Issue Paper

Access to Health Care: Giving Physicians the Choice to Be Employed
Issue Summary
March 2011

California’s more than 430 acute-care hospitals are open 24/7 to care for every person who needs critical-care services. In 2010, California’s hospitals cared for millions of patients.

As California’s population continues to increase — now more than 6.8 million people — hospitals are faced with severe shortages of primary- and specialty-care physicians needed to care for our state’s growing and aging population. These shortages are already impacting patients’ access to high-quality medical care and will continue to do so well into the future.

In 2008, California’s medical board determined California had 20 percent fewer practicing physi-cians than previously assumed, and not nearly enough active primary-care physicians to meet the state’s health care needs. According to the report, only 16 of the state’s 58 counties (approximate-ly one-quarter) have an ample threshold of 60 primary-care physicians per 10,000 people.

The Issue

California has 12 percent of the nation’s population, but produces only 6 percent of the physicians who graduate each year. For the first time since World War II, physicians are leaving California in alarming numbers. Financial and regulatory barriers simply make other states more attractive. In addition, the average age of California’s physicians in private practice is increasing as medical school graduates seek employment arrangements in other states that are not available to them in California.

Adding to the problem is that fact that physicians in California are not allowed to work for most hospitals. Instead, they must set up their own practices and then contract with hospitals or imple-ment other complex and expensive arrangements. Many physicians, especially recent medical school graduates, want to focus on taking care of their patients instead of dealing with the administrative burdens, stress and financial risk of running a medical practice in an increasingly complex health care system. Many of these physicians would prefer the stability, quality of life and benefits of working for an employer like a hospital.

Employment agreements between physicians and hospitals are a common practice across the country. These employment arrangements allow physicians and hospitals to coordinate and pro-vide higher quality care to patients. However, California is one of only five states in the nation that prohibits hospitals from directly employing physicians — even if the physician wants to be employed. This outdated law is known as the ban on the corporate practice of medicine (CPM). There are limited exceptions to the California CPM rule. For example, the University of Cali-fornia (UC) and other public and district hospitals are among a small percentage of facilities that are exempt from CPM and directly employ physicians.

There are some who argue that physicians should not be able to have the option to be employed by a hospital to care for patients. They argue that any kind of employment arrangement will in-terfere with the physician-patient relationship or impact the quality of care. This is simply not true. Many states that allow employment of physicians consistently have higher quality and pa-tient satisfaction ratings than California. Most of the nation, as well as UC and California public and district hospitals, allow physicians to choose the setting in which they wish to provide care to their patients. There is no evidence that limiting physician choice regarding employment somehow improves patient care. To the contrary — California’s unique and outdated CPM law exacerbates our physician shortage and makes it harder for patients to obtain timely care in their communities.

Rural communities throughout California are hardest hit by shortages of physicians as doctors are not evenly distributed across the state. In many rural communities today there are currently not enough primary-care physicians to care for their communities. The ratio of physicians to population tends to be higher in urban areas than in rural regions, and the existing shortage is al-ready causing a serious impact on patient access to care. The shortage is also causing financial instability for as they try to effectively recruit and retain primary-care physicians.

Hospitals are struggling to recruit and retain physicians through different types of arrangements that do not invoke CPM. These agreements – in the form of a professional service agreements or independent contract agreements – are typically time limited and present other challenges for hospitals. They can be complex, expensive and time consuming to establish, and in some cases inefficient and not responsive to the rapidly changing and dynamic health care system.


In this era of health care reform, physicians and hospitals must work closely together to more effectively coordinate care, improve quality outcomes and lower costs. As California continues to struggle with a shortage of physicians, policymakers, physicians and hospitals must collaborate and find ways to allow more doctors the option of being employed.

i. 2009 California HealthCare Foundation report, “Fewer and More Specialized: A New Assessment of Physician Supply in California.”