of thanking us most of the visits for how we provide medical care. I trained for 3 years during residency with the largest health system in the region and I am familiar with the opposite. I was hard pressed to find almost any patient who was satisfied with the care they received at Sanford. I also have hospital privileges at both the hospitals in town (only round at the main one during most weeks). Our group is set up as traditional internists and we still round in the morning on our own patients, who light up to see us the next morning when they are sick. Our group is the only one around for many miles and there are less than a handful in the surrounding states as well. I think that established well run small groups of independent doctors will continue to be viable in the future, but as far as starting solo or new practices it seems like that would be nearly impossible with the government and insurance cost/regulation. Just my thoughts…
It is a sad fact that many specialties including mine (cardiology) have very few alternatives to employment especially in relatively urban regions. I would jump ship in a minute if I knew a viable independent practice. Unfortunately, most are constantly threatened by the forces around them and aren’t interested in hiring another MD and taking on that kind of financial risk. I hold out hope that the tide will turn as employed docs become unhappier and finally band together to realize their true value. I got into medicine to build something I could be proud of. I’m early in my career and hate that I have such pessimism from Day 1. I hope the dream of being my own boss is still in my future somewhere.
I am also part of an independent physician group. I worry about the consolidation of physician groups. They talk about cost savings with consolidation, but this is the biggest lie of it all. This talk is coming from administrators at hospitals that profit off of consolidation and then turn around and stick it to the physicians who actually bring in the business. Physicians are being turned into commodities and are losing more and more of their voice every day as the consolidation continues. There is a significant expense to the health care system with consolidation that is rarely discussed. Outpatient physician visits are reimbursed at a much higher rate if the clinics are part of a hospital network rather than a stand alone, independent clinic. Medicare is included in this discrepancy of reimbursements. Do you think these increased reimbursements get passed on to the providers or to the administrators and beaurocrats? No answer needed here–answered above in the post. So not only are the costs higher for a visit to the physician in a hospital network, but the physician in turn actually gets paid less by being a part of this network–where does this difference go? It’s no surprise that the hospital administrator usually is the highest paid employee, much higher than the physicians. Further, these large networks are able to negotiate higher reimbursements from private insurance companies as well because of their huge networks that insurance companies can’t afford to not contract with. Again, these higher reimbursements do not decrease costs, increase efficiencies, or find the pockets of the physicians.
Our group looked into merging with a large health care group a few years ago. We saw the actual numbers and were able to compare our total benefits before and after expenses, needless to say, we would make less, have less control, and to add insult to injury we would need to pay THEM to join the group. The final flow was that they would take ownership of all our equipment free and clear (we have no debt). They wouldn’t even recognize the value of the equipment we own (it would cost $1-2 million to replace the equipment).
I know firsthand that it is a hassle to run a private practice, but there is definitely a cost in income to the physicians (generally speaking) of joining a large network and the overall healthcare costs of society will be pushed up with these consolidations, not down as they are advertized.
You lose all your autonomy. Know of a doc who sold to a corporation and later fired for not producing enough
In these networks the docs are mandated to keep everything within knowing there are other docs they sound like to refer to
A friend of mine had the building named after him. The new corporation let him go to a nearby hospital
How crazy is that
United you can win, divided you get skaughtered
I’ve been a solo FP for about 15 years and it was one of the best decisions I ever made in almost every respect. Unfortunately the points made in the article are correct as government/ACA/SGR repeal effects will make it increasingly hard on solo or small group physicians. These actions will definitely lead me to retire sooner than I otherwise would.
And Bob above is right that this will increase costs, not decrease them.
“changing so dramatically that nearly 46% of self-employed physicians indicated they planned to speed up their retirement”
woh, wait a second! Is this really indicative of a change?
If we polled doctors 10,20,50 years ago would the same percentage still indicate that they planned to speed up their retirement? Just because some % of current docs say they are changing something does not mean that anything in the system changed, other than that % of docs may have aged into the stage of life when they do those things.
For instance if roughly 25% of High Schoolers plan to change schools next year, this is just because roughly 25% are graduating seniors. The students changed, not the system.
I’d would love some follow-up on this data, if possible. Since the beginning of time humans have lamented that everything is “worse than it used to be”. It would be interesting to know if previous generations of physicians had a similar percentage planning to speed up their retirement because of perceived worsening of the medical business field.
The way this post is written it implies that a normal state would be 0% of docs planning to speed up retirement. I doubt this is ever so.
OK, I’ll add some of my research to this:
“The authors of a 2010 JAMA study pointed out that in spite of declining fees starting in 1995 and anecdotal reports of discontent, physician satisfaction levels remained stable between 1997 and 2010. This finding was supported by a review published in 2009, which found only a small decrease in satisfaction among PCPs”
source: http://www.medscape.com/features/slideshow/compensation/2014/public/overview#22
Nobody else is bothered by “click-baity” phrases being thrown around like “changing so dramatically that nearly 46% of self-employed physicians indicated they planned to speed up their retirement”?
All those studies are garbage in, garbage out, of course. It’s really about how you ask the question. For example, if you ask a bunch of people if they’d like to retire tomorrow, a bunch are going to say yes. But that’s not the same thing as feeling dissatisfied with the job. They may just have other things they would rather do.
My group (anesthesiology) has an exclusive agreement with our hospital and a guaranteed minimum. If we were to be employed the biggest negative would be the retirement plan; rather poor choices and limited amount we could contribute.
Employment doesn’t scare me, in my situation, because I have a great relationship with the administration. They have always been more than fair in my dealings with them.
It seems to me a smart administration doesn’t piss-off its physicians- employed or independent. I’m sure there are plenty of examples of administrations making short-sighted, stupid decisions regarding the physicians. So far, my hospital has been great to work with.
Your “great” relationship with the hospital will change. I promise you.
I can’t tell you when it will occur, but it will occur. Administration is not your friend.
Interesting topic, this is actually something I grapple with daily.
I am currently in a very highly paid employed position. I have little to complain about.
I worry that I am selling out my own specialty though. My specialty is one where it has traditionally been easier to hang your own shingle and I see these mega-corporations and private equity groups start to consolidate practices under one flag and I sometimes wonder if I am contributing to the problem instead of striking out on my own to open my own practice as I had always dreamed prior to starting medical school
The compromise I’ve made in my mind is to continue while the grass is green and when the income starts to drop (or the demands from upper management get too onerous), to hopefully have enough stashed to be financially independent to the point where I can start my own practice (although I can’t see myself putting myself at such great financial risk) or more likely, pursuing a career in academic medicine
I’ve gone from an independent group to employed at the same hospital. There are some subtle psychological changes being employed by a large employer but otherwise its the same job and the same colleagues. There was stress negotiating the transition, but at least we don’t have to do it every year anymore! I agree with the above, it really comes down to how you get along with admin. It might have been another story if we’d been taken over by a large contract management group rather than the hospital.
As a relatively new dentist I found the idea of entering private practice too financially and emotionally expensive . Graduating with $265K in debt and faced with buying a/into private practice for another $800K+ was not appealing to me.
Private practice would have earned me an estimated $220 – 250K with all the downsides mentioned in the post and with a major buy in cost. When I compared that to working for a 501c where I make $150 – 170K plus $25K/year in tax free NHSC loan repayment, plus health benefits, retirement plan, malpractice, continuing education, 15+ days paid leave, and no ownership headaches or buy in cost I found that to be a much less risky and much less stressful option.
I don’t have the potential upside of a private practice but I don’t have the downside risk of “independent dental practices becoming extinct” which I see as real possibility in my career with the meteoric rise of corporate dental practices, public health clinics under the ACA, the eventual advent of mid-level providers such as Dental Health Aid Therapists (the dental equivalent of a Nurse Practitioner), and other yet to be revealed threats to the current dental climate.
I would love to see a post on this same topic from a dental perspective and/or one that highlights the values of NHSC scholarship and loan repayment and how combining that with PSLF can be a viable path for some. The NHSC angle is, admittedly, very similar to what WCI has already discussed with his military situation but less oppressive in my experience.
Thanks Tom for a well written and though provoking article and thanks to WCI for this amazing forum.
I have had a great experience with my current business model. I am part of a multi speciality group—including Peds, FM, and Occ Health. I am a partner in the group which has a professional service agreement with the local hospital. We provide physician services and mid level supervision. They provide staffing, clinic space, EMR, billing etc. we have very very low overhead and therefore low risk. We are very generously compensated and I have the bonus of having 401k with profit sharing that allows up to 53k put into tax deferred contributions (not including Stealth HSA and Backdoor Roth). It helps that we have a truly physician led hospital. There are occasional hiccups as can be imagined but overall I view “us” and “them” as partners. I think the main thing to remember is that it doesn’t have to be either/or…in our case it’s both (and for the better).
timely post, as my practice was acquired by a health system just this week.
certainly the trend will continue for some specialties, such as cardiology and oncology, where the overheads can be high but the reimbursements can be higher. The hospital will “flip a switch” and make 33% more than we did by doing the same thing due to billing rules.
The author points out that employees dont have the “upside” potential…but don’t underestimate the benefits of having no downside potential. I have seen my partners literally lose their hair over the stress of staying afloat and paying the bills.
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PTM, Please don’t take this as a criticism of joining a hospital system, however, the “flip the switch” comment regarding an automatic 33% increase in reimbursements after joining a hospital group is the exact issue I was referring to with the injustice of the system that favors hospital groups and drives up costs. While I know it is legal and that is how the system is built (hospital lobbyists are much more powerful than us lowly physicians and the AMA who doesn’t really look out for the best interest of physicians), it still seems completely unjust. Part of my bitterness comes because I feel like I am doing everything I can to save the system money, while hospitals are financially taking advantage of the system. In my line of work, I can use one of two types of medicines for an in-office treatment, one medication costs $50/treatment while the other costs $2,000/treatment. Both have been shown to be equally safe and equally effective, however, because of how insurance, including medicare reimburses, I could increase my TAKE HOME pay by $200,000-$300,000 per year if I were to use the more expensive medication. This also is completely legal and built into the system, so why do I not do it or the other 60% of the specialists in my field (most are private practice)? We do not feel, morally, that it is the right choice. I’m not sure if it is all that different than hospitals buying up independent practices just so they can profit off of the increased reimbursement rates even though nothing changes in the delivery of care. Hospital outpatient clinics should be on the same even playing field with private practice clinics when it comes to reimbursement rates.
I agree completely and applaud you for doing “the right thing.” But 2 comments:
1. this whole issue will go away soon with value based payment reform, which is already here for some folks and will be standard by the end of the decade. All insurers (especially Medicare) will take value of medical decisions into account. The scenario you describe is the “low hanging fruit” and will be the first to go.
2. Don’t conflate what we have done (joining a hospital in order to stay afloat) with a doctor “gaming the system” by giving a drug for the sole reason of increasing his paycheck. Notice I said THEY will make 33% more, not me! Plus, by joining a system with a health insurance plan, hospitals, labs, imaging centers, and doctors all working for a singular goal of managing population health, one could expect that cost savings will be achieved in the long term when compared to a fragmented delivery system (at least this is what the proponents of ACA in Washington would tell you)
I”m training in a large academic center. What I feel is that physicians employed by these large institutions are just as disposable as any other employee. Basically just a highly educated employee with a relatively high salary nothing more. I recall visiting some older hospitals that used to have separate dinning rooms for physicians (white linens and all), those days are long gone.
Very true, especially for younger (non-tenured faculty). all the more reason to listen to WCI, save your money, and remain flexible! Job loss/dissatisfaction can be an adventure and new opportunity if you’ve prepared well financially, it doesn’t have to be devastating.
I think the number one factor is really insurance. I am part of a very large group. We are paid via productivity or via a cash model but in essence are “employed”. I love the idea of an independent practice but two things significantly limit that desire:
1) reimbursement rates – if I were independent I wouldn’t expect my costs to change dramatically but I would likely have to work more or see less patients to handle all the business aspects (or pay a manager a lot more than I do now)
2) insurers – right now my company negotiates all our contracts for us. That is something I would have to do that would take considerable time.
At this point the only way I would move to an independent practice would be in a Direct-pay/monthly payment model and I am concerned that my location wouldn’t support that well (almost all my patients are insured but not wealthy).
I just started as an employed physician out of fellowship, and so far I am pleased. The hospital system I joined is one of the ones I dealt with in residency, and the administration has always been very doctor friendly. I make an extremely fair salary, and have the potential for growth with more productivity. I have been able to pick make my own schedule, and I have yet to be told I couldn’t use a particular product in the OR. For me it was a situation with very little downside. I think finding a hospital group who values, and respects the doctors makes all the difference.
Anthony, sorry to say but you are in the honeymoon phase. Come back in a year and tell us how it’s going.
I do realize that this may just be the honeymoon phase, and I understand that there’s going to be things I don’t like. There are definitely trade offs when you choose employment over private practice. But my partner has been there 5 years, now on his second contract, and is still pleased with his experience. Also, my mentors from training had positive things to say about the hospital administration, and if I were going to go down the employment road, this was the best of the systems in town from a doctor standpoint. Things may change, but I’m optimistic that we will continue to have a good working relationship.
Since younger MDs usually aren’t “stuck in their ways” they adapt well to change. I’d advise you keep your positive attitude and it will pay dividends in the long term. I’m trying to do the same
When I took an employed position I made a personal “mission statement” of goals I wanted to achieve and things I would not do and lines I would not cross. Unless they ask me to violate the tenants of the mission statement, I’ll just roll with the punches…if they ask me to violate my principles I’ll walk.
Its easy to get hung up and pissed off about things that are truly “little things” (rollout of new EMR is botched, new office manager is terrible, OR equipment/formulary not what you’re used to, etc etc). These are not reasons to complain or quite and I think you’d be best served by keeping the “recent grad attitude”
Great timing of this article for me. I am currently undergoing this transition myself. I am a one year out vascular surgeon, part of a multi-specialty surgical group (22 of us) in the northeast, who is now being taken over by a larger hospital system. The surgical group wants to part ways with the hospital and go out completely on its own again and we have all been asked to choose sides now. (This was a hybrid practice model where the 9 partners remained as a separate group, whereas the remaining members of the group are actually employees of the hospital system and are just run by the surgical group. )
The answer seems obvious on the surface. Private practice leaves you with much more control at the end of the day, many more options to do what you want/practice how you want. But dig a little below surface and problems arise.
There is a restrictive covenant that we would have to abide by. Some of the surgeons have a 2 year/20 miles restriction others 1 year/ 10 miles. Also we can’t just walk away, we have to give notice, some have a three month requirement, others have a 1 year requirement. This makes it very tough to leave as a group. Also, I am not a partner in the surgical group. This gives me no say in what goes on for the next few years of transition. As the most junior person, I will be the one running all over the place to scrape together what I can. This will also leave me with very little office time. Hard to build a name with little to no office time.
Now if I stay with the hospital system I get a bunch of short term gains ( increased office time/ cases {absorbing the patients of the surgeons who leave} , stable salary and great benefits, no overhead costs, no running around across half the state to practice outside the restrictive covenant) at the cost of possible decrease in future salary and opportunities.
Right now I have a wife, a 3 year old, and another child on the way in 2 months. I missed the first 2 years of my daughters life while I was in fellowship. Missing the first 2 years of the next ones life running around trying to scrape together enough business to make a living doesn’t seem like a great option.
In this case the hospital system offers stability, great benefits, more time with my family and none of the headaches of private practice. I may regret it in a few years, but at least I will see my kids grow up.
All if not most of you are missing the fact that recent trend toward hospital employment are do to two things:
1. aprox 25 yr effort by the US government to control physician behavior by herding them away from INDEPENDENT practitioners, to employees controlled by corporations. Much easier to control physician behavior through corporations / managers telling us what to do, to implement government rules/regulations then for the government to go after individual physicians. Affordable care act is one example. Every body and there mothers had impact on the debate (Big pharma, nurses, hospitals, etc) but docs had no voice, except for photo ops to stand next to president Obama in white house in white coats with stethoscopes hanging around there necks.
2. Female physician work force has been on the rise, and our female colleagues have redefined work and social balance (for the better in my opinion). My female physician friends, as well younger male physicians definitely prefer to be employees over private practice.
over next 20 yrs, about 80 – 85 % of the physicians will be employees, while 15 – 20 % will be in concierge / boutique type specialities, not unlike in many third world countries or developed countries with national health care systems, where upper middle class / rich people supplement insurance payments with private insurances, or cash to access more personalized care.
On this issue, train has left the station
I am now in my 7th year with a large hospital based medical group as an urgent care provider. I really enjoy it and I like that everything on the back end is taken care of. My income has been great, with some extra shifts I was able to gross $420k in California last year, working at my base I would be closer to $280k gross.
My brother in law has his own urgent care and I helped him out with a few shifts in the past, unfortunately there is too much over-billing needed to make his desired income. A corticosteroid injection here, a rocephin shot there… most likely things that I wouldn’t do if I didn’t get reimbursed for them.
However, a cash based small practice is still very appealing. Not in order to make a killing but to dictate a little more how a practice is run. I think developing a strong financial base is critical to making a move to a private practice that’s ethically run. And obviously WCI’s website is incredible for that financial strength.