Private practice can’t keep up with current payment rates

Payment rates spur physicians to sell practices

Inadequate payment rates were the most cited reason among independent physicians who sold their practices in the last 10 years. These physicians sold their practices to either a hospital, private equity group or insurer, the report stated.

In 2024, 70.8% of independent physicians said negotiating higher payment rates was a "very important" or "important" motivator for selling their practices. This reason was also at the top for physicians whose practices were sold between 2020 and 2024 and for physicians whose practices were sold between 2014 and 2019, the report found.

Medicare payments to physicians are 33% less than in 2001, when adjusted for inflation, the American Medical Association reported in a separate analysis.

On Jan. 1, 2025, physicians also saw a 2.83% cut to Medicare rates under the Physician Fee Schedule, which dictates the rates practices get for delivering services to Medicare beneficiaries. This marks the fifth consecutive year for Medicare physician payment rates.

Medicare payment rates are part of health policy and regulation. However, private practices are also losing out on the commercial side of healthcare.

Practices owned by hospitals, private equity groups and insurers tend to have more leverage during payment rate negotiations with healthcare payers. Hospitals and health systems, for example, can negotiate contracts across multiple facilities and service lines, while private practices do not have the same scale and resources to negotiate these contracts.

Hospital-owned practices can also bill at a higher facility rate than private practices. However, lawmakers are considering site-neutral payment policies, as research points to better outcomes at lower costs when services are performed in a private versus outpatient setting.

Other reasons for selling a private practice

Following inadequate payment rates, independent physicians who sold their practices over the last decade also said costly resources and administrative requirements were major motivators for offloading their practices.

The analysis found that 64.9% of independent physicians in 2024 rated the need to improve access to costly resources as "very important" and "important" reasons for selling their practices to a hospital, private equity group or insurer.

Meanwhile, 63.6% of independent physicians said better management of payers' regulatory and administrative requirements was "very important" or "important."

Notably, over half of independent physicians (55.1%) gave top rank to easing participation in risk-based payment models as a reason for selling their practices.

"The cumulative impact of burdensome regulations, rising financial strain, and relentless cuts in payment poses a dire threat to the sustainability of private practices," Bruce A. Scott, M.D., president of the American Medical Association, said in a news release. "After adjusting for inflation in practice costs, Medicare physician payment has fallen 33 percent over the past quarter century, which has severely destabilized private practices and jeopardized patients’ access to care. Payment updates are necessary for physicians to continue to practice independently."

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.