The American Medical Association (AMA) recently released its latest data on physician practice arrangements. Since 2012, the association has released benchmarking data every two years to offer insight into the distribution of physicians—detailing employment status, practice type, practice size, along with age and gender differences.

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Since its release, we've been tracking headlines that oversimplify the results of the report, often focusing exclusively on a single data point that shows physicians working in private practice slipped below 50% for the first time (49.1%). Focusing primarily on that data point, many reports go on to conclude—incorrectly—that the data signifies growing hospital power. We aren't so easily convinced. While this report does show a new milestone for physicians, there are three far more interesting takeaways that we haven't seen in the media narrative.

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What we expected: Continued shift from small to large practice size

Unsurprisingly, one of the more notable trends reflected in the data is the continued shift towards larger physician practices. Small practices—those with fewer than ten physicians, all acting as shareholders—have been on the decline for several years. The trend away from small practices can be explained in part due to changing demographics; younger physicians tend to express less interest being a small business owner alongside their medical practice.

However, recent data from Medscape indicates a pretty even split between residents who anticipate becoming a practice owner (21%), those who would seek employment (28%), and those who consider both appealing (20%). While younger physicians are more likely to seek out larger practices, we challenge the common belief that younger physicians just want to be employed by a hospital. Younger physicians tend to seek out larger entities because they offer more security—but that doesn't mean they have to default to a W-2 relationship with a hospital. As physician practices get larger and more powerful, physicians seeking security could pursue being a shareholder or being employed through several types of ownership models.

The other obvious reason for growing practice size is simply the rate of merger and acquisitions activity in the physician space. Especially as care delivery becomes more complex and value-based arrangements require more upfront resources, very small practices are more likely to struggle financially and be aggregated by larger entities. This may mean hospitals, yes, but it doesn't only mean hospitals. In fact, many independent physicians are acting as aggregators themselves—buying up struggling practices and offering models that appeal to these fiercely independent shareholders. The fact that more physicians are employed (50.2%) than work for hospitals (39.8%) supports this, as does the overarching trend towards employment.

As independent groups get bigger, we expect a continued shift toward mixed models of shareholders and physician employment within a single group. In fact, this shift is greatest among large physician practices, not hospital employment. That's because larger physician groups often offer frontline providers a dual value proposition: the security they would get from a hospital partner, coupled with the autonomy that only a physician-led organization can offer.

Takeaway: Remaining independent physician practices are getting bigger and stronger. These new, larger entities may prove to be more appealing to physicians than their smaller counterparts.

What's still missing: A realistic view of physician partnership opportunities

The AMA data has historically focused on a binary view of the physician landscape—those who have an ownership stake in private practice and those who have a W-2 relationship with a hospital or health system. However, this year's report did include the option to self-identify as working for an entity owned by private equity. Adding this option helps tease out the nuance in ownership type that is lost in an "other" category, but the limited data still makes it difficult to draw conclusions about partnership status (and the corresponding power dynamics) for anything other than private practice versus hospital employment.

But, those limitations aside, we still see an increase in new ownership and partnership models. Importantly, the data shows that hospital employment still accounts for the minority of physicians (39.8%), which gets lost in any coverage that focuses singularly on the percentage who are in private practice. As we have said many times before, the number of physician buyers and physician partners has never been greater. And only by understanding the impact of private equity, national medical group franchises, health plans, and non-equity partners can we truly understand how the physician landscape is changing.

On top of that, the persistent language around "wholly owned" fails to capture how more entities are becoming partially owned or partnering without ownership. Though AMA offers a range of levels of ownership and employment for hospitals, it only offers a "wholly owned" option for other practice ownership types, which fails to capture the true market dynamics of non-hospital physicians.

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This limitation is significant, because the non-hospital-owned space is far more complex, with a range of partners and a range of options outside of full ownership. We see physicians choose partial ownership, affiliation, MSO arrangement, or other models that offer access to technology or the option to join a network in exchange for payment or a portion of incentives. Only when we look beyond ownership arrangements can we truly understand the plethora of partnership options for physicians to choose from. While the AMA report does acknowledge that "no single practice type, ownership structure, or size can or should be considered the typical physician practice," the quantitative analysis has yet to reflect the complex dynamics of the physician marketplace.

Takeaway: We can no longer divide the physician landscape into hospital-employed or private practice shareholder. This binary thinking ignores emerging and powerful physician partners—which have the greatest potential to shake up the physician landscape.

What matters: Despite early predictions of Covid-19's threat, the physician landscape is strong

Early in the epidemic, much of the coverage warned that Covid-19, and the subsequent drop in volumes could be the end of private practice. However, this report refutes that early panic. In fact, only 1% of physicians who were independent pre-pandemic are now employed by private equity or hospitals—and even fewer than that indicated that Covid-19 was the reason they are no longer independent. Instead, as we predicted, Covid-19 merely continued (and in some cases accelerated) ongoing trends toward larger practice size and more secure types of arrangements.

By focusing on only one data point, the industry is again at risk of oversimplifying the threats to physician dynamics. The gut reaction to these data is to hyper-focus on the slowly decreasing private practice numbers and conclude that hospitals are winning the war for physician talent. But that conclusion misses the nuance we've highlighted in this piece. Independent physicians have long been underestimated, but the very real fact is that independent physician practices continue to be stronger than the headlines would make us believe.

Takeaway: The drop in private practice reflects a longstanding trend from smaller to larger practices, and does not guarantee a power grab for hospitals. In fact, it's likely the reverse. To truly understand the power dynamics in the physician landscape, we have to focus on the middle space between hospitals and true independence. It's these partners who are growing the fastest and have the potential to create the biggest disruption.

Editor's note: This story was updated on May 18, 2021.