My first practice out of residency was the equivalent of a beloved mom and pop shop of women’s health. This was a small private practice with three OBGYNs, the same front desk staff for decades, the same MAs for decades, the same office manager for decades, and the same patients for decades. Everyone was family. Babies came to work when daycare fell through, one provider covered for another when someone’s family dinner went late or the weather was perfect for an evening on the water and away from the cell phones. It was a wonderful environment to work in. Over time, office space rent increased, insurance reimbursements decreased, the 1:2 to 1:3 call became exhausting, the lead provider was nearing retirement, and a private practice of 50+ years made the difficult decision to transition to an employed group.
For the first time ever, fewer physicians are in private practice than employed, academics, or other hospital settings. The AMA has been conducting a survey every other year since 2012 and has noted a steady decline in the number of physicians in physician-owned practices. Their most recent report in 2020 showed that now only 49.1% of physicians report working in a physician-owned practice – I’ll be curious to see the results of the 2022 report! This drop is 5% from the 2018 report and 11% from the original 2012 report. The trend toward larger, employed practice is accelerating and this marks the first time the majority of physicians are not in private practice. The shift in a mere decade is jaw-dropping.
In a time when physician burnout is at an all-time high and physicians across the country are resigning at unprecedented rates, is it time to reconsider this trend? Could a return to private practice be a way out of burnout? Physicians find private practice to provide the autonomy so many of us crave and so many of us lose or have lost by working for a hospital. There is also a historical incentive of increased compensation relative to employed practice.
Autonomy is a critical component to practice as a physician. We have spent decades training and perfecting our skills in our field and we expect to be able to build a schedule and practice style that serves us, our practice, our patients, our lives, and our families. This might mean hours that accommodate school pick-up and drop-off, or consistently making the Tuesday night women’s tennis league, or being able to schedule our office visits in 30-minute slots instead of double-booked into 15-minute appointments…the list of autonomy-possibility goes on.
Compensation is also a driver. Based on the most recent 2022 MGMA Provider Compensation Data Report, 29.5% of physician-owned practices use a 100% productivity-based model. In this model, one can choose to do more and therefore be compensated more or do less and thereby be compensated less. Again we see how these practices emphasize and support autonomy. One concern that some providers may have when evaluating private practices is that compensation up front is initially lower in private practice, which can be a deterrent. Short-term pain can result in long-term gain, however. With autonomy, flexibility, and creativity, physicians in private practice can earn around 15% more than their hospital-employed peers. The MGMA survey data highlights this difference between physician-owned (private) practices and hospital- and health system-owned practices: median total compensation by a 100% productivity model shows that primary care physicians on average earn $315,421 annually versus their hospital-employed peers who earn $273,286 annually. Although it may take a few years with a practice to achieve this point, the potential is impressive. Over the course of a career, this difference can compound to a much more dramatic wealth potential for private practice providers than hospital employed.
So…how do we evaluate a private practice? Here are three areas you can spend some time diving into with your future partners prior to signing the contract.
- How do you become a partner in the practice? As we discussed earlier, base salary is generally much lower relative to hospital-employed practices, with the potential to increase. This increase generally arises when a provider achieves partnership. One of the more important areas to discuss in detail and have specified in your contract is what the path to partnership will be. Assuming your goal is to achieve partner status, knowing when this will be offered and whether it is guaranteed or contingent is critical. Here are some questions you can ask to get you started in your evaluation:
- What are the changes to the employment agreement when I become a partner?
- What changes when I become a partner? Compensation, schedule, call, benefits, etc?
- What is the buy-in price and how has it changed over time?
- What is the compensation model? As discussed, many private practices function under a collections model, rather than salary or wRVU model. In a collections model, physicians are compensated based on the income they generate for the practice, or what is “collected” for the work that they have provided. Unlike in a wRVU model, in which the physician is paid on production, in a collections model the physician is paid when the physician’s service is actually reimbursed to the practice. Details on collection structures are essential, as this is a common compensation model for private practices. Some factors that matter in a collections model:
- Overhead of the practice: if the provider is responsible for paying all or a portion of overhead, understanding these costs is critical.
- Payor mix: different types of insurance may reimburse better or more reliably than others, so understanding the payor mix of the practice is key to understanding how this will impact compensation.
- Likelihood and timeliness of collections: it is important to ensure that the practice submits billing in a timely manner and follows up on collections. If a patient or insurance does not pay, then the provider does not collect for his or her services. Keep in mind that collections may not be seen for 30 to 90 or more days from the date of service. This lag could also impact a physician leaving the practice, who certainly wants to be reimbursed for the work he or she did in the last few months at the practice.
- What is involved in leaving the practice? Understanding ahead of time termination processes, protocols, and costs is critical to a smooth exit. Life changes and so oftentimes our jobs need to as well. Being aware of termination costs within private practices will help protect you mentally and financially prepare for that transition. For example, private practices are less likely to cover your tail insurance, so knowing this ahead of time, receiving quotes for tail, and putting that money aside for future access will greatly relieve future headaches. Another question to consider is what happens to the shares/partnership if you pass away or become disabled. And finally, confirming how you will be paid for all of the services you provided, even when collections occur after your final work date, provides you full compensation for the duration of your time with the practice.
Given the rapidly changing times, one of the many strengths of private practices is their adaptability – the clinical care models, processes and protocols can adjust quickly as the few partners can sit together to make decisions and process changes. The bureaucracy of a hospital-employed practice can delay change and cause frustration and burnout for physicians. Although we are seeing that the rates of reimbursement are going down while the costs of doing business are going up, there is still great potential for private practices in the world of medicine. When exploring work with a private practice, you could (and should!) spend extensive time talking to the partners, the office staff, and the practice’s CPA to gather as much information as possible. At the same time, I also encourage my colleagues to have a professional review their contract and help guide them through these conversations. At Contract Diagnostics, we are working with physicians exploring private practice on a daily basis and are well educated on the nuances of the model. When you don’t know what you don’t know, we’re here to help! Please do not hesitate to reach out to an expert at Contract Diagnostics to help you with your next review.
Provider Compensation: An MGMA Data Report. “Provider Pay and the Pandemic: Realizing Recovery.” May 2022.