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Bulletin

Can Private Practice Survive?

M. Sophia Newman, MPH

June 12, 2024

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Over the past 4 decades, the percentage of surgeons in private practice has drifted downward. Although three-quarters of surgeons owned small business practices in the 1980s, a recent survey showed that, as of 2022, they have become a minority among surgeons (44%).1 A separate study2 released in 2024 found that 127,700 US physicians (in all specialties) had moved from private practice into hospital or corporate employment in the past 5 years (2019 to 2024).

In part, the change is related to a surge in activity by private equity firms, which buy and manage businesses before selling them for profit. Purchases of surgical and other medical practices by these firms rose from 75 in 2012 to 484 in 2021.3 The trend is associated with market consolidation, increases in the cost of care, and reductions in care quality and patient safety3—and it is not entirely clear what will happen when private equity firms, which use a profit model based on selling investments, exit healthcare in the areas in which they now control significant stakes.

However, the shift toward private equity can be seen as a mere symptom of private practice’s malaise. This is in part because it began only after surgeon self-employment began to decline and in part because surgeons’ willingness to sell to investment firms reflects the challenges that prevent them from continuing to operate independently.

What are those challenges? Why is private practice less popular than it once was? Is there a way to address surgeons’ concerns so that private practice can continue, or is its end in sight?

How Private Practice Differs from Employment

Important differences between private surgical practice and employment exist. Some of these variations make clear why a surgeon might choose self-employment. Private-practice physicians often cite flexibility and control over their work schedules and patterns as a key benefit to private practice.4-6 In addition, many highly value their ability to maximize their accessibility to patients, provide continuity of care, and establish close relationships with patients and the surrounding community5,6—all of which they perceive to be compromised by the ways surgery is practiced within larger healthcare corporations.

Some studies also have shown superior quality of care and higher income levels4 in private practice compared to employment models; one study7 from 2018 found that, at that point, full professors in vascular and cardiothoracic surgery earned 16% and 14% less, respectively, than private practitioners in those specialties.

But owning and operating a small business also comes with unique demands. Surgeons in private practice, particularly those practicing solo or in small groups, face considerable uncertainty. If the potential earnings may be high, it also is possible for the salary of a self-employed surgeon to vary considerably—and many would contend that the findings of higher income, if once true, are no longer reliably so.

While income is uncertain, there is a guarantee of administrative work: human resources, nonclinical record-keeping, and financial tasks that in an employment environment would be largely left to other staff members. These tasks can include sharing market knowledge and business strategy, hiring and firing employees, and negotiating with insurance companies.5

Getting Paid

Negotiations with payers can be especially tricky. Numerous factors influence rates of payment to private practices.5 These include the penetration of health maintenance organization and preferred provider organization insurance types in a given locale, as these plans tend to flourish only where healthcare provider competition is high enough to crowd out most opportunities for private practice; the concentration of the health insurance market with one large insurer, which reduces chances for private practice surgeons to negotiate pay rates; and the population of surgeons in a given area, which is another measure of competition.

Whatever the conditions, a 2019 鶹ýprimer for surgeons in private and small-business practice notes that “private practices are often at a disadvantage in these negotiations unless they offer some unique service, due to comparatively low patient volume relative to larger facilities.”5

To some surgeons, the challenge of getting paid can be critical. David J. Welsh, MD, MBA, FACS, who practices general surgery in Batesville, Indiana, and is a member of the 鶹ýBoard of Regents, has been in private practice since 1989. He recalled revelations about reimbursement he had while sorting paper medical records for archival and disposal.

“I started looking at these things, and this was even prior to electronic health records, so there was even billing information,” said Dr. Welsh. “Seeing what I was paid for the same procedure 10, 15, 20 years ago, it’s much reduced. They’re paying less for the same thing.”

Richard J. Harding, MD, FACS, an endocrine-focused general surgeon at Arizona Advanced Surgery, in Phoenix, had the same observation. At a Town Hall meeting at Clinical Congress 2023, Dr. Harding described increasing economic pressures that reduced his annual pay by approximately $100,000, although he completed an unchanging number of relative value units.

Separately, he verified that the decline was related to reduced insurance reimbursements and added more detail. “My salary is the same as it was 3 years after I got out of my surgical training 28 years ago,” explained Dr. Harding. “So, I have not seen an increase in my income in 20 or more years, which means, when you factor in the cost-of-living adjustment, that’s like getting a 25% to 30% decrease of salary; they pay you less and less.”

This shift makes entering private practice—as opposed to maintaining one—even more challenging. Terah Isaacson, MD, FACS, a general and colorectal surgeon who owns Bayou City Surgical Specialists, PLLC, in Houston, Texas, finished a surgical fellowship in 2012, and entered a 4-year period of practicing in locum tenens, including about a year in a private practice. Interested in the flexibility of self-employment, she then sought a path into owning a practice.

“The reimbursements just weren’t there,” she said. “I had some people kind of laugh at me. A representative from one of the health plans was like, ‘Oh, that’s nice. You’re making a private practice.’ Most of these plans were giving individual surgeons less than Medicare rates,” an option incompatible with keeping revenue greater than costs.

Prior Authorization and Coding Pitfalls

The issues extend past poor pay rates. Dr. Welsh explained, “A lot of it has to do with the overburdening of rules and regulations—people making you jump through extra hoops you didn’t have to jump through before.”

He cited the rise of prior authorization as a burden that particularly hits surgeons in self-employment. Prior authorization is a payer’s requirement for a clinician to obtain approval for a procedure before providing it to the patient, to ensure insurance will cover the bill.

At its inception decades ago, the obligation was largely confined to particularly expensive new technologies. Over time, insurers have expanded prior authorization to many diagnoses and treatments—including, Dr. Welsh noted, upper endoscopies and generic drugs.

Dr. Harding said the requirement has created a significant administrative burden that cuts into his surgical group’s already narrowing profit margins. “We’ve actually had to set up a whole department within our group to do this with people who are specialized in prior authorization,” to ensure payment in advance of procedures, avoid authorization-related delays, and limit negative impacts on patients’ health.

Similarly, pitfalls in billing and coding can compromise the viability of private practice. Drs. Welsh and Isaacson both noted coding and billing as increasingly tricky. Dr. Harding explained, “My group, for instance, has seen a half a million dollar decrease in revenue since they changed the hernia codes last year. Even though the doctors actually increased the number of hernias that they operated on, they still make considerably less money, as much as $60,000 to $80,000 per person.”

Dwindling Pool

While these issues affect a self-employed surgeon’s ability to remain in private practice, a lack of interest in joining private practice likely contributes to the decline of this part of the surgical workforce.

A study4 in 2005 suggested the problem might be solvable in medical education. The study found a program to bring medical students in contact with private practice surgeons through brief preceptorships received positive ratings from nearly all its 107 participants, with many calling private practice “pleasant” and 9% reporting the experience had led them to consider a career in surgery.

But in the 20 years since that study was conducted, barriers to entering private practice may have deepened beyond what mere familiarity can resolve. Although there is a surfeit of retiring surgeons now exiting private practice,8 thus increasing the chances that a private practice will be available to purchase, the younger generation faces ever-deepening student debt9 and surgical training out of sync with self-employment’s high degree of autonomy, both of which may render young surgeons unable or unwilling to invest in practice ownership.

The marketplace and surgical trainees may be ill-matched in other ways, too. Some rural areas may offer local healthcare marketplaces with less competition and thus may be relatively easy places to start new surgical practices. But only rural students are likely to express an interest in rural practice,10 and despite efforts to facilitate rural careers (including a scholarship Dr. Isaacson and her husband are creating for students interested in rural medicine at the University of Kansas School of Medicine in Salina), the picture is grim. Medical school matriculants from rural areas declined by 28% between 2002 and 2017, even as overall student body sizes increased by 30%.11

One upshot is that the relatively few surgeons who wish to enter private practice anywhere now sometimes face dwindling support. When Dr. Welsh left surgical training in 1989, he said, most of his fellow surgical trainees embarked on private practice. “We were able to compare notes and learn from each other about how to set things up,” he said.

He described the work of establishing his rural, solo private practice as “trial by fire” and “slow going.” But Dr. Welsh also said the process, which took about a year, was made easier by his training hospital, which allowed him to take its old equipment out of storage and get it refurbished for his own use, as well as a local hospital that gave him a loan.

This approach is less feasible now. Dr. Isaacson, who began her private practice in 2016 and prioritizes a rural surgical career, described hospitals as competition and mainly cited her husband, Daniel Howell Jr., MD, FACS, also a general and colorectal surgeon, as support.

Models that Work for Private Surgical Practice

Despite these mounting concerns, some self-employed surgeons continue to thrive. Drs. Welsh and Harding both pointed out that certain surgical specialties, including ophthalmology, cosmetic surgery, and orthopaedic surgery, are doing well. Some of these specialties, such as cosmetic surgery, can benefit from concierge models, while others, like orthopaedic surgery, have capitalized on combining diagnostics, surgery, and physical therapy into one-stop surgical centers.

However, not all surgical disciplines align with concierge or surgical center models. Neither approach is feasible in general or rural surgery. Even if they were possible somewhere, they would not be a logistical fit for the area Dr. Welsh serves, which he described as “a hard-working community, a lot of farmers, a lot of factory workers.” Instead, he has hybridized his solo practice with contract work.

For Dr. Harding, responding to financial pressures compelled a different move. First, he gradually moved from a three-surgeon practice to a 22-surgeon one, hoping to benefit from improved negotiating power with payers. More recently, his group merged with another 22-surgeon practice, into “probably one of the biggest general surgery groups in the country.”

This experience is atypical; most independent practices in the US are between one and 15 physicians,6 and consolidating to a group of 44 surgeons may only be feasible in specific urban settings. Moreover, although this model may have created opportunities to negotiate more successfully for payment, it has not led to the “economies of scale” he said the group had aimed to capture.

Dr. Harding said, “We were hoping that we would be able to share things like schedulers and billers. But you then have to hire all these IT people” to meet the requirements of the Centers for Medicare & Medicaid Services’ Merit-Based Incentive Payment System (MIPS).

While MIPS aims to increase high-quality, cost-effective care by requiring quality improvement, system interoperability, and cost-effectiveness, it also demands significant and ongoing IT overhead—an issue that has made financial benefits for Dr. Harding and his colleagues a wash. Nonetheless, the 44-surgeon group has lost just two practitioners to employment, Dr. Harding said, and the vascular surgeons in his group have enjoyed higher salaries than the general surgeons, the likely product of generous emergency room call stipends and better pay rates on some vascular-specific procedure codes. This stability offers a faint glimmer of success.

Meanwhile, Dr. Isaacson reflected that, when entering private practice 8 years ago, “I probably wouldn’t have ever imagined where I am today.”

Dr. Isaacson and her husband and business partner, Dr. Howell, established a private practice, initially avoiding debt through limited locum tenens work. Dr. Isaacson sometimes added call at local hospitals, stopping only when pay rates proved insufficient, and struggled with what she described as “the hamster wheel” of financial, administrative, and clinical private practice tasks.

“As a result, I got a little bit creative about what I saw private practice as and started working in a surgicalist model about 4 years ago,” she said.

A surgicalist is a sort of freelance surgeon. Unlike a locum, who may work in a locale briefly and then never return, a surgicalist is an independent contractor who works in a hospital on an ongoing basis. The model pays at a set rate per 24-hour shift and permits flexibility in how many days per month a given surgeon wishes to commit to a location.

The company Dr. Isaacson works with, Synergy Health Partners, places surgeons at 14 active general surgery sites nationally,12 as well as other sites focused on orthopaedic surgery. Through them, Dr. Isaacson and her husband work at a hospital in Cookeville, Tennessee, 7-10 days a month.

She has combined this work with ongoing but intermittent shifts at a critical access hospital in Belleville, Kansas, her rural hometown. There, despite patient need, the hospital is too small to fund a full-time surgeon position. “If I’m not there, and for 30 years or 40 or 50 years prior to me showing up, family practitioners would be doing the surgery,” Dr. Isaacson said.

She now handles elective general surgery cases at the hospital, while other visiting surgeons handle caseloads in their own surgical disciplines and family practitioners continue to complete endoscopic, obstetrical, and minor procedures. Because of her self-employed status, she can undertake ongoing part-time work in Belleville, permitting her to meet the needs of the local population and fulfill a commitment to rural health while enjoying closeness with her family in the area.

Future of Private Practice

While a future in which every surgeon is strictly employed by a hospital remains hard to foresee, how exactly private surgical practice will survive is unclear.

While Dr. Harding is pessimistic about the future of private practice (“I have to say, I just don’t see it working”), he said he remains slightly hopeful about his own group, which has just hired a new chief operating officer who has her eye firmly on the bottom line. Meanwhile, Dr. Welsh advised engaging with 鶹ýresources, and all three surgeons offered advice to those starting out (see sidebars on this page).

Although what we can predict about the future of private practice is incomplete, one fact is clear: an impending surgeon shortage as older surgeons retire and are replaced by a less populous generation8 means that the US—particularly underserved and rural areas—will soon need every surgeon it can get, no matter their employment type.

As Dr. Isaacson concluded, “It can’t be a dead model. I don’t think the country is ready for that.”


Sophia Newman is the Medical Writer and Speechwriter in the 鶹ýDivision of Integrated Communications in Chicago, IL.


References
  1. Kane CK, American Medical Association. Policy research perspectives: Recent changes in physician practice arrangements: shifts away from private practice and towards larger practice size continue through 2022. Published 2023. Available at: https://www.ama-assn.org/system/files/2022-prp-practice-arrangement.pdf. Accessed April 25, 2024.
  2. Physicians Advocacy Institute, Avalere Health. Updated report: Hospital and corporate acquisition of physician practices and physician employment, 2019-2023. Published April 2024. Accessed April 25, 2024. https://www.physiciansadvocacyinstitute.org/Portals/0/assets/docs/PAI-Research/PAI-Avalere%20Physician%20Employment%20Trends%20Study%202019-2023%20Final.pdf.
  3. Schleffler RM, Alexander L, Fulton BD, Arnold DR, Abdelhadi OA. Monetizing medicine: Private equity and competition in physician practice markets. American Antitrust Institute. Published July 10, 2023. Accessed May 7, 2024. https://www.antitrustinstitute.org/wp-content/uploads/2023/07/AAI-UCB-EG_Private-Equity-I-Physician-Practice-Report_FINAL.pdf.
  4. Carter MB, Larson Gm, Polk HC Jr. A brief private group practice rotation changes junior medical students’ perception of the surgical lifestyle. Am J Surg. 2005 Apr;189(4):458-461.
  5. 鶹ý. Resources for the practicing surgeon: The private practice surgeon, volume 2. Published October 2019. Accessed May 7, 2024. /media/apwlms21/private_practice_surgeon_primer_volume_ii.pdf
  6. Rittenhouse D, Olszuk T, Gerteis M, et al. Supporting and promoting high-performing physician-owned private practices: Voices from the front lines. The American Medical Association and Mathematica. Published October 22, 2021. Accessed May 7, 2024. https://www.ama-assn.org/system/files/mathematica-ama-white-paper.pdf.
  7. Baimas-George M, Fleischer B, Korndorffer JR Jr., Slakey D, DuCoin C. The economics of private practice versus academia in surgery. J Surg Educ. 2018;75(5):1276-1280.
  8. Newman MS. Physician workforce data suggest epochal change. Published April 10, 2024. Accessed May 6, 2024. /for-medical-professionals/news-publications/news-and-articles/bulletin/2024/april-2024-volume-109-issue-4/physician-workforce-data-suggest-epochal-change/.
  9. Calonia J. What’s the average medical school debt in 2024? Published April 18, 2024. Accessed May 6, 2024. https://www.forbes.com/advisor/student-loans/average-medical-school-debt/.
  10. Meade ZS, Li HW, Allison H, et al. Demographics and medical school exposures to rural health influence future practice. Surg. 2022;172(6):1665-1672.
  11. Shipman SA, Wendling A, Jones KC, Kovar-Gough I, Orlowski JM, Phillips J. The decline in rural medical students: A growing gap in geographic diversity threatens the rural physician workforce. Health Affairs. 2019;38(12).
  12. Synergy Health Practices. The surgicalist model. No date. Accessed May 7, 2024. https://synergy-hp.com/models/surgicalist/.