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Private Practice Reimbursements Continue Decline, Hospitals Get Bigger, Healthcare Costs Rise

Increasingly, the idea of running a private practice in the U.S. is becoming less attractive to new medical school graduates and seasoned private practice owners alike. Unless they’re currently rounding the corner to retirement, many private practice physicians are getting offered attractive packages from local hospital systems. A New York Times article from 2010 tells us that 70% of medical practices were doctor-owned in 2002, while less than 50% were owned by doctors by 2008 – with the rest of them being hospital-owned.

The benefits of accepting a private practice buyout offer from a hospital system are also relatively decent: the elimination of administrative costs, no worries about finding new patients, more reliable/formal work schedule, top class fringe benefits, a solid retirement package, and reduced liability all around. Of course, all of these benefits have always existed – and physicians that have gone into business for themselves have their own reasons for doing so, the reasons include the ability to have better control over one’s path to success, a source of personal and professional pride, a personal contribution to one’s local community, and the possibility for better revenues.

What is unique now is that competition from other local practices and hospital systems has increased, hospital system marketing efforts have improved, and insurance reimbursements have declined. The Patient Protection and Affordable Care Act (PPACA AKA Obamacare) has an impact as well…but it’s still to new and too politicized to get into in this brief article; besides, there are already enough factors affecting the future of private practice that don’t involve PPACA anyway.

Hospital systems are still able to pay decent salaries to physicians because their finances are a great order of magnitude higher than private practices – services cost more at hospitals and insurance reimbursements are higher to hospitals. A?recent?Wall Street Journal article?about rising healthcare costs provides examples of procedures costing four times as much at hospitals than non hospital facilities.

The situation for America’s physicians can seem bleak, especially with the majority of media reporting/opining negatively about the healthcare industry like this CNN article entitled?Doctors Going Broke. However, let’s be realistic – the business environment has changed and it’s time to view private practices as businesses operating in a highly competitive environment. If doctors are going broke because they’re running their own practices it’s because they need to make wiser business decisions – logic must prevail today more than ever. Now is the time to set up strong patient retention and satisfaction programs and reduce patient attrition rates. Insulate the private practice from external pressures by promoting those factors that make a private community physician so important to the community’s well-being, and develop a 5-year and 10-year plan for the practice, as any wise business would. Some ideas to get you started are outlined in one of our previous articles,?Overcoming Private Practice Hurdles. The important thing is to act now, before it gets too late.

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