American health care has changed so profoundly in the last three to four decades that it is all but unrecognizable to those of us spending our careers in private practice. In my opinion, the root causes are not that complex. Foremost among them is the unconscionable disparity between the remuneration received by hospital-employed physicians and that of their counterparts in private practice for the same service or procedure.
This is abetted by an accelerated decline in physician Medicare reimbursement, the vast political power of the American Hospital Association (AHA), and the waning membership and political influence of the American Medical Association (AMA). Finally, the percentage of all physicians committed to political and profession advocacy is regrettably, and inexcusably, low.
The dinosaur’s perspective
When this dinosaur (me) went into community ophthalmology in 1975, private practice was the mode of 70 percent to 80 percent of U.S. physicians. That figure is now less than 50 percent and falling like the proverbial rock. Moreover, 80 percent to 90 percent of present physicians in training wish to avoid the risks of private practice and plan to be employed physicians.
This biased reimbursement discrepancy not only fuels the ongoing trend of physicians leaving private practice for hospital employment but also raises concerns about the increasing financialization of “not-for-profit” hospitals. These sham nonprofits often operate as profit-driven entities, allocating vast resources to inflated administrative staffs and huge salaries rather than prioritizing patient care. This not only diverts resources away from direct patient care but also raises questions about the true purpose of these institutions.
Missouri Medicine and MSMA’s long-time champion of private practice and a critic of nonprofit hospitals was our superb, recently deceased, contributing editor Arthur K. Gale, MD.
The legal framework: the root of all evil
The roots of this unequal compensation can be traced back to changes in reimbursement policies and legal frameworks that govern health care payments.
The Balanced Budget Act of 1997 sought to control Medicare spending and introduced a myriad of reforms, including the creation of the Medicare Physician Fee Schedule. This fee schedule set payment rates for a wide range of physician services. Specifically, and unfortunately and unfairly, it differentiated between hospital-based providers and those in private practice. This has had an unexpectedly drastic effect on how physicians are reimbursed for the same services based on their practice settings. This differentiation was primarily aimed at controlling Medicare spending while ensuring access to care. Did it work? Not at all!
A key rationale for providing hospitals with greater reimbursement was the mistaken belief that they operate with higher overhead costs and provide a substantial amount of “free” indigent care. This narrative, championed by the AHA and the nation’s hospitals, initiated and perpetuates the disparity between hospital and private practice compensation. The issue is further compounded by the influence of powerful hospital lobby groups which advocate for policies that bolster institutional reimbursement rates, thereby entrenching the financial advantages of hospital-employed physicians over their private practice counterparts.
Hospital vs. private practice
The cherished touchstone for hospitals is the platinum-plated “facility fee.” Hospital physicians are paid about 80 percent more than their private practice peers for the same services. This creates untenable differentials. In 2021, hospital physicians were paid on the average $114,000 more than private practice physicians for similar services. The payment difference varied by specialty. The payment gap was $63,000 for primary care doctors, $178,000 for medical specialists, and $150,000 for surgeons. Moreover, the study found the differential grew over time. From 2010 to 2016, the average difference between hospital outpatient and private practice payments grew from 80 percent higher to 99 percent higher.
Among specialties, not all medical or surgical areas are equally attractive to hospitals. They tend to favor specialties that primarily provide inpatient care or those that generate hefty charges for services like laboratory tests, X-rays, and medications. Specialties that function mainly in outpatient settings, such as ophthalmology and dermatology, are often less appealing to hospitals. This is due to their lower potential for generating facility fees and additional ancillary revenue that hospitals always seek to maximize. Hospitals, like Jerry Maguire, say “Show me the money!” Investors and Wall Street know a money machine when they see it: “Since early 2020, shares of hospital operator Tenet Healthcare have quintupled while HCA Healthcare has more than tripled” (Wall Street Journal, January 14, 2026, B12).
Recently, another pernicious trend has emerged: the aggressive acquisition of private practices by private equity (PE) firms, especially in fields like ophthalmology. These for-profit organizations are purchasing practices at an alarming rate, motivating, make that compelling, their physician employees to prioritize profit maximization. This drive for profitability often results in higher costs to patients and a reduction in the quality of care, as PE firms aim to extract as much profit as possible to prepare these practices for a lucrative resale.
Another factor promoting mid- and late-career physicians selling out to PE is, unlike in the past, they no longer have a viable exit plan. Younger physicians are increasingly unwilling to “buy-in” to the practices’ stock and assets given the declining revenues, diminishing salaries, and rising costs of private practice. This is a scenario familiar to this author. When I left solo private practice in 2000, my accountant told me it would be September each year before I cleared enough profit to pay myself a salary.
The impact: a shift towards hospital employment
Given the substantial reimbursement advantages available to hospital-employed physicians, the trend of physicians abandoning private practice in favor of hospital employment continues to grow. According to data from the American Medical Association, the percentage of physicians in private practice decreased from approximately 57 percent in 2000 to just 42 percent by 2024. This dramatic shift illustrates the pressing financial realities faced by private practice physicians.
This migration is not merely a personal choice but a survival mechanism in a highly competitive marketplace. As compensation nears untenability for private practices, rising administrative burdens and regulatory compliance further complicate the ability to thrive independently. A 2021 survey reported that nearly 50 percent of private practicing physicians indicated they would be open to leaving private practice entirely if financial conditions did not improve. The stark reality of financial improvement is slim to none.
This shift towards hospital employment raises ethical questions about physician autonomy and patient care. Many physicians who transition to hospital employment report a loss of independence and control over their practices, which can impact doctor-patient relationships. Hospital docs are usually compelled to refer within their group. There may be pressure to generate more profits by ordering unnecessary tests and doing unneeded procedures and surgery. Monthly billing quotas are often imposed. Patients may find themselves navigating health care systems that prioritize institutional pecuniary objectives over individualized care.
Hospital pressure leads to a more corporatized, assembly-line, 15-minute patient encounters approach to medicine. This also affects scope of practice. Which will be more attractive to patients: 15 minutes with a physician specialist they have waited four months to see, or 45 minutes to an hour with a sympathetic, listening physician assistant or nurse practitioner they waited 12-24 hours to see?
Possible solutions to preserve private practice
To rectify this situation, health policy stakeholders must engage in a comprehensive reevaluation of the current payment structures governing medical reimbursement, fostering an environment where all health care providers are fairly compensated irrespective of their practice setting. Doing so not only preserves the integrity of American health care but also ensures that patient care remains at the forefront of medical governance. The time for reform is now, as equity in physician compensation is critical to achieving an effective and sustainable health care system for all. This is a pat answer that would make Pollyanna proud. The chance of it happening? Zilch!
This is my editorial so here is my opinion. It is wholly inconceivable that hospitals and the AHA would agree to equal pay for equal work. Facility fees are like the air they breathe, not going to stop either. Except for the small number of physicians in concierge medicine or those with such fabulous reputations they can run cash-only practices (think cosmetic surgery), private practice is headed for almost complete extinction. Private practice is dead man walking.
Conclusion
The stark disparity between hospital-employed physicians and private practice physicians demands urgent attention and systemic change. Policies that were initially intended to standardize care and control costs have inadvertently created inequities that undermine both physician independence and patient care. As more physicians continue to abandon private practice in favor of hospital employment, the once diverse landscape of American health care is approaching a homogenization that will jeopardize accessible, personalized care. This evolving ineluctable reality is sad beyond words.
John C. Hagan III is an ophthalmologist.
