Why Is Private Practice On the Road to Obsolesence?

Physicians have always wielded a certain amount of power in hospitals by being able to control admissions of patients to hospitals on which they participate as medical staff members.  

Hospitals compete to have as many physicians on staff who will admit as many patients as possible to highly competitive hospitals. Physicians pay medical staff dues on an annual basis  for admitting privileges (that's the privilege to admit one's patients to a specific hospital) and become medical staff members as independent contractors. They are not employees or salaried.  Generally, physicians seek admitting privileges  to more than one hospital and decide to which hospital to admit patients. The choice is presumably based on which hospital the physician feels will best serve the needs of his patients. But that's not the only criterion.

Because of a corporate practice prohibition in California, hospitals, with some exceptions, for instance state hospitals,  may not employ physicians. The reason is potential conflict of interest, e.g., the worry that some physicians might succumb to pressure from hospitals for rapid patient turn around or to unnecessary admissions to enhance corporate profit for the hospital. The corporate practice prohibition is supposed to make sure that physicians remain responsible to the patient, not to the corporate entity.

That is why corporate entities want to reduce the power of individual physicians to influence the hospital's corporate bottom line and to find an alternative way to admit patients. That problem  has been solved: one way to get around the corporate practice act is to hire a physician to develop a department and to have that physician choose the physicians who'll work at the hospital. In this scenario a chief physician hires other physicians. This scenario doesn't violate the corporate practice prohibition.

Patients can buy insurance policies that tie them to large corporate entities such as foundations,  exchanges, or Accountable Care Organizations (ACOs).  These business entities  may then hire physicians and assign them to groups of patients at designated locations such as clinics or hospitals and get around the corporate practice prohibition. It also takes away the authority of physicians to select their own patients and to admit them to a wide choice of hospitals. This method gives increased power and ultimately increased financial remuneration to the foundations, exchanges, and Accountable Care Organizations (ACOs) and to a lesser extent to each individual hospital since the hospitals will be obliged to affiliate with increasingly larger corporate entities which will compete with each other.

The physician is now an expense to the foundation,  exchange, or ACO. It makes corporate sense for the foundation,  exchange, or ACO  to negotiate the lowest possible remuneration for  physicians who are salaried workers and who will be as obliged as any other worker to negotiate for higher pay, health care insurance, vacation pay, and retirement benefits. Physicians are subject to "economic credentialing," i.e., a corporate record that compares how much each physician spends on diagnostic tests and treatment for each patient. At the end of the year, if Physician A has ordered diagnostic testing and treatment averaging $25,000 per patient  while Physician B has made the hospital or foundation pay $50,000 per patient, the physician who made his plan pay twice as much for patient care is less likely to be offered a renewal contract.

As the provision of healthcare becomes an expense to the business plan, it also becomes an impediment to corporate profit. Physicians, in this scenario, are the gatekeepers to their employers' banks. That is why physicians are quitting private practice -- they can't keep up with advances in healthcare at the same time as they need to compete economically with each other and also with increasingly better oiled business organization.

Health Care Corporation of America is HCA on the New York Stock Exchange (NYSE).  In Northern California, in Santa Clara County, HCA owns Good Samaritan Hospital and Regional Medical Center. UnitedHealth Group is UNH on the NYSE and purchased Monarch Health Group in Southern California while its Optimum business group bought ApplcCare Medical Group and Memorial HealthCare.  Meanwhile, Humana, listed on the NYSE as HUM, took over Metropolitan Health with its network of physicians who render care to Medicare patients and Concentra with 300 clinics in 40 states. Health  Management Associates, listed as HMA on the NYSE, recently featured on CBS' 60 Minutes, is under investigation. In this environment, individual physicians whose primary attention is to comparatively small groups of patients may be sliding into obsolescence.