The number of physicians working in private practice is shrinking, as consolidation and rising costs makes practicing independently less feasible.
More than 108,700 physicians left private practice for employment opportunities from 2019 to 2021, according to a report from Avalere. Additionally, 58.5% of physician practices are owned by health systems or corporations as of 2023, according to research by the Physicians Advocacy Institute and Avalere Health.
Here are five reasons the number of independent practices is declining:
1. Aging physician population
A big reason for the drop in practice ownership is due to the retiring physicians who are typically owners, combined with a decreased proportion of younger physicians opening practices.
According to Association of American Medical Colleges data, by the end of 2022, 23.2% of active physicians were 65 or older, nearly 40% greater than that of the same age group in the full U.S. population (16.8%).
2. Lack of leverage
As healthcare increasingly consolidates, it is becoming more difficult for physician practices to access economies of scale. With that comes increasing difficulty in securing payer contracts.
About 80% of physicians who own their practices said the ability to negotiate higher payment rates with insurance companies influenced their decision to sell their practice, according to an American Medical Association report.
3. Reimbursement declines
Physicians are also facing massive reimbursement declines that are not keeping up with rising practice costs.
Medicare physician payment has effectively declined 29% since 2001 when adjusted for inflation, according to the American Medical Association. These cuts will likely continue; CMS has proposed a 2.8% conversion factor reduction in its physician fee schedule for 2025.
"With recent reimbursement changes from major medical insurances as well as cuts from CMS, it is very difficult to maintain revenue in private practice," Li Sun, DO, orthopedic and spine surgeon at Sun Orthopaedic & Spine Care in Metuchen, N.J., told Becker's. "I think fewer and fewer private practices will be able to survive on their own without being affiliated with healthcare systems or large [management service organizations]."
4. Patient base declines
As hospitals and health systems vertically integrate, patient bases have consolidated.
"Private practice physicians have lost their power in healthcare because their patient bases have dried up. … As the hospital systems have gobbled up the patients through their extensive network of non-physician practitioners, the few physicians who have remained in private practice have been gobbled up," Thomas Pliura, MD, a physician and attorney in Le Roy, Ill., told Becker's.
5. Regulatory burdens
Physicians are also facing the obstacles of prior authorizations and other regulatory burdens from payers.
Around 88% of physicians reported that prior authorizations put a high or extremely high burden on their practice, according to a 2022 American Medical Association survey, with practices completing an average of 45 authorizations per physician each week.