There’s a lot to absorb in the proposed rule for implementing “MACRA”—the sprawling, bipartisan law passed in 2015 aimed at moving Medicare physician payment from rewarding volume to rewarding value. One question attracting scrutiny is whether the reforms will favor larger practices at the expense of smaller ones. This debate was partly prompted by the Centers for Medicare and Medicaid Service’s own projections that the law would reduce payments for most solo practices.

The controversy over MACRA (the Medicare Access and CHIP Reauthorization Act) raises broader questions. How has physician practice size evolved in recent decades, and what has been driving these changes? And, more generally, would it be a problem if the number of solo and small practices dramatically diminished, or even if they mostly disappeared?

How is practice size changing?

A quick glance at the historical record shows that solo practice has been on the wane for most of the past three decades, so the decline can’t be attributed wholly to MACRA, or the Affordable Care Act (Exhibit 1). Between 1983 and 2014, the percentage of physicians practicing alone fell from 41 percent to 17 percent. Over the same period, the percentage of physicians in practices with 25 or more doctors grew fourfold (5% to 20%).

And yet, despite these changes, small practices remain common. Four of 10 physicians are in practices with fewer than five physicians. These are especially common in rural areas, where lower demand can make larger practices less viable.

What’s driving the decline of solo and small practices?

In part, the shift from small to large practices reflects what social scientists call a “cohort effect”—younger doctors are 2.5 times less likely than older doctors to be in solo practice, and so as solo practitioners retire they are not being replaced. Younger physicians appear to prefer larger practices for the more predictable income and work–life balance they can offer. They may also shy away from the business and entrepreneurial responsibilities demanded by solo practice.

But this generational shift is not the end of the story. There is a secular trend away from small practices among physicians of all ages.

Market dynamics partly drive this development. Practices feel pressure to grow in order to compete with other local providers, and to strengthen their negotiating position with insurers. These pressures can create an arms-race mentality, leading to ever greater consolidation. This leads not only to larger practices, but also to the distinct but related trend of hospitals buying up physician practices to shore up their position.

In addition, public and private actions that create more administrative burdens play a role in the decline of small practices. Employers, insurers, and government are requiring levels of transparency about cost and quality – including through laws like MACRA – that are difficult for small groups and solo practitioners to manage. They often lack the infrastructure needed to collect, manage, and report data, particularly in the age of digitized health information.

Finally, care coordination requires a higher level of organization and new personnel, both of which can be difficult for small practices to afford. As patients and insurers demand seamless, integrated care, larger practices may increasingly gain the upper hand.

How much of a problem would the disappearance of small practices be?

The evidence on whether quality is better in large or small practices is mixed. On one hand, larger practices are more likely to adopt quality improvement strategies that benefit from economies of scale, such as health information technology, multidisciplinary care teams, and after-hours access.

But an important study by Lawrence Casalino et al., funded by The Commonwealth Fund, revealed that patients of physicians practicing in solo and small practices have lower rates of preventable readmissions than those in larger practices. Furthermore, many patients and physicians deeply value the personal relationships that smaller settings can cultivate.

Regardless of the pros and cons, small practices are likely to remain common in rural areas, and some doctors and patients will always prefer them. They will continue to have a role in our health care system.

So the question becomes how to help small practices transition to the new paradigm being created by MACRA and other changes in the health care system. There are several strategies available to both policymakers and private stakeholders, including:

• Encouraging physician networks (e.g., independent practice associations) that enable small practices to share resources.
• Providing technical support to solo and small practices, as the HITECH Act did through a system of regional extension centers.
• Developing payment models that include upfront grants or loans for practices to invest in necessary infrastructure.
• Improving health information technology so that it reduces—rather than increases—the burdens of solo practice.

In recent statements, CMS has affirmed it is looking for ways to help solo physicians and small groups adapt to MACRA, including making $100 million available for technical support. In the coming years, special attention will need to be paid so that small practices are able to keep up with changes that will, hopefully, raise the performance of medical providers of all sizes.

By David Squires and David Blumenthal, M.D.

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