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What to Take Into Account When Considering Hospital Employment Versus Private Practice

Randall J. Zarin
David H. DuMay
Susan B. Murphy

April 2011
Business Management

Physicians with independent practices have seen their lifestyles change dramatically over the last several months. Between recently enacted health care legislation, pressure to lower reimbursement rates, and stronger enforcement of Medicare and Medicaid claims, many solo and group practice physicians are considering alternatives to private practice.

One potential opportunity for physicians in today’s health care environment is to work as an employee for a hospital. When contemplating this option, a physician must first consider the advantages of running his or her business versus the risks and rewards of becoming an employee.

Changing Health Care System
Hospitals first began acquiring physician practices in the early 1990s, largely focusing on primary care. As profits began to be squeezed by managed care companies, hospitals began vigorously searching for new ways to compete. It seemed like a reasonable notion that consolidating a large number of gatekeeper physicians would provide the hospital with increased bargaining leverage. Primary care physicians found these arrangements intriguing because of the long-term contracts being offered for their services and the often inflated premiums being paid for their businesses.

Unfortunately, most of these agreements did not adequately consider how integration would occur once a practice was purchased. In addition, there was little thought given to benefits measurements or business model metrics. Ultimately, some physicians’ sense of accountability was lost as many hospitals found that they could not manage physicians. Contractually guaranteed incomes often removed the incentives physicians had as owners of their own practices to be productive and efficient. As a result, most of these arrangements lost money and were not successful, and the majority of hospitals terminated or sold the practices they had acquired by the end of the 1990s.

Today, hospitals have turned their attention to increasing market share and filling any ....

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