Physicians Moving to Mid-Sized, Single-Specialty Practices

Physicians Moving to Mid-Sized, Single-Specialty Practices

Tracking Report No. 18
August 2007
Allison Liebhaber, Joy M. Grossman

The share of physicians working in solo and two-physician practices fell substantially from 40.7 percent to 32.5 percent between 1996-97 and 2004-05, based on a national study conducted by the Center for Studying Health System Change (HSC). During this same timeframe, the share of physicians holding an ownership stake in their practice dropped from 61.6 percent to 54.4 percent as an increasing number of physicians chose employment over ownership. The trends away from the smallest practices and toward employed status were especially notable among specialists and older physicians. Doctors have increasingly gravitated to mid-sized, single-specialty groups comprising six to 50 physicians. Notwithstanding the migration away from solo and two-physician practices, physicians have not been joining large, multispecialty practices -- the organizational model widely considered best positioned to facilitate care coordination, quality improvement and reporting initiatives, and health information technology investments.

Contents

• Solo and Two-Physician Practices Decline
• Practice Trends Reflect Changing Incentives
• Trends Vary by Specialty
• Changes Greater Among Older Physicians
• Policy Implications
• Notes
• Data Source
• Supplementary Table

Solo and Two-Physician Practices Decline

Shifts in how physicians organize their practices and where they work carry significant consequences for the delivery of medical care and patient outcomes. A number of experts contend that large, multispecialty practices -- organizations that bring together primary care physicians and a variety of specialists under one roof -- represent the structural model with the greatest capacity to consistently deliver high-quality care.(1) The federal government has, in fact, directed some quality improvement programs specifically toward these types of practices.(2) Yet despite the various clinical benefits associated with multispecialty practice, this model has lost ground as a growing number of physicians move toward single-specialty practice. The proportion of physicians in multispecialty practices declined from 30.9 percent to 27.5 percent between 1998-99 and 2004-05(3) (data not shown), according to HSC's nationally representative Community Tracking Study (CTS) Physician Survey (see Data Source). While the expansion of multispecialty practices stalled, other meaningful changes in physician practice settings and organizational structures unfolded over the preceding decade as increasing numbers of doctors shifted to larger practices and relinquished ownership roles. Although solo and two-physician practices continued to be the most prevalent practice setting across the United States in 2004-05, the share of physicians in these smallest practices fell from 40.7 percent in 1996-97 to 32.5 percent in 2004-05 (see Figure 1). Similarly, the proportion of physicians in three- to five-physician practices dropped from 12.2 percent to 9.8 percent (see Table 1).

As doctors transitioned into larger practice settings, the share practicing in groups of six to 50 physicians rose from 13.1 percent to 17.6 percent between 1996-97 and 2004-05.(4) More modest increases were observed in the proportion of physicians in practices with more than 50 physicians and in practices associated with medical schools.

Ownership trends during this period closely tracked the changes in practice type. As physicians departed the smallest practices, the share who held full or partial ownership of their practice fell from 61.6 percent to 54.4 percent (see Table 2).

Table 1: Physicians by Practice Setting, 1996-97 to 2004-05

* Change from 1996-97 is statistically significant at p<.05.

1 Includes physicians employed in hospitals and office-based practices owned by hospitals. Forty percent of physicians in this category were in office-based practices in 2004-05.

2 Includes physicians practicing in community health centers, freestanding clinics and other settings, as well as independent contractors.

Source: HSC Community Tracking Study Physician Survey

Table 2: Physicians Who Are Full/Part Owners, by Specialty, 1996-97 to 2004-05

* Change from 1996-97 is statistically significant at p<.05.

Source: HSC Community Tracking Study Physician Survey

Practice Trends Reflect Changing Incentives

The patterns observed in physician practice settings and ownership structures likely stem from shifts in financial incentives over the preceding decade, aligning with HSC site-visit findings regarding changes in practice arrangements.(5) Prior to the inaugural CTS Physician Survey in 1996-97, the expansion of tightly managed care was widely expected to spur the broad development of large, multispecialty groups -- incorporating primary care specialties -- to handle risk-sharing contracts and manage specialty referrals while building negotiating power with health plans. Practice acquisitions by health maintenance organizations (HMOs), hospitals, and physician practice management companies were also projected to accelerate.

By the time the second CTS Physician Survey was fielded in 1998-99, however, it had become apparent that tightly managed care was not expanding as anticipated, and numerous large physician practices were experiencing financial difficulties. By the third survey round in 2000-01, tightly managed care was in clear retreat. The formation of new multispecialty groups had essentially stopped, and third-party entities were no longer purchasing physician practices at a rapid pace. Even with managed care receding, physicians continued to face persistent downward pressures on their incomes as practice expenses climbed faster than reimbursement rates.(6)

Mounting financial pressures gave physicians strong incentives to consolidate into mid-sized practices, enabling them to achieve economies of scale by distributing fixed costs across a greater number of physicians. Additionally, in a fee-for-service reimbursement landscape -- as opposed to risk-sharing arrangements -- physicians had motivation to deliver profitable procedures and ancillary services, including high-end imaging and diagnostic testing. Procedure- and service-heavy specialties were likely better positioned to capitalize on these opportunities than other specialists and primary care physicians. Payment for such services typically exceeded office visit reimbursement, and the expanding trend of physician-owned outpatient facilities opened additional revenue channels. In this environment, physicians stood to gain from consolidating into larger, single-specialty practices that afforded greater capital and scale economies for investing in equipment and facilities to deliver these services. Single-specialty groups grew increasingly attractive because specialists could capture the benefits of group practice without having to share income with primary care physicians -- a longstanding convention in multispecialty groups. These single-specialty groups also found opportunities to strengthen their negotiating position with health plans, while the referral advantages historically associated with multispecialty groups diminished as health plans relaxed referral requirements.(7)

Trends Vary by Specialty

Between 1996-97 and 2004-05, medical specialists saw a 12.0 percentage point decline in solo and two-physician practice participation, while surgical specialists experienced a 10.3 percentage point drop (see Figure 2). By contrast, the share of primary care physicians in solo and two-physician practices held relatively steady at approximately 36 percent throughout 1996-97 to 2004-05. Consistent with the more pronounced departure from the smallest practices, the decrease in the percentage of owners was considerably larger among medical specialists and surgical specialists than among primary care physicians. The ongoing consolidation and declining ownership rates among specialists persisted across the entire 1996-97 to 2004-05 study period.

Although the migration of specialists out of solo and two-physician practices diverged from the pattern for primary care physicians, all three physician categories registered increases in practices with six or more physicians (see Supplementary Table 1). The most notable distinction between primary care physicians and specialists was the greater movement of specialists into other practice environments, including medical school faculty practices, hospitals, and hospital-owned, office-based practices. The renewed interest from hospitals and academic medical centers in broadening their specialty services during this period may have made it appealing for these institutions to recruit larger numbers of specialists.

While in the aggregate there was not a substantial difference between primary care physicians and specialists in terms of consolidation into larger practices, a subspecialty-level analysis reveals that certain medical subspecialties, such as oncology, were moving to larger practices at a higher rate than others. Additional medical subspecialties like gastroenterology and pulmonology, along with all the surgical subspecialties examined, showed movement in the same direction, but the changes did not reach statistical significance, likely due to small sample sizes. These subspecialties also exhibited decreases in ownership rates (data not shown). Some subspecialists may have had stronger motivation to form larger practices because they had greater opportunities to deliver profitable procedures and diagnostic services in outpatient settings. The specific size of practices formed within the six-to-50 physician range may have varied by subspecialty depending on economies of scale related to the clinical services provided and the level of local market competition within each subspecialty. Certain subspecialties did appear to cluster into different practice sizes within that range, but small sample sizes precluded more detailed analysis of these patterns. Other subspecialties had less to gain from forming mid-sized groups in terms of either scale economies or market leverage. For instance, dermatology was the only subspecialty where a majority (61.6%) of physicians continued to practice in solo and two-physician settings in 2004-05.

Changes Greater Among Older Physicians

Although younger physicians were more likely than their older counterparts to practice in larger groups and to be non-owners, this gap narrowed between 1996-97 and 2004-05. Physicians aged 51 and older experienced a 12.7 percentage point decline in solo and two-physician practice participation between 1996-97 and 2004-05, falling from 51.5 percent to 38.8 percent. Physicians aged 40 and younger saw only a 3.5 percentage point decrease, from 28.3 percent to 24.8 percent, perhaps because relatively few were in solo and two-physician practices at the beginning of the study period. For physicians in the 40-and-younger and 41-to-50 age groups, most of the shift occurred between 1996-97 and 1998-99, whereas the trend for physicians over 50 continued throughout the decade. Ownership patterns tracked the practice-type trends within each age group (data not shown).

Policy Implications

As pay-for-performance programs and health information technology (IT) adoption gain momentum, policy makers anticipate that physicians will consolidate into large and, ideally, multispecialty practices. Larger practices are generally better positioned to marshal the financial and administrative resources needed to gather quality data, carry out quality improvement and reporting programs, and deploy information technology, while multispecialty practices offer inherent advantages for coordinating care across disciplines. Large practices are also more likely to employ physicians in salaried roles and to feature structured physician leadership, both of which can ease the implementation of such initiatives. Despite these potential benefits, the expectation of growth in large, multispecialty practices has thus far not aligned with the actual trends in physician organization.

The bulk of growth to date has occurred in mid-sized practices, which, while potentially better equipped than solo and two-physician practices, still fall short of the capabilities envisioned by quality improvement advocates. Furthermore, the increasing consolidation within single-specialty practices raises the possibility in some markets that certain specialties may be able to push prices higher in negotiations with health plans. Some market observers have also expressed concern that if physicians are consolidating into larger practices primarily to deliver profitable procedures and ancillary services, the broader ability of physicians to legally self-refer patients under exceptions to self-referral laws could contribute to the overutilization of certain services, further driving up the cost of care. At the same time, the shift away from smaller practices and practice ownership may come at the expense of some societal benefits. For example, other HSC research has demonstrated that physicians in smaller practices who hold an ownership stake are substantially more likely to provide charity care than physicians in larger practices or non-owners.(8)

Should physician payment incentives tied to quality and IT adoption become more prevalent, many observers predict physicians will once again gravitate toward the type of large, multispecialty groups that expanded during the peak of managed care. However, that shift has not yet occurred. Based on how physicians are currently structuring their practices, it appears the health care system does not presently offer adequate incentives for physicians to reconsider such organizational arrangements. Under the current system, opportunities to reduce practice expenses and -- particularly for specialists -- to boost revenues from profitable services appear to exert a stronger influence on physician organization than potential opportunities to improve the quality of care.

Notes

1. Crosson, Francis J., "The Delivery System Matters," Health Affairs, Vol. 24, No. 6 (November/December 2005).
2. Centers for Medicare and Medicaid Services, Medicare Physician Group Practice Demonstration (July 2007).
3. Data on single or multispecialty practice type were not collected during the 1996-97 CTS Physician Survey. Information on single specialty vs. multispecialty practice type is available only for physician-owned groups and not hospital-owned physician practices.
4. Estimates for practice sizes reflect only physician-owned practices, not hospital-owned practices.
5. Casalino, Lawrence P., et al., "Benefits and Barriers to Large Group Medical Practice in the United States," Archives of Internal Medicine, Vol. 163, No. 16 (September 2003).
6. Tu, Ha T., and Paul B. Ginsburg, Losing Ground: Physician Income, 1995-2003, Tracking Report No. 15, Center for Studying Health System Change, Washington, D.C. (June 2006).
7. Casalino, Lawrence P., et al., "Growth of Single-Specialty Medical Groups," Health Affairs, Vol. 23, No. 2 (March/April 2004).
8. Cunningham, Peter J. and Jessica H. May, A Growing Hole in the Safety Net: Physician Charity Care Declines Again, Tracking Report No. 13, Center for Studying Health System Change, Washington, D.C. (March 2006).

Data Source

This Tracking Report draws on findings from the HSC Community Tracking Study Physician Survey, a nationally representative telephone survey of physicians engaged in direct patient care in the continental United States conducted in 1996-97, 1998-99, 2000-01, and 2004-2005. The physician sample was drawn from the American Medical Association and the American Osteopathic Association master files and included active, nonfederal, office- and hospital-based physicians who devoted at least 20 hours per week to direct patient care. Residents and fellows were excluded from the sample. The 1996-97, 1998-99, and 2000-01 surveys each captured information on approximately 12,000 physicians, while the 2004-05 survey included responses from more than 6,600 physicians. Response rates across the survey rounds ranged from 52 percent to 65 percent. More detailed information on survey methodology can be found at www.hschange.org.

Supplementary Table

Supplementary Table 1: Physicians by Subspecialty and Practice Settings, 1996-97 and 2004-05

This report was published by the Center for Studying Health System Change (HSC), 600 Maryland Avenue, SW, Suite 550, Washington, DC 20024-2512. Tel: (202) 484-5261. Fax: (202) 484-9258. President: Paul B. Ginsburg.

Sources and Further Reading

AMA Physician Practice Benchmark Survey — American Medical Association data on physician practice arrangements, ownership, and employment trends that parallel the findings in this report.

Health Affairs: Physician Practice and Workforce — Peer-reviewed research on physician practice organization, consolidation trends, and implications for care delivery.

AHRQ: Primary Care Research — Federal research on primary care practice models, physician workforce challenges, and the shift away from solo practice.

Bureau of Labor Statistics: Physicians and Surgeons — Federal data on physician employment, work settings, and labor market trends relevant to the practice size shifts documented here.

Robert Wood Johnson Foundation — Funder of the Community Tracking Study surveys that provided the data underlying this research on physician practice trends.