The question of how much money physicians should make has long been a provocative topic. Even about 250 years ago, pioneering economist Adam Smith summarized the prevailing tone when he wrote, “We trust our health to the physician… Such confidence could not safely be reposed in people of a very mean or low condition. Their reward must be such, therefore, as may give them that rank in the society which so important a trust requires.” (An Inquiry Into the Nature and Causes of the Wealth of Nations; 1776)
With today’s focus on the need to control US healthcare costs and boost the number of primary care physicians, physician payment again is in the limelight.
Physicians are clearly fighting to maintain the incomes they — often justifiably — feel they deserve and for which they have paid their dues. But it’s obvious that just about no one else in society is weeping over any potential decline in physician salaries.
Few experts think that US physicians overall are paid too little, especially compared with most American workers. Some say that US physician fees, income, and services overall are excessive, contributing to US medical spending that’s by far the highest per capita in the world. Others argue that certain types of specialists, such as radiologists and orthopedic surgeons, are paid too much, while others, such as family practice physicians, pediatricians, and geriatricians, are paid too little.
A growing number of experts argue that the prices that physicians and other providers charge need to be curbed, along with wasteful and inappropriate care. That could lead to reduced physician incomes — though no one wants to see the draconian Medicare sustainable growth rate cuts take effect.
However, many consider high physician incomes to be perfectly justified.
Another view is that the US free market more or less accurately determines how much money it takes to attract and keep talented people in medicine. In a country where the top 1% have an average pretax income of $380,000, not counting capital gains, while the median household income is about $50,000, these observers say that it takes the promise of high and secure earnings to convince the brightest young people to choose a career in medicine rather than the potentially more lucrative fields of finance, management, law, and lobbying.
Shouldn’t Doctors Be Happy With Their Incomes?
There’s sharp disagreement among medical leaders, researchers, and policymakers about whether doctors, especially those in certain fields, should earn less, more, or about the same; how to implement such changes; and whether changes to physician pay would have any impact on total US healthcare spending. Physician services account for only about 20% of total costs — much less than hospital services.
Still, no physicians earn as much from the practice of medicine as some hedge fund managers and other fantastically rich occupants of the 1% circle, who can make tens of millions a year. On the other hand, doctors earn a handsome return on their educational investment compared with people in most other occupations, says William Weeks, MD, a psychiatry professor at Dartmouth University who has studied physician incomes vs those of other professions.
“No doctor is making $250 million doing clinical work,” says Dr. Weeks, citing corporate CEOs’ giant stock option payouts. “But doctors have more job security and a confirmed high level of income, though they also have a ceiling. Compared with business, medicine attracts less entrepreneurial, more scientific people who want a stable, predictable life.”
Isn’t Life-and-Death Responsibility Worth More?
But is what US physicians earn fair and adequate given the life-and-death responsibilities they bear? Economists say yes, noting that physician income is clearly sufficient to attract plenty of qualified applicants to US medical schools, which turn away 10 times as many people as they accept. Still, is what US doctors make a “just” income — one that grants doctors, in the words of Adam Smith, “that rank in the society which so important a trust requires”?
Uwe Reinhardt, PhD, a Princeton University economics professor, has suggested that doctors should earn enough after expenses to place them at or above the 95th percentile of US income — $200,000 in 2011, according to the latest Medical Group Management Association (MGMA) physician compensation survey. Indeed, the median primary care physician compensation of $212,840 last year met that standard, while the median specialist physician compensation level of $384,467 placed specialists above the 98th percentile.
“Doctors should be among the best-paid people in society because we give them a great deal of responsibility,” says Joseph White, PhD, a public policy professor at Case Western Reserve University who studies international healthcare systems. “But we have great income inequality in the US, and doctors use the high-level group as their reference point. That means the 95th percentile is further from the average worker than in Germany or Holland. That bothers me.”
He notes that other advanced countries deliberately consider how much physicians should earn when setting payment levels, which runs against American free-market ideology. “What they come out with has to be seen as fair in terms of the overall income of doctors relative to each other and to the rest of society,” says Dr. White.
Of course, international comparisons are tricky because US practice costs, including overhead and liability premiums, are much higher, and educational expenses for US physicians are considerably greater than in other advanced countries where medical school tuition costs are heavily subsidized. But the income differential for US physicians significantly exceeds those higher costs. According to an article in the September 2011 issue of Health Affairs, the income difference after practice expenses between US and British orthopedic surgeons in 2008 was nearly 5 times the difference in education repayment costs, meaning that US physicians are earning compensation in excess of what they’d need to pay back medical school debt.
Better Outcomes Should Earn More, Too
Medical leaders contend that physicians who provide better value in terms of outcomes should be paid more. Still others say that physician pay is a nonissue because other factors have far greater impact on total healthcare costs. Other health sector players, such as hospital, health plan, and pharmaceutical executives, make even more money.
“There’s no objectively right answer about what a doctor should make,” says Dr. White.
It’s no secret that different types of US physicians make hugely different amounts of money. According to the latest MGMA physician compensation survey, in 2011, geneticists earned median pay of $142,234, geriatricians $195,000, general pediatricians $203,948, family physicians doing obstetrical work $204,411, general internists $215,689, invasive cardiologists $472,446, invasive radiologists $486,764, and general orthopedic surgeons $520,119. Certain subspecialists earned substantially more, with neurologic surgeons earning $704,170 and cardiovascular-pediatric surgeons making $725,704.
Physicians owning ancillary facilities such as diagnostic imaging may actually earn more than the MGMA figures because what they reported may not have included ancillary revenues, according to the MGMA.
Where Are the Complaints?
Looking at those numbers, “it’s hard for any [US] doctor to complain about income,” says Glen Stream, MD, president of the American Academy of Family Physicians. “But our grave concern is the disparity between primary care and subspecialty income. That’s a huge driver in medical students choosing specialties other than primary care. Attracting more people to primary care would make our healthcare system higher-functioning and more cost-effective.”
Still, even US primary care physicians generally receive higher fees and higher incomes than their counterparts in other advanced countries, while US orthopedic surgeons and other specialists earn far more than their international colleagues, according to the aforementioned Health Affairs article. Adjusted for purchasing-power parity, US primary care physicians in 2008 earned an average of $186,582 before taxes and after expenses, compared with $159,532 in the United Kingdom, $131,809 in Germany, and $95,585 in France. US orthopedic surgeons earned $442,450, compared with $324,138 in the United Kingdom, $202,771 in Germany, and $154,380 in France.
US medical specialty groups don’t see their relatively high compensation as an issue, though some leaders favor shifting away from the volume-based, fee-for-service system to performance-based global payments for managing patients’ conditions. Indeed, some think that high-performing physicians might make more money under that new system. “I could see a world where doctors are paid more for fewer services,” says Kevin Bozic, MD, chair of the American Academy of Orthopaedic Surgeons’ Council on Research and Quality.
“US doctors feel entitled to substantially higher incomes because of that training debt,” says Gerard Anderson, PhD, director of the Johns Hopkins University Center for Hospital Finance and Management. “The problem with that argument is they make a lot of money and can essentially pay off that debt in 5 or so years, then they have another 20 years at much higher salaries than in other countries.”
Even so, Dr. Anderson notes that because physician pay is only a small part of US healthcare spending, if US physician pay were reduced to international levels, it would only cut per capita annual US healthcare spending from $9000 to $8700, compared with about $4500 in other advanced countries.
No one disputes that US physicians are a relatively well-compensated group. According to a New York Times analysis last January, more physicians are in the top 1% of US income — 192,268 — than any other occupational group. Physicians were followed by managers and administrators (192,096), chief executives and public administrators (161,069), lawyers (145,564), and accountants and auditors (61,033).
Other Pay Adjustments
Many experts would like to see the Medicare Relative Value Scale Update Committee (RUC) confront part of the issue by adjusting fees substantially to reduce the large disparity between primary care and specialty incomes, making primary care practice more attractive to medical students. Although RUC, composed largely of representatives from various medical subspecialties, has made modest adjustments over the years, they haven’t been nearly enough to level out the income differences. But RUC says that’s not its job.
Primary care physician leaders place modest hopes on the Centers for Medicare & Medicaid Services (CMS) proposed physician payment schedule for 2013, which CMS estimates will boost Medicare payments to primary care physicians by 7%. Private payers would be expected to follow Medicare’s example.
“If we could narrow the income gap so that primary care income is not less than 70%-80% of subspecialty income, compared with 55% now, that would overcome the barrier,” Dr. Stream says. “Then we’d get maybe 40% of the physician workforce into primary care, up from 32%.” If the workforce ratio eventually rose to 50% primary care, as in other advanced countries, he added, that would significantly improve US health.
But Money Isn’t Everything
Experts agree that money is important but that other changes are needed to make primary care practice more attractive. They say that this requires building a team around primary care physicians so that they have more support and aren’t on call 24/7. That’s a big reason why more primary care doctors are going to work for hospital systems and large medical groups. “Primary care doctors have a crappy lifestyle,” Dr. Weeks says. “If you could attack the lifestyle issues, you could attract more people to primary care. More money wouldn’t hurt.”
Although primary care and subspecialist groups disagree on rebalancing physician payments through the RUC, both camps want more focus on eliminating inappropriate care. That’s in line with the Institute of Medicine’s recent report which found that nearly one third of total US healthcare spending is wasteful. A growing number of major physician groups are participating in the national Choosing Wisely® campaign to reduce unnecessary tests and other services.
But how will this burgeoning effort to eliminate waste affect physician income and total healthcare costs? Some researchers are skeptical that it will have any impact. “We might see a reduction in a particular service, but doctors will substitute something else,” Dr. Anderson says. “They aren’t going to put their MRI machine into mothballs. They’ll keep working 50- or 60-hour weeks and maintain their income.”
And that doesn’t particularly bother him. “There isn’t anything we can do about how much doctors make in total,” Dr. Anderson says. “It would require too much government intervention in the free market. Americans pretty much like their doctors. I don’t think there’s a lot of resentment about how much they’re paid.”
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