Physicians' Practice Arrangement Decisions Are Critical

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Cover Story – June 2011

Tex Med. 2011;107(6):12-20. 

By Crystal Conde
Associate Editor

While many young physicians today opt to work for someone else, Chelsea I. Clinton, MD, a 32-year-old San Antonio rheumatologist and graduate of the TMA Leadership College's 2011 inaugural class, chose a different career path. She opened a solo practice in 2009. 

Before setting up her own practice, Dr. Clinton worked for a few months as an independent contractor with other rheumatologists. She says the experience allowed her to learn more about the business of running a medical practice.  

"Having my own practice has been a fulfilling experience. The clinic atmosphere is conducive to fostering close relationships with my patients, and as my patient volume is growing, I can focus on providing excellent care," she said. 

Upon completing her rheumatology fellowship at The University of Texas Health Science Center at San Antonio, she considered joining a subspecialty group and started interviewing. 

"I found that in the group setting, sometimes the ideals didn't always match my own. I found issues with high overhead or practice expenses. I found it difficult to justify huge monthly expenses and determined I'd have more control over efficiency in my own practice," Dr. Clinton said. 

In addition to her primary San Antonio location, Dr. Clinton practices three times a month in Fredericksburg and once a month in Boerne.  

While many physicians start out practicing with established medical groups, they may not remain there as employees. Results from the 2010 Texas Medical Association Physician Survey indicate a majority of physicians eventually become full or part owners of a medical practice.  

Survey results point to a trend in practice setting preference that began in the early 1980s. Since then, the number of new physicians who start as owners of a solo or group practice has declined. That trend hasn't resulted in a commensurate increase in the number of physicians currently employed, however, because the majority of physicians don't stay permanently in those employment situations. 

The survey shows that nearly three-fourths of Texas physicians are full or part owners of their main practices, although more than half started practice working as an employee or under a contract.  

While she understands some young physicians choose to work for an established practice because the prospect of starting a practice from scratch is overwhelming, Dr. Clinton encourages others like her to explore all their options. 

"I advise my colleagues to talk with physicians they consider to be role models who work in different settings – multispecialty groups, hospitals, solo practices, or as independent contractors. It's important to get a variety of perspectives when making career decisions." 

Career Resources

TMA has many resources to help physicians examine their career options. The association has tools and services to meet the needs of physicians just starting out independently or as employees.  

For instance, TMA Practice Consulting created a free program to help residents make critical decisions about getting started in medical practice. (See " 'Starting a Medical Practice' Resident Seminar.") 

In response to physicians' declining incomes, shifting demographics, and new trends in physician-hospital alignment, TMA created a new seminar available through the association's Ambassador Program titled "To Be or Not to Be Employed." The on-site seminar provides an expert speaker's overview of physician employment trends in Texas and discusses the pros and cons of independent vs. employment practice models.  

The program educates physicians on evaluating, selling, or merging a medical practice; the impact employment contracts may have on a physician's income, schedule, decision making, and liability risks; and developing a plan when and if employment is no longer a viable option. Physicians may earn 1 hour of continuing medical education (CME) credit by attending the seminar.  

To schedule an on-site session, contact Karen Matthews by telephone at (800) 880-1300, ext. 1448, or (512) 370-1448, or by email. If you have questions about the content of the seminar, call the TMA Knowledge Center at (800) 880-7955 or email TMA Knowledge Center.

Additionally, physicians insured by the Texas Medical Liability Trust (TMLT) may earn professional liability insurance discounts by participating in approved CME activities. TMLT policyholders who listen to a combination of three webinars within 12 consecutive months may earn a 3-percent discount (not to exceed $1,000) applicable to their next eligible policy period. To access TMA's webinars, visit

Know Before You Sign

Mike Kreager, JD, a San Antonio attorney who represents physicians and health care entities, says a variety of factors contribute to the current focus on physician employment. He is the author of Are You Ready for a New Boss? The Risks, Rewards and Other Considerations of Employment and a speaker for TMA's "To Be or Not to Be Employed" seminar. 

"Physicians are in a no-win position. Their take-home pay is shrinking while their costs are escalating. It's a margin squeeze on the part of physicians to earn a profit," he said.  

At the same time, he adds, private payers have unbelievable power in controlling payments to doctors, while hospitals have incredible resources and are in a better position to negotiate with the payers. And physicians continue to face the possibility of cuts to their Medicare and Medicaid reimbursements and threats that hospitals will buy up private practices under accountable care organizations.  

According to Mr. Kreager, hospitals may recruit Texas physicians in one of four ways:  

  • To join an existing practice;
  • To open their own practice;
  • To work as solo practitioners who share offices and expenses with physicians already practicing in the community; or
  • To work for a nonprofit health corporation (NPHC), formerly known as a 501(a).  

Texas law prohibits the corporate practice of medicine. The Texas Medical Practice Act and Texas Occupations Code prevent physicians from entering into partnerships, employee relationships, fee splitting, or other situations in which a nonphysician controls the practice of medicine.

Mr. Kreager says working for a hospital's NPHC is fundamentally different from joining an existing practice or working as a solo practitioner in that the employment arrangement allows a nonphysician to make decisions regarding patient care, protocols, use of medical devices, and other matters. At press time, TMA supported Senate Bill 1661, which would give physician boards of directors control over all policies related to patient care. For more information on the legislation, see "TMA Protects Patient-Physician Relationship" below. 

Before signing an employment arrangement with a hospital, Mr. Kreager encourages physicians to have an attorney review the employment contract. He warns that while hospital administrators can't make medical decisions, they can impose rigid requirements on how physicians make medical decisions. For example, he says, hospital employment agreements frequently dictate the number of hours a physician must be in clinic and how many hours the physician must spend doing administrative work.

He advises physicians to pay close attention to covenants not to compete, or noncompete clauses, which prevent physicians from competing with former employers if they decide to leave and open a practice elsewhere. The Texas Covenants Not to Compete Act sets the criteria for the enforceability of the covenants.  

The law says noncompete clauses are enforceable if they contain reasonable limits on when, where, and how a physician can establish a new practice. For example, an overly restrictive noncompete clause could unreasonably limit the geographic area in which the physician can establish a new practice, prohibit him or her from opening a practice for more than two years, or require an unreasonably high buyout amount that prevents the physician from competing, according to Mr. Kreager. (See "Warning: Know What You Sign," February 2011 Texas Medicine, pages 33–35.) 

Physicians should understand how employment potentially affects their medical liability insurance coverage, as well. (See "Employment Could Affect Medical Liability Coverage.") 

In addition, hospitals control contracting with payers, which Mr. Kreager says can be a blessing or a curse.  

"The hospital has great negotiating power and may be able to get better reimbursement negotiating on behalf of the physician. The risk is the hospital has no incentive to maximize the physician's compensation through reimbursements. The hospital may choose to trade off by discounting some of those physician reimbursements in exchange for better reimbursement for inpatient services rendered by the hospital," he said. 

Finally, Mr. Kreager advises physicians who enter into any employment arrangement to have an exit plan. 

"In my mind, a physician should plan his or her exit before signing the employment agreement," he said.  

Mr. Kreager suggests physicians get the answers to these questions to form an exit strategy:   

  • After I leave, may I take my charts with me?  
  • Will I have to buy a tail coverage liability insurance policy?  
  • May I take my support staff?  
  • If I sold my equipment, may I buy my equipment back?  
  • If the hospital is furnishing the office space, may I continue the office lease in my name?  

Physicians need to make sure the employment agreement addresses each topic on the list, Mr. Kreager says. For example, the contract might state that if the physician's employment is terminated without cause, the physician may take custody of the charts for the patients he or she treated.  

Find the Right Fit

Doug Curran, MD, an Athens family physician and member of the TMA Board of Trustees, has been a partner in Lakeland Medical Associates, Inc., since it opened 31 years ago. He and the practice's 10 other family physicians rent office space from East Texas Medical Center and work as hospitalists at the facility, but they practice independently of the hospital. 

"I like it that way," Dr. Curran said. "We collaborate with the hospital and ensure what we do is good for both of us. In the end, we're doing what's best for our physicians and our patients." 

Dr. Curran loves the private practice of medicine.  

"I like working for the patients, and I don't want to work for anybody else. I have great colleagues, and I personally like an environment where physicians and patients collaborate," he said. 

The seasoned family physician encourages his colleagues to go into practice with other physicians. He advises those considering joining a hospital's NPHC to weigh the potential risk associated with the arrangement. 

"Don't sell your soul. Your professional career revolves around relationships. If you're uncomfortable with the employment relationship, don't get involved. Physicians should also realize there are other ways to supplement their income through hospital work. They don't have to become employees," Dr. Curran said. 

George Shashoua, MD, a urogynecologist, and his medical partner, Koushik Shaw, MD, a urologist, left employment to open an Austin private practice in March. Before striking out on his own, Dr. Shaw practiced at Austin Diagnostic Clinic (ADC) for six years after completing his residency. Dr. Shashoua was part of a midsize obstetrical and gynecological practice in Round Rock for 13 years before going to work for Hospital Corporation of America in 2010.  

"I decided to go into private medical practice not for the money but for the autonomy it affords," Dr. Shaw said. "ADC is a great institution, and working there allowed me to focus on medicine itself and taking care of patients without worrying about all of the business elements." 

After six years in the large group practice, however, Dr. Shaw says his practice had grown, and he wanted to run his own business. 

"I decided it was time to take my career in a new direction," he said.  

Before opening earlier this year, Drs. Shaw and Shashoua hired TMA Practice Consulting to provide practice setup services. A consultant assisted them in screening potential employees, setting up an information technology system, selecting an electronic medical record system, determining how to handle billing and collections, and other functions. Dr. Shaw says he's glad he made the transition to private practice and credits TMA Practice Consulting with getting both physicians started on the right foot. (See "Build a Better Practice With TMA Services.") 

He adds that TMA's Policies & Procedures: A Guide for Medical Practices has been a valuable resource, allowing the practice to craft its own manual. To order the guide, call the TMA Knowledge Center at (800) 880-7955 or email TMA Knowledge Center.

In addition to receiving support from TMA, Dr. Shaw says the Austin medical community has been accommodating.

"Going out on your own is scary, but I've found it to be personally and professionally rewarding. We've received a lot of encouragement and advice from Austin's network of independent physicians," Dr. Shaw said.  

He counts stability, collegial support, and an ability to focus on medicine among the benefits of working as an employee of a large physician group. One of the possible challenges of working for a group, he says, is functioning as part of a large team in which decisions are made for the good of the group and community, not in any one physician's best interest. He says physicians must be able to put the needs of the group ahead of individual physicians. 

Drs. Shashoua and Shaw enjoy working for themselves. 

"At this point, I've taken out significant loans, and I work a lot of late nights in the pursuit of an independent practice. But I don't mind because I love it and have already gotten a lot out of the experience of having a private practice," Dr. Shaw said. 

Dr. Shashoua says the financial backing of employment has to be balanced against the loss of direct control of the practice. 

"In private practice, a physician oversees a practice without having to run it through an employer and without having to deal with all the bureaucracy of a hospital or large group," Dr. Shashoua said.  

According to the 2010 TMA Physician Survey, 77 percent of physicians say personal control of clinical decisions is a "very" satisfying aspect of their current practice environment, followed by:   

  • Geographic location, 75 percent;
  • Personal control of practice decisions, 65 percent;
  • Patient population characteristics, 55 percent;
  • Availability of facilities, equipment, and other specialties, 54 percent; and
  • Investment required, 52 percent.   

Dr. Shaw advises physicians who are deciding whether to enter employed settings or start their own practice to examine their personalities.  

"If you're an independent, entrepreneurial person who enjoys medical practice, wants to learn more about running a business, and doesn't mind taking a risk, private practice is the right choice. If you tend to desire segregation of your work and personal life and want to concentrate on practicing medicine without doing a lot of business management, the employed setting may be a better fit," he said. 

TMA Protects Patient-Physician Relationship

Dr. Curran says TMA has gone to great lengths to protect the patient-physician relationship as pressure has mounted to allow hospitals to directly employ physicians. TMA supports proper and structured physician employment arrangements that guarantee clinical autonomy of physicians – employed and independent – through medical staff oversight.  

TMA President C. Bruce Malone, MD, says the New England Journal of Medicine and the Medical Group Management Association studied physician employment and concluded that hospitals lose money on all contracts in the first three years.  

"Therefore, it seems logical to me that the object is to get control of the doctor's cash flow for the long term, and I do not think the salary promises can be maintained. With a huge cash flow but small profit margins, hospitals are not going to lose money on employed doctors, and the overhead is invariably higher working for the hospital," he said. 

At press time, several bills related to the corporate practice of medicine had been filed in the legislature. Of particular interest were Senate Bill 894 and SB 1661 by Sen. Robert Duncan (R-Lubbock). TMA supported both bills. 

In March, Dr. Curran testified on behalf of TMA for SB 894, aimed at helping the smallest communities and their physicians and hospitals recruit the physicians they need. TMA, the Texas Hospital Association, and the Texas Organization of Rural & Community Hospitals agreed to the bill's provisions.  

Dr. Curran explained to Senate State Affairs Committee members that the bill would create a shared responsibility between the physicians on the medical staffs of small hospitals and the hospitals' administration and board of trustees. SB 894 would apply to hospitals – and other facilities they may own or operate – designated as critical access hospitals and sole community hospitals in counties of 50,000 or fewer residents. 

"We hope that with a structured set of provisions that place the governance of the hospitals' clinical responsibilities in the hands of the medical staff, we have protected the patient-physician relationship and the ability of physicians – employed or independent – to exercise their medical judgment for the benefit of their patients," he testified. 

The bill TMA supported would preserve a physician's independent medical judgment in an employed hospital setting. For example, it contained a requirement that the medical staff designate the hospital's chief medical officer and placed the responsibility for all clinical matters – bylaws, credentialing, utilization review, and peer review – under the hospitals' medical staff. 

Dr. Curran stressed in his testimony that TMA viewed SB 894 as a solution for rural communities, giving them an opportunity to level the playing field against their urban and suburban counterparts in recruiting physicians.  

At press time, the Senate State Affairs Committee had approved SB 894, and it was awaiting Senate action. 

TMA also supported SB 1661. The bill would establish protections for physicians' clinical autonomy and give to the physician board of directors of NPHCs the responsibility for all policies related to clinical care. It also would strengthen the role of the Texas Medical Board in supervising the activities of NPHCs. 

Sara Austin, MD, a member of the TMA Council on Legislation and an Austin neurologist, testified on behalf of TMA in support of the bill. 

At press time, Senate Bill 1661 was being considered in public hearings.  

Crystal Conde can be reached by telephone at (800) 880-1300, ext. 1385, or (512) 370-1385; by fax at (512) 370-1629; or by email.


"Starting a Medical Practice" Resident Seminar

 Starting a new medical practice with the right people, processes, and structure is key to success.  

"Starting a Medical Practice" is a one-hour seminar TMA's Practice Consulting staff conducts for resident programs affiliated with medical schools and hospitals. The seminar is free, thanks to educational grants from law firms; banking, billing, and credentialing institutions; insurance companies; medical equipment and supply companies; recruiters; and marketing firms.  

The program curriculum includes:   

  • Practice options; 
  • Legal organization; 
  • Professional affiliations; 
  • Licenses, certificates, and liability insurance; 
  • Personnel management; 
  • Policies and procedures; 
  • Vendors and suppliers; 
  • Managed care and credentialing; 
  • Financial management; and 
  • Marketing.   

To schedule a "Starting a Medical Practice" seminar, contact TMA Practice Consulting at (800) 523-8776 or email Veronica Moore.  

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Employment Could Affect Medical Liability Coverage

Texas Medical Liability Trust (TMLT) Chief Executive Officer Bob Fields says when a physician opts for employment, some factors come into play that may not exist in an independent practice. For example, when a physician goes to work for a hospital's nonprofit health corporation (NPHC), he says, conflicts of interest could arise when both the doctor and hospital are the subjects of a lawsuit.  

"Even if the hospital selects a separate attorney for the physician, it may be someone from the hospital's panel of attorneys who is loyal to the hospital. It's also possible the attorney chosen hasn't tried as many cases as attorneys who have spent years defending physicians. The attorney may focus more on settling than defending cases in trial," Mr. Fields said. 

To help physicians navigate medical liability insurance issues in an employed setting, TMLT developed a flyer detailing 10 important considerations physicians should be aware of before becoming an employee of an NPHC:   

  1. You may not be able to keep or choose your medical liability insurance carrier. Consequently, you may have to put your reputation and assets in the hands of the organization's self-insured entity. 
  2. You may lose the right to withhold consent to settle if a claim occurs. The insurance carrier provided by your employer may decide whether to defend or settle your case. 
  3. You may have to purchase tail coverage. (Tail coverage is liability insurance that extends beyond the end of the policy period.) Unless your new carrier provides prior acts coverage, you will have to purchase tail coverage, and your new employer may not cover the cost. Additionally, you may lose the free tail coverage you had earned with your current carrier, as well as your accrued claim-free discounts. 
  4. You may lose access to a physician-focused defense. For instance, if you are insured by a hospital's insurer, its attorneys will have expertise in defending hospitals, but may not have expertise in defending physicians.  
  5. What if there are conflicts of interest in a lawsuit? The potential for conflict exists in certain cases when you share a defense with your employer's appointed counsel. Can you be certain such conflicts will be resolved in your interest rather than that of the employer, who may retain certain control over the insurance carrier? This could even lead to settlement of a defensible case. 
  6. What if there are disciplinary proceedings? Will the policy reimburse you for expenses to defend a Texas Medical Board investigation or peer review complaint? What if the hospital or employer has initiated the disciplinary proceeding against you? Who will represent you? 
  7. Will you have enough coverage? Is the aggregate limit on the employer's policy a group aggregate? If there are several significant claims filed during the policy year, will the available limits be sufficient for your claim? What happens if they are not? 
  8. What about "moonlighting" coverage? If you perform activities outside of your employment, do you have to purchase coverage for these activities at your own expense?  
  9. What happens if there is a voluntary or involuntary termination? If the contract contains a covenant not to compete, you may have to leave the area and practice elsewhere. Or you may have to exercise the buyout option (which could be a year's salary) in order to practice in the same area.  
  10. Beware of any promises not made in writing. The employer can change the employment contract when due for renewal.  

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Build a Better Practice With TMA Services

If you're starting a practice from the ground up, TMA can help. TMA Practice Consulting offers practice setup services in three phases.  

In Phase One, TMA consultants meet with physicians and ask about their vision for the practice and their plans and preferences for managing the business. After the meeting, consultants develop a financial document that includes all setup costs and start-up expenses, monthly operating costs, and three-year cash flow projections. This is critical to a physician's ability to obtain a bank loan. 

TMA consultants then help physicians set up telephone, fax, and email service, as well as voice mail service. They provide referrals to professional advisers such as bankers, health care attorneys, certified public accountants, credentialing companies, and realtors. 

Phase Two involves working with physicians to select equipment and necessary services. TMA consultants can either provide resources or request bids for insurance products, billing services, practice management software, medical equipment, office furniture, copier and fax machines, telephone systems, answering services, filing systems, and transcription services. This phase also includes an information technology consultation. 

In Phase Three, consultants help physicians recruit and train staff and implement information technology. 

For existing practices, TMA Practice Consulting offers an operations assessment in which a TMA consultant performs a comprehensive diagnostic review of the medical practice on site. Consultants interview the physicians and staff, observe work and patient flow, and collect information and reports relevant to daily operations. 

The assessment includes:   

  • Accounts receivable analysis; 
  • Review of billing and collections processes; 
  • Patient flow analysis; 
  • Internal controls review; 
  • Managed care process analysis; 
  • Review of medical records systems; 
  • Review of practice management software; 
  • Overhead analysis; 
  • Human resources and personnel concerns; and 
  • Clinical staff operations.   

Upon completing the assessment, the consultant presents a brief summary of the findings. Within 30 days, the practice receives a written report, complete with a full analysis and specific recommendations. 

In addition, the TMA billing and collections assessment can help a medical practice improve cash flow, collection rates, and staff efficiency. A TMA consultant evaluates a practice's business office operations and reviews billing and collections procedures, front office processes, staff competencies, workflow, and financial reports. 

TMA Practice Consulting offers up to 20 continuing medical education credits per physician when performing an operations assessment or billing and collections assessment for a practice. 

TMA consultants involve physicians in practice management decisions and ensure that they're successful in running the office on their own once a project is complete. 

TMA Practice Consulting services are available for a fee. To schedule an operations assessment, billing and collections assessment, or practice setup, call (800) 523-8776 or email TMA Practice Consulting.   

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