In the 1970s, the American hospital was, in the industry’s own language, an “open workshop.” A physician kept an office down the street, admitted patients to the hospital when they needed a bed or an operating room, and worked largely independent of whoever managed the building. The doctor made the medical decisions; the administrator kept the lights on and the ledgers balanced. It was an arrangement with obvious flaws (fragmentation, duplication, uneven quality), but it rested on a clear premise: Medicine was practiced by physicians, and the institution existed to support that practice.
That premise has quietly inverted. The hospital is no longer a workshop that doctors visit. It is a corporation that employs them. The practice down the street has been acquired, rebranded, and folded into a system with a marketing department, a real-estate strategy, and a chief executive whose compensation would have been unimaginable to the physicians of the open-workshop era. The people who now set the direction of American medicine are, increasingly, not the people who see patients.
This is not a story about villains. Modern medicine is genuinely more complex than it was fifty years ago, and some of the administrative apparatus that has grown up around it is the price of that complexity: electronic records, safety reporting, cybersecurity, the labyrinth of insurance. But complexity does not explain everything, and it has become a convenient justification for a shift in power that has its own logic and its own costs. The question worth asking is not whether hospitals need managers. They do. The question is what happens to a caring profession when the managers are in charge.
The great inversion: who owns the practice
The clearest way to see the change is in who owns the place where care happens. In the early 1980s, roughly three-quarters of American physicians had an ownership stake in their practice, according to a 1996 estimate from Kletke and colleagues; they were, in a real sense, the proprietors of the medical system. By 2012, that share had fallen to 53 percent. By 2024, only about 35 percent of physicians held any ownership stake at all, according to the American Medical Association’s Physician Practice Benchmark Survey.
| Period | Physicians with an ownership stake |
|---|---|
| Early 1980s | 76 percent |
| 2012 | 53 percent |
| 2024 | 35 percent |
The mirror image of that decline is employment. As of January 2024, a report by the Physicians Advocacy Institute and Avalere found that 77.6 percent of U.S. physicians were employed by a hospital, health system, or other corporate entity, a figure that had climbed relentlessly for more than a decade. More than 500,000 doctors were on those payrolls. In the same analysis, corporate ownership of physician practices (by insurers, pharmacy chains, and private-equity firms) surpassed hospital ownership for the first time, 30.1 percent to 28.4 percent. By the institute’s 2026 update, nearly 64 percent of all physician practices were owned by someone other than a physician.
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The reasons doctors gave up ownership are real and sympathetic: declining reimbursement, the crushing cost of running a small business, the regulatory and billing burden, burnout. Many were relieved to hand those headaches to someone else. But relief is not the same as control. When a physician becomes an employee, the terms of medicine (the schedule, the productivity targets, the electronic templates, the referral patterns, the choice of which services to offer) are increasingly set by people whose training and incentives are managerial rather than clinical.
An army of administrators: the growth of management
As ownership migrated, so did the workforce. The most-cited figure in this debate comes from Physicians for a National Health Program, which calculated that between 1975 and 2010 the number of U.S. physicians grew about 150 percent, roughly in step with population, while the number of health care administrators grew 3,200 percent. The chart built from that statistic has become a fixture of every lecture on what ails American medicine.
| Workforce | Growth, 1975 to 2010 |
|---|---|
| Physicians | 150 percent |
| Administrators | 3,200 percent |
It deserves a caveat, and the caveat matters. Stricter reads of the federal labor data put the growth of health care managers closer to 600 to 1,100 percent over comparable periods, enormous, but not 3,200. Some of the gap is definitional: The raw category sweeps in clerks, coders, billing staff, and compliance officers, not just executives. But even the conservative numbers tell the same story. Administrative roles have expanded several times faster than the clinical workforce, and federal projections expect medical-and-health-services-manager jobs to grow 28 percent between 2022 and 2032, against 3 percent for physicians.
In the most rigorous international comparison to date, a study led by David Himmelstein in Health Affairs found that administration consumed 25.3 percent of total U.S. hospital spending, the highest of eight nations studied, and more than double the share in Scotland or Canada. For-profit hospitals ran even higher, at 27.2 percent. A 2021 analysis in JAMA estimated that the United States spends on the order of a trillion dollars a year on health care administration, roughly a quarter of all health spending, and the American Hospital Association’s own 2026 blueprint concedes the figure now sits between 25 and 35 percent.
Crucially, that spending buys little in the way of better care. Himmelstein’s team found “no apparent link between higher administrative costs and better-quality care.” The overhead is not a proxy for excellence. It is, to a substantial degree, the cost of running medicine as a business that must bill, negotiate, market, and grow.
The corner office: executive compensation
Nowhere is the reordering of priorities more visible than at the top of the pay scale. The chief executive of a nonprofit hospital system (an institution that pays no taxes because it exists, in law, to serve its community) now earns on average about $1.3 million a year, according to research from Rice University’s Baker Institute. That is the average. The distribution runs far higher. In 2018, Bernard Tyson of Kaiser Permanente was paid nearly $18 million, making him the highest-paid nonprofit executive of any kind in the country. The Lown Institute has documented nonprofit hospital chiefs earning north of $30 million in a single year. Even the bottom quartile of nonprofit hospital CEOs out-earns the top quartile of executives running nonprofit arts, environmental, and human-services organizations.
The trajectory is as striking as the level. Between 2005 and 2015, the average compensation of major nonprofit hospital CEOs rose 93 percent, from roughly $1.6 million to $3.1 million, according to a Lown Institute analysis. Over the same decade, Economic Policy Institute data show the wages of the average hospital worker rose about 8 percent. During the first year of the COVID-19 pandemic, when nurses and aides were furloughed or sent to the front lines, more than 80 percent of hospitals kept paying their CEOs bonuses. In one widely reported case, a health-system chief who never touched a ventilator received a 13 percent raise, bringing his package to $30.4 million.
| Compensation | Increase, 2005 to 2015 |
|---|---|
| Nonprofit hospital CEOs | 93 percent |
| Average hospital workers | 8 percent |
How does this happen inside charities? The mechanism is now well understood. Hospital boards set executive pay by benchmarking against “comparable” organizations, but the comparison group is no longer other community nonprofits. It is for-profit hospital chains, which in turn benchmark against the largest industrial and financial companies on Wall Street. Researchers writing in Health Affairs called it “an ever-spiraling upward cycle.” The boards doing the setting are themselves dominated by business: One 2023 study of fifteen top-ranked hospitals found that more than half of board members came from finance or business, and just 15 percent had any clinical training.
And what are these executives paid to do? The Rice study is blunt on the point. CEOs were rewarded, above all, for the size and profitability of their organizations; leading a system with 500 or more beds was associated with 157 percent higher pay than running one with fewer than 100. The link between compensation and actual quality of care, measured by readmissions and mortality, was weak to begin with and grew weaker over the study period. The health economist Vivian Ho, who led the work, found that fatter margins did not translate into more charity care. The incentive, she argued, rewards CEOs for maintaining a lucrative status quo, not for improving a community’s health.
What gets measured: mission drift
Follow the incentive and you can predict the behavior. If a chief executive’s pay tracks the number of beds and the size of the margin, then beds and margin are what the institution will pursue. This is the quiet engine behind the phenomena physicians complain about most: the relentless drive for volume, especially of well-insured patients; the mergers that produce ever-larger systems with ever-greater negotiating leverage; and the building.
Every clinician knows the pattern. The health system announces a gleaming new tower, a rebranded logo, a naming-rights deal, a lobby with a grand piano, while the units upstairs run short of nurses, and the request for another staff physician is denied as “not in the budget.” The capital flows to the things that photograph well and generate revenue: the proton-beam center, the destination cardiac program, the suburban outpatient campus in a wealthy zip code. It flows less readily to the unglamorous work of staffing a ward, keeping a rural clinic open, or caring for patients who cannot pay. A facility is an asset on a balance sheet and a monument to a tenure. Adequate staffing is a recurring expense. Management, rewarded for growth, tends to prefer the asset.
The deepest evidence that this is a governance problem, not merely the inevitable price of complexity, comes from a simple comparison: who runs the hospital. Research by the economist Amanda Goodall found that hospitals led by physicians posted overall quality scores roughly 25 percent higher than those led by professional managers, and for cancer care the gap reached 33 percent. There is, meanwhile, no evidence that installing an MBA-trained chief executive improves outcomes at all. When the person at the top has stood at a bedside, the institution’s priorities appear to bend, at least somewhat, back toward the bedside.
The cost of being managed: consequences at the bedside
For the physician, the shift from owner to employee has a name that is only now entering the literature: administrative harm. Clinicians increasingly describe decisions being made, as one put it to MedPage Today, “by people very far from patients,” with little accountability compared to the accountability a doctor carries for a clinical mistake. A staffing ratio set in a spreadsheet, a prior-authorization protocol, a productivity quota, an electronic-record template designed for billing rather than thinking: Each is an administrative act with clinical consequences, made by someone who will never be sued for it and never meet the patient it affects.
The result is a profession in distress. The documentation burden that administration was supposed to relieve has, for many physicians, only grown, feeding an epidemic of burnout that pushes experienced doctors toward early retirement, part-time work, or exit from clinical practice altogether, which in turn worsens the very staffing shortages that management declines to fund. It is a loop that runs in one direction, and patients feel it as longer waits, shorter visits, and the sense, increasingly common, that the person across the desk is being hurried by forces neither of them controls.
When the math stops working: supply, demand, and the shrinking margin
There is a further twist, and it may prove the most consequential of all: The economics that made the takeover attractive are now turning against it. The country faces a worsening physician shortage: too few doctors trained, an aging workforce retiring, and demand rising as the population grays. Basic supply and demand does the rest. When a scarce resource is in high demand, its price climbs, and physician compensation has done exactly that. Hospital finance officers now cite workforce shortages as the basic driver pushing pay up; consulting firm SullivanCotter found physicians’ median cash compensation recently grew faster than it had in a decade, with primary-care pay up nearly 22 percent over five years and some specialties jumping more than 7 percent in a single year.
Employers, in other words, must pay more each year simply to keep the doctors they have. What they collect for those doctors’ work, however, is moving the other way. Medicare physician payment has fallen roughly 29 percent from 2001 to 2024 once adjusted for inflation in practice costs, according to the American Medical Association. A further 2.8 percent cut took effect in 2025, and even the one-time 2.5 percent increase Congress passed for 2026 does not keep pace with rising practice costs. Commercial insurers, whose rates often track Medicare, have shown little appetite to close the gap. The revenue per physician is flat or shrinking while the cost of employing one keeps climbing.
The shift also quietly rewired who fights for the money. When doctors owned their practices, they fought the payers directly; every fee schedule was their fight, and a Medicare or insurer cut landed on them. Employed physicians have largely stepped out of that ring. They no longer negotiate fees with insurers at all; they negotiate a salary and a per-unit RVU rate with their employer. Their income is increasingly decoupled from what the payer actually reimburses, which means the employer now stands between the two, absorbing the difference between the compensation the market forces it to offer and the fees the payers are willing to pay. Having taken control, in other words, management also inherited the fee fight, and the burden of finding the money to close the gap.
That is a scissor, and it cuts straight through the business case for owning practices. It is an open secret in the industry that hospital-owned physician practices generally operate at a loss: The American Medical Group Association puts the median loss at just under $250,000 per employed physician per year. Systems have papered over the gap by billing acquired offices at the richer “hospital outpatient department” rate, but most experts expect those premiums to erode as regulators tighten the rules, and when they do, more practices will be cut loose. The tell is already in the data: In 2024 and 2025, corporate owners kept buying practices yet grew their physician headcount by less than 1 percent, prompting the question of whether they are quietly shedding the doctors they acquired.
And here the systems confront a bind they are only now fully appreciating. On the ledger, the employed physician is a cost center, an expensive, loss-making line. But that accounting hides where the money actually starts. Almost nothing in a hospital bills without a physician’s order behind it: the imaging study, the laboratory panel, the admission, the procedure, the prescription, the referral to a lucrative specialist. The doctor is not merely one revenue source among many; the doctor is the origin of the revenue, the signature that sets the entire billing machine in motion. Cut the physicians to trim the loss, and the tests, the beds, and the operating rooms downstream go quiet with them. That is the lesson management is learning the hard way: The one input it cannot economize away is the same input growing most expensive.
The irony is sharp. Management consolidated medicine on the promise of efficiency and scale, but it bought into a market where its central input, the physician, was about to become both scarcer and more expensive, while the price it could charge for that physician’s labor was being held down by payers. Layoffs, service-line closures, and the first wave of practice “unwinds” are the early symptoms. None of this restores physician control on its own. But it does mean the model that displaced the independent doctor is now under financial strain of its own making, and strained systems, sooner or later, are forced to reconsider what they are actually for.
Reclaiming the workshop: a way back
None of this argues for abolishing hospital administration, which would be both impossible and foolish; the complexity that management navigates is real, and some of it protects patients. The argument is narrower and more serious. It is that control has shifted too far, that the incentives at the top have detached from the mission at the bottom, and that a system nominally devoted to healing is increasingly steered by the metrics of growth.
What would refocusing look like? It would mean tying executive pay to measures of community health and care quality rather than beds and margins. It would mean boards that include the people who deliver care, not only the people who finance it. It would mean transparency, from publicly owned hospitals in particular, about what executives earn and what quality they deliver in return. And it would mean taking seriously the finding that doctor-led institutions perform better, not as an argument that only physicians may manage, but as evidence that clinical judgment belongs in the room where the institution’s direction is set.
The open workshop of the 1970s is not coming back, nor should everything about it. But its premise is worth recovering: that the institution exists to serve the care, and not the other way around. The doctors who gave up ownership did so mostly out of exhaustion, one practice at a time. Getting the profession’s voice back into the corner office will take the opposite: a deliberate, collective insistence that medicine is still, at bottom, something that happens between a clinician and a patient, and that everyone else in the building is there to make that possible.
This essay is cited in the KevinMD record on private equity and corporate medicine.
Brian Hudes is a board-certified gastroenterologist and hepatologist with more than thirty years of clinical experience and a recipient of his specialty board’s thirty-year certification award. He built and ran a private gastroenterology practice for twenty years, then spent more than a decade in hospital-based gastroenterology, most recently as chief of gastroenterology and medical director of GI and endoscopy at a 550-bed Level I trauma center in Pensacola, Florida. He is an assistant professor of medicine at Florida State University College of Medicine.
Those two halves of a career shape the way he writes about medicine and clinical technology. Outpatient practice and hospital-based care fail their clinicians differently, and many systems are designed without a meaningful understanding of both environments.
Dr. Hudes has been building clinical software alongside his medical practice for decades. In 1995, during his gastroenterology fellowship, he co-developed one of the first Windows-based endoscopy reporting systems in the United States. He is now founder and chief executive officer of AiMOS Systems Corporation, where he is developing an AI-native clinical platform for outpatient and hospital-based care. AiMOS has been accepted into NVIDIA’s Inception program.
He writes about the architecture of clinical information, administrative cost growth, physician workforce shortages, board certification policy, and the widening gap between what clinicians need and what the health care technology industry builds. He also publishes The Renaissance Physician, an independent publication examining medicine, technology, physician workforce, and the structure of modern clinical practice.
