By Wayne Winegarden
Pacific Research Institute
Independent physicians are disappearing. Increasingly, the doctors Americans see are employees of hospital systems or insurance conglomerates.
Government policy is a major reason for this wave of consolidation.
Medicare’s reimbursement rules, payment advantages for hospitals, and distortions embedded in the federal 340B drug discount program have weakened independent physician practices. The result has been a wave of acquisitions that’s pushed doctors into hospital employment and reduced competition among healthcare providers.
In 2012, fewer than one-third of physicians were affiliated with hospitals. Today, nearly six in ten are. Between 2018 and 2026, hospitals acquired almost 33,000 physician practices and added roughly 181,000 physicians to their payrolls.
Hospitals are snapping up physician practices with an assist from the federal government.
Medicare physician reimbursement has fallen by roughly 33% in real terms since 2001, even as the cost of operating a practice has climbed. Unlike hospitals, physician practices do not receive automatic inflationary updates from Medicare.
Medicare also pays more for outpatient services when delivered in hospital outpatient facilities rather than physician offices or ambulatory surgery centers. Those disparities encourage hospitals to acquire physician practices and then bill for the same services at higher hospital rates.
The 340B program compounds those distortions. Under the program, eligible safety-net hospitals can purchase drugs at discounts and bill insurers and Medicare at full price, retaining the spread.
Many hospitals have transformed 340B into a significant source of revenue. Between 2010 and 2024, they added more than 17,000 contract pharmacies to their 340B distribution networks. Spending on discounted 340B drugs reached $100 billion in 2025, up from $5 billion in 2010.
Some independent physicians have responded to these structural disadvantages by partnering with outside firms for financing, administrative support, technology, and other business support. These management services organizations, or MSOs, can enable physicians to resist hospital acquisition and focus on practicing medicine.
Some state lawmakers are wary of MSOs because they’re often backed by private equity firms and other corporate investors. They worry financial interests could exert improper influence over patient care.
In response, some states are revisiting “corporate practice of medicine” laws, which generally require physicians — not corporations — to own medical practices.
The rationale behind these laws is straightforward — medical decisions should be made by physicians, not corporate executives or investors.
But hospitals — the primary drivers of corporate consolidation — are often exempt from these rules. Further, restricting physician practices from partnering with MSOs does not eliminate the financial pressures driving consolidation.
Oregon recently enacted restrictions on how physician practices may partner with MSOs. Other states are considering similar proposals. But many of these proposals go beyond protecting physicians’ clinical autonomy and instead dictate how medical practices may organize and finance themselves.
California has charted a better path. In 2025, the state enacted legislation that preserves physicians’ clinical autonomy and prevents non-licensed entities from controlling medical decision-making, rather than broadly restricting how independent practices structure their business relationships.
If policymakers want to preserve independent medicine and reduce healthcare consolidation, they must address the financial distortions pushing physicians into hospital systems.
Congress should index Medicare physician reimbursement to inflation; adopt site-neutral payments so Medicare pays the same amount for the same service regardless of setting; and reform 340B so it supports vulnerable patients rather than hospital expansion.
Protecting physicians’ clinical independence is essential. But making it harder for independent practices to survive will ultimately leave patients with fewer choices, less competition, and higher costs.
Wayne Winegarden, Ph.D., is Senior Fellow in Business and Economics at the Pacific Research Institute and Director of PRI’s Center for Medical Economics and Innovation (medecon.org). This piece originally ran in the Richmond Times-Dispatch.