Fewer office-based physicians practice as a partner or shareholder in their medical group
For decades, the clinical laboratory industry has relied on the medical lab test referrals of office-based physicians as its primary source of patient specimens and revenue. The dominant business model of office-based physicians during these decades has been that of physicians as partners in private practice groups or as shareholders in professional corporations.
Similarly, over the past four decades, the profession of pathology has been dominated by the business model of partner-pathologists in a private group practice or professional corporation. But evidence continues to accumulate that the heyday of private practice anatomic pathology is soon to end.
Blame it on the fast-moving trend of physicians opting for employment over partnership. This trend is potentially disruptive to the current clinical laboratory testing marketplace. The question many pathologists and clinical laboratory managers ask is simple and to the point: Will a medical group practice comprised of employed physicians (versus physician-partners) apply different criteria to select their choice of a medical laboratory provider that will handle their lab test referrals?
Clinical Laboratory Executives Can Track This Trend
The answer to that question may come with surprising speed, given the pace at which the proportion of physicians who work as employees has increased relative to physicians who are owners of their medical practices. Some recent statistics will help clinical lab executives understand how this factor is actively reshaping today’s competitive marketplace.
Certainly this trend toward physicians-as-employees has caught the attention of others in healthcare. It was the subject of a congressional hearing, for example. A recent story published at ModernHealthcare.com (MH) reported that a panel of experts testified at a hearing of the House Small Business Committee’s Subcommittee on Investigations, Oversight and Regulations. The topic was the trend of declining small and solo medical practices in the United States in recent years.
Pictured is Mark Smith during his testimony at a congressional hearing into the trend of physicians who practice medicine as employees—not as partners or shareholders in a private medical practice. Smith is the President of Merritt Hawkins, a physician recruiting company based in Irving, Texas. For clinical laboratory companies, this is a trend with the potential to shrink the number of office-based physicians who have the freedom to chose any medical laboratory test provider they want. (Photo copyright by World News Inc.)
According to Mark Smith, President of physician recruitment firm, Merritt Hawkins, in 2004, only 11% of the firm’s physician placements were as hospital employees, MH reported. Smith further projected that, if current trends continue, in two years, that number will hit about 75%.
“It has become expensive and burdensome to run a small medical practice and many doctors are opting for larger health arrangements,” stated Congressman Mike Coffman (R-CO), Chairman of the House Committee on Small Business (HCSB), in a press release.
Statistics Show a Trend of Physicians as Employees
Merritt Hawkins conducted more than 2,700 physician search assignments during the 2011-2012 period, a story in Amednews.com reported. The searches were on behalf of hospitals, medical groups and small practices. The firm reported that only 2% of these searches involved solo practice or partnership opportunities. In 2004, that number was 42%, Smith noted.
A story in The Wall Street Journal reported similar statistics. In that story, global consulting firm Accenture projected that by 2013, as few as one-third of doctors in all specialties will own their own practices. This is down from about 43% in 2009. In 2005, the figure was nearly 50%.
“Today, physicians are more likely to be hospital or medical group employees than they are to be medical practice owners,” Smith stated in the Amednews piece. “This is particularly true of medical residents completing their training.”
Hospitals give doctors more financial security, a story in TheDaily Caller reported. Employment by hospitals also frees doctors from having to deal with the burdensome regulations imposed by insurance companies and Congress.
In 2011, Merritt Hawkins conducted a survey of final-year medical residents, Smith told the HCSB. Only 1% of respondents indicated a preference for an independent solo practice. By contrast, 60% indicated preference for employment by a hospital, medical group, outpatient clinic, or academic facility, the HCSB press release stated.
Doctors Seek Congressional Relief for Solo and Small Private Practices
According to the Amed news story, some of the reasons that doctors are gravitating away from owning their own practices include:
- declining payment, especially with the sustainable growth rate (SGR) formula threatening cuts to Medicare payments each year;
- increased reporting requirements;
- doubts over future earning potential;
- increases in overhead costs;
- decline in office visits as health plans and Medicare place a tighter hold on managing clinical decisions;
- need for huge outlays for technology improvements;
- need to hire more information technology personnel and install upgrades;
- quality data collection; and
- reporting rules for federal electronic medical record (EMR) incentives.
Ways to Help Private Physician Practices Stay in Business
Amednews also reported steps that some healthcare leaders are recommending to Congress to help solo and small private physician practices stay in business. These included:
- eliminating Medicare’s SGR formula for physician fees;
- establishing a stable platform for payment that reflects the appropriate services provided; and,
- reforming the current medical liability system.
In July, The Physicians Foundation published a report which included the following recommendations for policymakers:
- Boost Medicare fees by 30% for both management of clinical problems and diagnostic decisions. Make the increase applicable to primary care physicians as well as diagnostic decision-makers, such as radiologists, cardiologists and pathologists.
- Develop patient-centered medical homes and other new practice models to improve physician productivity and diversify the services offered by practices.
- Reduce hospital payments for outpatient imaging and surgical services relative to the fees offered for the same services in lower-cost, private settings.
- Eliminate the Medicare site-of-service differential that allows hospitals to charge more for physician services offered in a facility setting than for those offered in a private practice office.
Pathologists and clinical laboratory managers will recognize two significant trends in this story. First, new physician positions filled by headhunters are increasingly weighted to employee positions, rather than solo practice or partnership positions.
Second, Generation Y doctors coming out of residency and fellowship tend to prefer employee positions. This represents a major shift from the Baby Boomer generation. (See Dark Daily, “Why Gen X Makes It Four Generations Now Working in Clinical Pathology Laboratories”)
In recent years, a large number of hospitals and health systems have been regular buyers of physician practices in their communities. Post-sale, the physicians who were partners or shareholders in the medical group now work as employees. It is common for the new owners of these medical groups to require their employee-physicians to refer clinical laboratory tests to their hospital laboratories.
Who Makes the Choice of the Clinical Laboratory Test Provider?
Thus, it can be argued that, each time a medical group practice is acquired by a hospital or health system, there is increased probability that it would be required to refer its lab tests to the clinical laboratory of the new owner. As a result, this medical group is no longer free to choose its clinical laboratory provider. Additionally, it shrinks the pool of office-based physicians that can be served by independent commercial laboratories.
Extrapolated across the entire United States, the consequence of this trend would be a significant shrinkage in the total number of office-based physician practices that have a high degree of freedom—independent of their owners’ preferences—to choose any clinical laboratory provider. This would not be favorable to many regional laboratory companies. Similarly, it would complicate the growth strategies to be pursued by such national laboratory companies as Quest Diagnostics Incorporated (NYSE: DGX) and Laboratory Corporation of America (NYSE: LH).
—Pamela Scherer McLeod
Related Information:
Panelists outline decline of small doc practices
Doc says ‘physicians have reached a tipping point’
Why America’s Doctors Are Struggling to Make Ends Meet
Press Release: Subcommittee Examines Declining Number of Small Practice Physicians and Whether ObamaCare Accelerates the Trend
Lawmakers warned of demise of solo medical practices
Dark Daily, “Why Gen X Makes It Four Generations Now Working in Clinical Pathology Laboratories”
“The Future of Medical Practice: Creating Options for Practicing Physicians to Control Their Professional Destiny,” The Physicians Foundation, July 17 (PDF)
