And what it means for the smaller medical office space
For over a decade, the story in healthcare real estate has had one direction: consolidation. Independent practices sell to hospital systems or private equity. Larger campuses absorb smaller offices. And the demand curve points toward bigger, more centralized medical buildings.
That story continues, but a second story has appeared in the same data, complicating the version developers have been building toward.
The numbers still say consolidation is winning
Let’s start with what’s not disputed. As of January 2024, over 77% of physicians were employed by hospitals, health systems, or other healthcare organizations rather than leading or owning an independent practice, according to data from the Physicians Advocacy Institute and Avalere.
A 2025 GAO report found that at least 47% of physicians were employed by hospital systems in 2024, up from less than 30% in 2012. It’s a narrower definition than the PAI-Avalere number, but the direction is the same either way. A separate AMA analysis puts independent, physician-owned practices at just over 42% in 2024, an 18-point drop from 2012.
Private equity’s share is smaller, but growing quickly, from about 5% of physicians in 2022 to between 6.5% and 7% in 2024, with the GAO noting that private equity (PE) firms accounted for 65% of all physician practice acquisitions between 2019 and 2023.
The economics haven’t disappeared. The Bipartisan Policy Center’s 2026 issue brief highlights why hospitals keep buying practices: Medicare still pays, on average, 2-4 times more for many identical outpatient procedures when they’re performed in a hospital’s outpatient department rather than a physician’s office.
That gap has helped make acquisition attractive for years, regardless of what happens to quality or access afterward. The decline appears at the specialty level, too. David Eagle, MD, an oncologist and president of the American Independent Medical Practice Association, said that when he started practicing in 2000, 85% of oncology care happened in independent community practices. That figure is now under 45%. Family medicine has seen a similar slide. Family physician Melissa Lucarelli, MD, said that about 60% of family physicians were independent 25 years ago compared with 33% today.
For developers who’ve spent years building bigger consolidated campuses because that’s where the volume was going, none of this info is wrong. It’s just not the whole picture.
Why a counter-pressure is building
Three things are happening simultaneously that didn’t used to occur together.
Site-neutral payments are closing the loophole
The payment gap that made consolidation profitable is narrowing — not by much, but by enough to matter. CMS’s 2026 Hospital Outpatient Prospective Payment System rule finalized site-neutral payment policies for some off-campus hospital outpatient services. It cut payments for drug administration services by 60% starting in 2026. It will continue phasing out the inpatient-only list, which has already been pushing more procedures toward outpatient and ambulatory settings.
These actions don’t fully close the gap, but each point it narrows removes part of the financial logic that made buying a practice and reclassifying it as hospital-affiliated worth doing in the first place.
Independent practices as a cost-containment strategy
Payers have begun treating independent practices as a cost lever. An MGIS 2026 industry survey of brokers who sell to physicians points to a documented site-of-care cost gap.
One Harvard study found that care delivered within health systems cost 12% to 26% more than the same care from independent practices. System-affiliated hospital services cost 31% higher on average. Meanwhile, ambulatory service center (ASC) procedures were 35% to 50% less expensive than the hospital equivalent. Payers seeking lower costs without sacrificing outcomes have a real incentive to keep independent practices viable.
Practices growing without giving up ownership
The practices remaining independent are increasingly able to look and function like small systems themselves, without selling ownership to get there.
Doctor-owned super-groups, specialty-driven networks, and outsourced management service organizations empower independent physicians to gain negotiating leverage and back-office scale while keeping the equity. It’s a much different structure than the solo two-doctor practice that was once the only alternative to selling.
A slowing pace
The pace of acquisition has slowed, and some of what was originally bought is up for sale again. Several experts have described a multi-year lull in practice M&A activity after the post-pandemic acquisition spike, with health systems and PE firms now divesting certain physician groups rather than buying more of them.
Many practices coming out from under hospital or PE ownership in markets like North Carolina and California aren’t dissolving but reforming as independent groups. It’s a different pattern than the slower bleed of solo-practice closures we saw in the headlines for much of the past decade.
Evolving reasons for leaving independent practice
The reasons physicians left independent practice in the first place are weakening on their own terms, separate from payment policy. One survey at the University of Chicago found that 61% of employed physicians report moderate or no autonomy to make referrals outside their employer’s system. Nearly 47% said they adjust patient treatment to reduce costs in line with employer incentives.
About 13% of independent practice physicians say they’re burned out, well below the rate among employed physicians. And the administrative tools that once made independence impractical (e.g., EMRs, billing infrastructure, credentialing) have improved.
One practice management consultant who works with physicians leaving hospital systems said that cloud-based EMR platforms and outsourced back-office services have made the operational side of independence “much more manageable than they used to be,” removing one of the biggest reasons physicians sold in the first place.
A complicated story
The story is complicated. Even physicians who believe independence is gaining ground describe it as uneven and far from guaranteed. Lucarelli, who still runs a solo practice, called the structural decline in primary care undeniable.
She’s part of the 80% of solo family physicians remaining independent, specifically because rural communities often have no other option. She noted that the average solo family doctor is now 57, nearly a decade older than the average family physician overall. We can’t call it a renaissance — it’s a shrinking, aging cohort holding on in markets too thin for others to bother with.
Gaining ground, however, is a different type of independence. Eagle’s oncology group has 300 doctors and hired 52 more last year, operating as part of a 1,000-physician national network called OneOncology, an MSO structure built with PE capital where physicians retain ownership and leadership.
He also expects the federal reconciliation bill passed in 2025 to force a hard reset of the unlevel payment playing field between hospitals and independent practices, a shift he said is already appearing. Another doctor in the podcast described the same logic from the management side.
Doctors gain access to shared contracting, technology, and administrative infrastructure without surrendering the practice itself. Acquisition volume has cooled since its post-pandemic peak. Where health systems or PEs are divesting physician groups, those doctors are largely forming independent practices rather than going solo.
The shape of this independent varies by market and specialty, not only by ownership structure. The following still function as distinct paths to the same outcome — physician ownership without the overhead of doing everything alone:
- Direct primary care
- Hybrid membership-and-insurance models
- Collaborative specialty groups that share infrastructure but keep separate ownership
- Micropractices
- Concierge medicine
Which model depends largely on the local market. A concierge practice can thrive in a wealthy urban area with dozens of competitors offering the same services. That same model would struggle in a working-class community where a lower-cost, direct primary care structure makes more sense.
The market-by-market variation matters for real estate the same way it matters for physicians choosing a model. The build-out and footprint of a concierge practice look nothing like what a multi-specialty collaborative group needs, even though they’re both independent in terms of ownership.
Both things are true simultaneously: the traditional small solo practice is struggling, particularly in primary care, and the decline is real and ongoing. A newer, larger, but still physician-owned model is gaining ground at the same time. Think: a return to physician ownership in a different, more scaled shape.
That distinction matters for anyone reading the demand signal for real estate investment because it points toward two different footprints, not one.
What this story means for the medical office space
If the consolidation story were the only one we were reading, the development thesis could remain simple: keep building toward the large, centralized campuses because that’s where volume is concentrated. The counter-trend doesn’t reverse that thesis. It adds a second, smaller footprint category of demand that had less pull a few years ago.
Doctor-owned groups and MSO-backed independent practices still need real estate, but their requirements differ from those of a hospital system — and they’re not uniform among themselves, either.
A specialty-driven super-group needs space built around a narrow set of procedures. A direct primary care or concierge practice needs something smaller and more intimate. An MSO-backed collaborative tends to want shared common space, contracting infrastructure, and the ability to bring multiple small practices under one roof without merging their ownership.
All three are independent in the ownership sense, but what ties them together for a developer’s purpose is what they’re not: a hospital system with capital backing and an appetite for a large, centralized campus.
Doctor-owned groups and MSO-backed practices are price-sensitive on build-out costs. They’re more likely to want mid-sized, multi-tenant medical office buildings in communities. They’re more likely to need a building that can flex between a handful of different tenant types as the local mix of independent practices shifts over time.
Is the large campus thesis wrong? No. Hospital-affiliated consolidation remains the dominant trend by every measure above, and it won’t change course in the next few years. However, the smaller, independently owned medical office segment — which has been treated for nearly a decade as a shrinking category — may be worth pricing and developing again rather than writing off entirely. The demand is coming not from the old version of independent practice but from a newer one that needs a similar building type.
The practical read
Watching site-neutral payment policy and state-level PE oversight laws is a better leading indicator than watching headlines about which model is “winning.” Seven states enacted new PE healthcare oversight rules in 2025, for example.
Payment policy created the consolidation incentive in the first place, and it’s the same lever working now, slowly, in the other direction. Developers who track that lever will have a good idea of which way smaller-footprint demand is moving before it appears as a leasing trend that everyone’s responding to.
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