Is the Future of Physician Practice Management Changing? 
Market Indicators Would Say Yes!
Written by James Hamilton, FACMPE

With the experience of working in different medical markets, one observation that can be made is that each market represents its own individual situation. At the same time, the accumulation of individual market changes becomes the national trend in health care. Through these cumulative trends, it is becoming apparent that major changes are occurring in physician employment. In turn, where physicians seek employment substantially impacts the career movement of medical practice executives.

Reasons for Change in Physician Employment

The reason for changes in physician employment is economical as well lifestyle driven. Changes in government reimbursement are a major market mover. In turn, the government standard of payment establishes the market rates for reimbursement by other payers. This has created downward pressure in physician reimbursement. Along with this downward reimbursement, government is changing the nature of business relationships that physicians can pursue either individually or collectively. Under arrangements, specialty hospitals and performance bond transactions as well as other business arrangements could well be a thing of the past based on suggested legislative changes. These changes will have an impact on the economic opportunities for physicians.

In addition the complexity of running the business of a medical practice (i.e., human resource management, OSHA, HIPAA, CLIA, etc.) is becoming overwhelming. All of this leads to time compression for the physician relative to productively seeing patients and the need to balance personal and family time. Reported trends would indicate that the environment is becoming so difficult that physicians are seeking changes in employment.

Physician Employment Trends

In an August 2007 report by the Center for Studying Health System Change (HSC)¹, there are clear indications of changes in physician employment. The content of the study compares physician employment trends from 1996/1997 to 2004/2005.

Table 1. Physician Changes by Practice Setting

Practice Setting	1996 - 1997	1998 - 1999	2000 – 2001	2004 - 2005	Change
Solo/Two Physician(s)	40.70%	37.40%	35.20%	32.5%*	-8.20%
3-5 Physicians	12.2	9.6	11.7	9.8*	-2.4
6-50 Physicians	13.1	14.2	15.8	17.6*	+4.5**
>50 Physicians	2.9	3.5	2.7	4.2*	+1.3**
Medical School/Hospital	18	20.3	20.4	21.3*	3.3
Community Health Centers – Other	8.3	10.5	10.4	10.1*	1.8

 *Change from 1996 to 1997 is statistically significant at p<.05
**Multispecialty practice data was included in the 6 to 50 as well as 50+ physician practice data. This segment of group practice did experience a 3.6% decrease. This would indicate that growth occurred in the single specialty group practices.

As can be seen in the above data, increases are being experienced in the larger groups as well as institutional employment. Reported observations indicated that the decrease in physician employment in the solo and smaller practices was represented by specialists as well as older physicians. The reason for the growth in practices >6 – 50 physicians relates to the economic opportunity to provide profitable procedural and diagnostic services as well as impact in managed care contracting. Physician administrative responsibility is also substantially mitigated in a larger group practice setting. The growth that was experienced in hospital employment was with specialists and not primary care. The study showed that for primary care the employment in solo or small group practice has remained stable. Overall employment in this primary care setting stands at 35.6%.

Additional Market Studies

The reported time frame for the HSC study was 1996 to 2005. In a more recent study conducted by Merritt, Hawkins & Associates², the recruiting activity for hospitals is soaring. From 2005 to 2006, recruitment by hospitals accounted for 20 to 25% of all physician recruitment, with 2006 to 2007 activity standing at 40 to 45%. This comes at the expense of all other sources for physician recruitment. Particularly impacted is the physician recruitment in solo and small practices (3 to 5 physicians).

Observations

As can be seen, these two reports provide significant insight into the future of physician employment. Changes in regulatory/reimbursement policies by the government will continue, thus negatively impacting the business opportunities in the medical market. In turn, physicians will move to the employment environment that affords the highest economic recognition for their work. The recently released HSC study would indicate that physicians are moving to employment in larger single specialty group practices as well as in hospitals and health systems. The recent Merritt Hawkins study shows that there is very aggressive physician recruitment for the hospital market. In working with this segment of the market, the employment focus/opportunities are in specialty recruitment. Specialty recruitment is occurring to protect profitable service lines for the hospital (i.e., orthopedics, cardiology, etc.) as well as for hospitalist programs. In particular, specialist recruitment is occurring in the smaller to mid-size hospitals. For some locations where physicians are experiencing high cost in malpractice premiums (i.e., neurosurgery and obstetrics/gynecology), hospital employment is the option of choice. The institutional employment of primary care appears to be stable. However, as market pressures continue for primary care access for the indigent and underserved populations, hospitals will look to community health center solutions to relieve this problem in their communities. It should be anticipated that the relationship between hospital and community health centers will continue to grow in order for hospitals to meet community needs and effectively manage emergency department access.

Practice Management Trends

For those in practice management, the trends indicate that the employment in the solo/small practice environment is diminishing. At the same time, employment in the larger group practices and hospitals will be the areas for career opportunities. Institutional employment of physicians (i.e., hospitals, medical schools, community health centers, etc.) could exceed 40% if physician recruitment meets the indicated demand for hospital employment of physicians. This will be the growth market for medical practice executives. It does need to be stated that administrative knowledge/skills needed for employment in the institutional environment is much different than that of private practice. Appropriate steps will need to be taken by medical practice executives to professionally prepare for these new work environments.

If you have any questions or comments about this article, please contact Jim Hamilton of Somerset's Health Care Team.

¹Libehaber, Allison and Grossman, Joy M., “Physicians Moving to Mid-Sized, Single Specialty Practices,” Health System Change, August 2007.
²Merritt, Hawkins & Associates, 14th Annual Review of Search and Consulting Assignments, July 2007.

Health Care Commentaries is provided by Somerset’s Health Care Team for our clients and other interested persons upon request. Since technical information is presented in generalized fashion, no final conclusion on these topics should be made without further review. For additional information on the issues discussed, please contact a member of our Health Care Team. This document is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

Somerset CPAs, P.C.
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Indianapolis, Indiana 46240
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