March 3rd, 2025
California Physician Employment Contracts And The Employed Physician Model Of Professional Services Delivery
by Jim Vogele
Introduction
I recently mentioned in an article on this website that an Oregon physician contract review client had indicated that my specialty reviewing physician contracts is in high demand; I joked that I wasn’t aware of this “high demand.” But in the past week I have heard the same sort of ‘high demand’ comment from a California physician contract review client. Thus, jesting aside, I thought I’d briefly discuss the trend toward physician employment models in American healthcare.
With well over 100,000 physicians, California has more physicians than any other state in the U.S. (followed by New York, Texas, Florida, and Pennsylvania, in that order). The majority of California physician contracts are for employed physicians, of course, and this trend toward employed physicians and away from independent physician practice is evidenced nationwide. As an aside, I also see a significant number of California Independent Contractor or Professional Services Agreements which entail physicians being self-employed in theory, although these contracts generally involve the physician working for a larger organization that takes care of many or most aspects of the business side of healthcare and in that sense resembles an employment model more so than a truly independent practice approach to healthcare.
It is worth a few words about the corporate practice of medicine doctrine, or more specifically the prohibition against corporate practice of medicine, whenever one is considering the issue of employment of physicians in California.
The Medical Board of California position
Given the strict interpretation of the corporate practice of medicine doctrine in California (which is the most restrictive in the U.S.), physicians in The Golden State, as you are no doubt aware, are almost never employed directly by hospitals (which is common practice in many other jurisdictions). Rather, employed physicians in California will most often be working as employees for an entity that itself contracts with healthcare systems or foundations in order to provide the physician coverage essential to providing the medical services that are the sine qua non of hospital care.
The Medical Board of California has provided guidance:
The following is to provide guidance to physicians on the prohibition against the corporate practice of medicine. Corporate law can be complicated and it is encouraged that licensee’s discuss their medical practices and business enterprises with knowledgeable legal counsel that specializes in this area of practice.
Listed below are the most frequently inquired topics in regards to corporate practice of medicine.
Business and Professions Code (BPC), section 2052, states: “Any person who practices or attempts to practice, or who holds himself or herself out as practicing…[medicine] without having at the time of so doing a valid, unrevoked, or unsuspended certificate…is guilty of a public offense.”
BPC, section 2400, states, in part: “Corporations and other artificial entities shall have no professional rights, privileges, or powers.” This section of the law is intended to prevent unlicensed persons from interfering with, or influencing, the physician’s professional judgment.
https://www.mbc.ca.gov/Licensing/Physicians-and-Surgeons/Practice-Information/
Among the handful of exceptions California has enacted to hospital employment of physicians include clinics at certain medical schools, nonprofit research clinics, narcotic treatment programs, specialty pediatric hospitals, and certain critical access hospitals. For a thorough discussion of the corporate practice of medicine doctrine in California, this 2022 publication by the California Hospital Association is very helpful:
https://calhospital.org/wp-content/uploads/2022/11/BRG-CPOM-Report-Final-Draft-031622.pdf
In sum, as is generally set forth in some fashion in your California physician employment contract, physicians should always retain their ability to provide healthcare consistent with their own best medical judgment. Period. Of course there are myriad considerations relevant to healthcare decision-making, but the independent rendering of medical decisions is paramount to the profession – without it, the profession would be a mere shadow of its once proud self.
A thoughtful panel discussion on the trend toward employment
An online search for the percentage of U.S. physicians who are employed versus those who maintain an independent medical practice provides stark evidence of the trend. Articles from just a few years ago were noting large year-on-year increases in the percentage of physicians working as employed physicians rather than practicing independently. This trend continues in 2025, and, notably, the percentage of new physicians entering their professional careers out of residency or fellowship as employees continues each year to reflect the trend, with the percentage of younger physicians who work as employees notably higher than older, established physicians.
This trend for younger physicians to be employed, rather than practicing independently, makes sense of course, and is true of California physicians just as it is elsewhere. The cost of starting a practice is high, the regulatory scheme governing healthcare is necessarily complex, and, when dealing with third party payors, larger groups or entities clearly have greater bargaining power.
Recently, in February 2025, Becker’s Hospital Review published a very helpful panel discussion of the phenomenon of physicians increasingly moving toward an employee model during their professional careers:
As noted in the Becker’s Hospital Review newsletter, the trend toward an employed physician model is almost certain to continue. Among the many reasons for this trend, as noted in the article, are the increasing overhead associated with the practice of medicine, including increased costs of administration, insurance, technology, and complex regulations. Working as an employed physician remains just as challenging in the most important sense of providing quality care to patients as does an independent practice, but there is little doubt that a bit more compartmentalization is achievable between being at work and being off work when one is employed versus when one is both providing healthcare and running a healthcare business. Endless call obligations without limits, anyone? Of course not; and reasonable expectations in this regard are something that should always be a consideration when evaluating an offer of employment as a physician.
As briefly discussed below, the movement to a greater percentage of physicians practicing their profession as employees rather than independents is hardly a negative overall. Considerations such as avoiding burn-out and nurturing a greater work-life balance are major benefits of an employed physician model. To be sure, burn-out and related phenomena are present in the world of employment as a physician; but practicing as an employee can and does relieve some pressure and can provide greater stability and predictable income flows.
The benefits of employment can be significant
Lest this article sound discouraging, I want to emphasize that there are many benefits to working as an employee rather than running your own business. While I’m a California physician contract review attorney and not a doctor (and do the same type of legal work for Montana, Washington, and Oregon physicians), I have been running my own business for decades. As a business owner, I can advise that the parts of work I enjoy the least enjoy are the many requirements of running one’s own professional practice – the marketing, the billing and the regulatory compliance, handling the taxes, office space and communications equipment, and the list goes on and on. I’m currently doing nearly all of this myself, and over the years I have become extremely efficient at doing so. Indeed, performing physician contract reviews involves less of the aforementioned components than most other legal work I’ve done. Litigation nearly always involves teamwork and as the practice of law has grown more complex, that involves technical assistance, oftentimes extremely high-volume document discovery, review, and management, along with all the other basics of business operations.
While I know that even employed physicians often feel up to their ears in paperwork, forms, documentation, and reporting requirements – the volume of these tasks for which you are personally responsible, and related headaches, increases greatly with an independent practice. But rather than taking it from me, I recommend taking a look at what the experts have to say in the discussion is set forth in the Becker’s article linked above.
Conclusion
The demand for my services in reviewing California physician contracts is of course an important reason for my focus in this area. Given the overarching focus of my career as an employment lawyer, primarily representing employees, the transition to a narrower focus, specifically working with physician contracts, has been quite natural. As I’ve mentioned elsewhere, employment is always inherently contractual.
Given that some ‘inherently contractual’ relationships are better than others – and given that there is always room for improvement – I am grateful to be of assistance to physicians whenever I can be. Even if your physician employment contract is already an excellent document, it remains advisable, if not essential, as you embark upon your professional career as an employed physician, that you understand the contractual legalese governing your relationship with your employer.
