Capital options for independent physicians

We're losing a key part of the healthcare system for want of affordable capital

Independent physicians are struggling. The pressure to consolidate is coming from many quarters, including the unfavorable negotiated rates independents receive, aggressive offers from health systems and private equity firms, and existing debt, including that left over from medical school.

Last week, I spoke at the ONCare Alliance National Leader Summit in Phoenix about capital options for independent physicians. I’m also working on a report with American Economic Liberties Project on this topic, out soon!

The burden facing independent physicians

It has become harder and harder to exist as an independent physician. The software and technology burden is high, the administrative burden is high, independent physicians have to do more work to get their claims reimbursed, and they’re paid less for those claims because they have less negotiating power.

We’ve constructed a system that encourages physicians to consolidate on the promise of efficiencies — but those efficiencies rarely materialize. Instead, study after study has shown that physicians are happier and provide better, lower cost care when they’re independent.

A loss of independence

I used to think “capital” was about as boring a topic as you could find. That was wrong! The capital that a physician has to run their practice is the difference between flourishing and floundering. The options that independent physicians have are limited but varied. They can take out a standard small business loan from a bank, leverage their real estate as collateral or sell it, pursue a joint venture with a health system, or sell a majority stake to a private equity firm. (This list is not all-inclusive but these are the major options for most specialties.)

With each additional step along that list, a practice loses more control. For some physicians, that might be ideal. As running a small practice becomes more complex, more physicians feel ill-equipped to be both a doctor and a small business owner. Medical schools often take for granted that physicians plan to join a system or otherwise be employed, rather than running their own shop. Education on all of the ins and outs is limited.

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If you aren’t, like me, innately opposed to the idea of being employed by a much bigger system, that might not sound that bad. After all, doesn’t it make sense to aggregate the billing and administrative functions to experts? Shouldn’t a doctor have more time to just be a doctor?

This is a pitch that has worked on thousands and thousands of physicians over the last few decades. Paul Starr’s Social Transformation of American Medicine has chapters like The Growth of Corporate Medicine, and Doctors, Corporations, And the State, tracing the increasing employment of physicians as they flocked to corporate providers.

At the same time, physicians have felt the sting of the loss of independence. Once you’re employed, you often lose control over your own scheduling templates (and therefore the length of each appointment). You don’t always get to choose the equipment that you use, the billing practices you follow, the number of patients you take on. Combined with other major trends in healthcare, including increasing administrative burden, the burn-out rates among physicians have skyrocketed. In 2020, before the pandemic, I wrote about how physicians had begun to organize, with echoes of traditional labor organizing, as they work to get back some control over their work.

A loss for innovation

I would also argue that this loss of independence is a loss to innovation and quality healthcare. Not only are the statistics dramatically in favor of independent physicians providing high-quality, low cost care, disproportionately in care deserts, but physicians who are operating independently have more time to practice the way they want, change how their practices run, experiment with new models of being a doctor.

There’s a reason that physicians who have been burned by being part of a large system or who are under a noncompete often turn to concierge care — it’s a much better way of life! (I should note that while I think cash pay care is an important safety valve for a lot of physicians and patients in our current system, it’s not a sustainable, long-term policy fix for American healthcare; not enough people can access it, and it doesn’t work for high acuity care.)

Now what?

I’ve been working on that report about physician capital options, which is forthcoming and I’ll share when it’s published. Most of our policy recommendations involve developing new, more favorable terms for financial products, rather than relying on efficiencies or AI to solve the problem. When I first started writing this newsletter, I thought that technology had the potential to fix everything in healthcare. I still hope it makes a difference — it must, looking at the arc of healthcare history in America — but I no longer think it’s a substitute for real policy changes.

We need our human doctors to be able to practice how they want. The vast majority of doctors want to provide affordable, high quality care in a setting that respects them as skilled workers. The further we stray from that ideal, the worse American healthcare becomes.