Employed vs. Independent Doctors: The Pros & Cons of Each

Employed vs. Independent Doctors: The Pros & Cons of Each

Between 2012 and 2022, more and more doctors have chosen to work as employees than setting up their own clinics. This decision is influenced by factors such as finances, administrative duties, and personal preferences. However, it’s important to note that the choice between being employed or having a practice is unique to each individual, as both options come with their own set of advantages and challenges. Learn more about the pros and cons of being employed vs having a private practice as a physician.

Employment Status for Doctors

As of 2020, more than half of patient care physicians in the U.S. were employed outside of physician-owned medical practices. This milestone underscores a growing inclination towards joining larger healthcare organizations rather than maintaining solo or group practices.

Definition of Employment Status

Employment status defines the relationship between a person and their place of work, impacting factors like work hours, tax obligations, and the terms of the contract. In healthcare, a physician’s employment status can be that of an employee or an independent contractor. Each classification carries distinct implications for tax withholding, benefits, and the degree of control over your work.

The IRS uses specific criteria to distinguish between employees and non-employees for tax purposes. Doctors providing services independently are generally viewed as independent contractors, although the exact classification hinges on the details of their working arrangements.

Factors Determining Employment Status

The distinction between employed and self-employed doctors is nuanced, hinging on control over your work, tax implications, and job responsibilities.

  • Employed doctors may have less control and autonomy but benefit from employer-withheld taxes and a more focused scope of responsibilities.
  • Self-employed physicians enjoy greater control and a broader range of duties but must manage their own taxes and administrative tasks.

Legislation like California’s Assembly Bill (AB) 5, which was signed into law in 2019, also plays a role in the employed versus independent doctor debate. AB 5 introduces the “ABC test” to determine whether workers should be classified as employees or independent contractors. This test examines the level of control over the work, whether the work is part of the hiring entity’s usual business, and if the worker is independently established in their trade.

Pros & Cons of Being an Employed Doctor

Employed physicians often enjoy the perks of reduced overhead, minimal administrative duties, and the flexibility to relocate if desired. Younger doctors, in particular, may gravitate towards employment to prevent further debt accumulation on top of their student loans. However, there are downsides to becoming an employed physician. Employment can sometimes lead to increased burnout and may contribute to the corporatization of healthcare, potentially escalating costs and affecting the quality of patient care.

Pros of Being an Employed Physician

  • Reduced Overhead: Employed physicians typically have fewer expenses related to the operation of their practice.
  • Minimal Administrative Duties: They often have less paperwork and administrative responsibilities.
  • Flexibility to Relocate: Employment offers greater mobility for physicians who wish to move.
  • Attractive for Younger Doctors: Newer doctors can avoid accumulating more debt, as they don’t need to invest in their own practice.

Cons of Being an Employed Physician

  • Risk of Burnout: Employment might increase the risk of burnout due to various work-related pressures.
  • Contribution to Healthcare Corporatization: This model can lead to the corporatization of healthcare, potentially raising costs.
  • Impact on Patient Care: There’s a concern that the quality of patient care might be compromised in a more corporate healthcare setting.

Pros & Cons of Being an Independent Physician

Independent physicians often experience the freedom of running their own practice, making decisions that directly affect their work-life balance. They have the autonomy to choose their own staff and set their office culture, leading to potentially more satisfying work environments. The opportunity to build closer relationships with patients is also a significant advantage, as they are not bound by the policies of larger organizations. However, the challenges include substantial financial risks, increased administrative burdens, and difficulties in insurance negotiations.

Pros of Private Practice

  • Autonomy in Decision Making: Independent doctors have full control over their practice management and staff choices.
  • Potential for Higher Earnings: They may see better reimbursement rates, contributing to potentially higher income.
  • Personalized Patient Care: You might have greater opportunity to develop close relationships with patients and offer more personalized care.
  • Flexibility in Practice Style: Doctors in a private practice can choose the type of medicine they practice and how they administer it.
  • Setting Office Culture: A private practice allows physicians to create and maintain a work environment that aligns with their personal values and goals.

Cons of Private Practice

  • Financial Risks: You could encounter significant financial risks in starting and maintaining a practice, including overhead costs like office space and equipment.
  • Administrative Responsibilities: Independent doctors probably have an increased workload related to the management of a practice, such as payroll and operational logistics.
  • Insurance Negotiation Challenges: It can be difficult negotiating contracts with insurance practitioners, potentially affecting income and patient access.
  • Limited Resources: A lack of access to the resources and support systems available in larger healthcare organizations is another con of working as an independent doctor.
  • Pressure of Business Management: The need to balance your medical practice with the demands of running a business effectively can cause more stress than it’s worth.

Additional Considerations: Tax Responsibilities

Tax obligations differ markedly between employed and independent doctors. Employed physicians have taxes withheld by their employer, while independent doctors are responsible for their own tax payments, including self-employment tax. These differences have substantial implications for financial planning and strategy.

The Bottom Line: Which Is Better, Independent or Employed Physicians?

There’s no better option between employed and independent physicians. Ultimately, the choice between employment and independence should reflect a doctor’s personal and professional aspirations, and they must remain informed and adaptable to navigate the changing healthcare environment successfully.

  • It might be better to be an employed doctor if you prioritize stability, a structured work-life balance, and a robust benefits packages, especially for those with substantial educational debts, but don’t mind limited negotiation power.
  • It might be better to own an independent practice if you prioritize control and decision-making powers, along with certain financial incentives, but don’t mind administrative and regulatory tasks.

Whether this choice leads to employment or independent practice, this journey is uniquely yours, and the most informed decision is the one that serves your needs and goals for the future.

Published on Dec 27, 2023

Written by The Influent Staff

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