Private Practices

3 top reasons why doctors are selling their practices to hospitals

Timothy M. Smith , Contributing News Writer

A recently released analysis of 10 years of data on physician practice arrangements sheds light on the growing shift from private practice to physician employment in the U.S., including what’s driving the decision for many doctors.

The AMA Policy Research Perspective—“Recent Changes in Physician Practice Arrangements: Shifts Away From Private Practice and Towards Larger Practice Size Continue Through 2022” (PDF)—looks at changes in employment status, practice ownership, practice size and practice type, as well as differences between private and hospital-owned practices. 

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The analysis was based on data collected from 2012–2022 by the AMA through the nationally representative Physician Practice Benchmark Survey, which explores the changes in the ownership and organization of physician practices.

“One of the most notable changes has been the decrease in the percentage of physicians who work in practices that are owned entirely by physicians—private practices,” wrote the perspective’s author, Carol K. Kane, PhD, director of economic and health policy research at the AMA. “The share of physicians in private practice decreased from 60.1% in 2012 to 46.7% in 2022.”

The survey’s data shows that, “by far, the most cited reason for hospital and health system acquisition had to do with payment,” Kane wrote.

In fact, almost 80% of physicians indicated that the need to negotiate higher payment rates with payers was a “very important” (46.1%) or “important” (33.4%) reason why their practice was sold to or acquired by a hospital or health system.

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Managing payers’ regulatory and administrative requirements was the second most-cited reason. More than 71% of physicians said it was either very important (36.2%) or important (35.2%).

Only slightly behind that, at 69%, was improving access to costly resources, which was cited as very important to 40.5% of respondents, and important to 28.5%.

Learn more with the AMA about understanding physician employment contracts.

Besides changes in practice ownership, there have been changes in practice size. In that 10-year span, the share of physicians in practices with fewer than five physicians dropped from 40% to 32.8%, while the share in practices with 50 or more physicians rose from 12.2% to 18.3%. 

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Even more dramatic, however, were the differences in practice size between private and hospital-owned practices. In 2022, more than half of private practice physicians, 51.9%, worked in practices that had fewer than five physicians, compared with just 17.4% of physicians in hospital-owned practices. Meanwhile, nearly one-third of physicians in hospital-owned practices, 31.4%, worked in practices that had 50 or more physicians, compared with only 10.5% of private practice physicians.

Hospital-owned practices also tend to encompass more than one physician specialty.

“Private practice physicians are much more likely to work in practices that are structured as a solo or single specialty practice,” Kane said in an interview, noting the study found nearly 81% of private practice physicians worked in solo or single-specialty practices in 2022, compared with 37% of physicians in hospital-owned practices. In contrast, 43.5% of physicians in hospital-owned practices were in multi-specialty groups compared to only 18.2% of private practice physicians.

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In addition, physicians in private practice are significantly less likely than physicians in hospital-owned practices to work in practices that provide primary care—44.9% compared with 61.2%. A practice was considered to include primary care if the surveyed physician was in a primary care specialty or if their practice included primary care physicians.

“Hospital-owned is a very different practice environment,” Kane said. “You’re larger. You’re more likely to have a focus on primary care.”

The AMA has assembled a variety of resources to help physicians flourish in the employment setting. That includes developing the Annotated Model Physician-Group Practice Employment Agreement (PDF) and the Annotated Model Physician-Hospital Employment Agreement (PDF), as well as experts’ perspective on collective bargaining for physicians.

At the 2023 AMA Annual Meeting, the House of Delegates adopted policy backing efforts to ban many physician noncompete provisions.