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Physician Pay Remains Stagnant

By: Edward Martin, ACP-ASIM Observer

Despite some gains, inflation and workforce issues are eroding income

From the November 1998 ACP-ASIM Observer, copyright © 1998 by the American College of Physicians-American Society of Internal Medicine.

At the Vancouver Clinic in southwest Washington state, many of the multispecialty group's 75 doctors feel as if they start each day of work running on a treadmill test set on the highest level. Most say they are working longer, harder days but are not being adequately paid for their efforts.

"We're putting in more time and making concessions to see more patients," said Thomas C. Reis, FACP, an internist at the group and Governor for the College's Washington Chapter, "but our salaries are steadily eroding."

For years, physicians have uttered similar complaints. Now, the latest figures from two closely watched barometers of physician pay are proving them right—for the second year in a row.

According to an annual survey of physician pay released this fall by the Medical Group Management Association (MGMA), average pay for primary care physicians rose less than 1% in 1997, while average pay for subspecialists dropped by 0.48%. General internists saw their income fall slightly, while some subspecialty physicians saw significant pay increases.

It was the second year in a row that pay increases for physicians were relatively flat. MGMA's 1997 survey showed a 1.2% average increase for primary care physicians and a 2.58% boost for specialists in 1996.

Data from the AMA's Socioeconomic Monitoring System Survey paint a similarly discouraging picture. The most current data show that from 1993 through 1996, the average increase in salary for all physicians was 2.1%. That figure failed to keep pace with inflation, which rose an average of 2.8% per year. As a result, physician salaries declined 0.7% in terms of inflation-adjusted pay during those years.

"Many physicians will tell you they're working harder to stay even, and to the extent that most physicians are in marketplaces where you have a fair amount of fee-for-service discounting, that's true," said Hobie Collins, a Louisville, Ky., consultant for MGMA. "The only way physicians can maintain their income is by seeing larger numbers of patients at reduced reimbursement rates."

Analysts point out that a number of other factors including rising practice expenses, the growth of managed care and the move by many physicians to salaried positions are making it more difficult for them to make the lucrative incomes many have come to expect. Here are some of the factors affecting physician pay—and the trends they are producing.

Generalists and subspecialists

Perhaps the most significant trend is the continuing stagnation in pay raises—and in some cases, a real loss of income—for physicians as a whole. Even primary care physicians, who had become used to healthy pay increases earlier in the 1990s, have seen the growth of their incomes slow in 1997. While generalists saw pay increases in the 5% range for several years, primary care pay rose by only 0.86% in 1997. Subspecialists fared even worse, as their median income fell by 0.48% as a group.

David N. Gans, who directs research for MGMA, said that an abundance of generalists flooding the market has hurt the growth of primary care income. "Several years ago, there was a serious shortfall of primary care physicians," he said. "Now, our residency programs have done an excellent job at correcting that, but as a result, there is simply less demand for primary care doctors."

If income statistics are any indication, demand remains strong for family physicians but is faltering for internists and pediatricians. While pay for family physicians rose 2.69% in 1997 to a median income of $136,002, internists saw their pay drop 0.09% to a median income of $139,879 and pediatricians saw their pay drop by 0.18% to a median income of $131,803.

Analysts say that as internists in many markets work longer hours, they are in effect limiting demand for primary care physicians and other internists. This decreased demand is leading to a softening of physician salaries in some areas. Since 1995, internists throughout the country have added an average of two additional hours to their workweek, seeing patients for a total of 54 hours compared to 52 hours for physicians overall.

Analysts also attribute the slow growth of primary care pay to the effects of capitation. Margaret L. Stone, vice president of the consulting division of Cejka & Company in St. Louis, explained that as primary care gatekeepers send their patients to subspecialists to stay within their per-member-per-month budgets, they are handing off potential revenue.

As a result, some subspecialists—noninvasive cardiologists, ophthalmologists and pulmonary physicians, for example—saw their pay rise by more than 3%. (See chart, below, for complete breakdowns.)

The gains of certain subspecialists may also be due to the fact that these physicians often have much broader income opportunities than their generalist counterparts. Taylor A. Prewitt, FACP, a cardiologist in Fort Smith, Ark., and Governor for ACP-ASIM's Arkansas Chapter, for example, continues to see longstanding patients who present with illnesses such as influenza. "I've been doing that kind of primary care for as long as I've been in practice," he said. Although Dr. Prewitt's 95-member multispecialty clinic, the Cooper Clinic, has plenty of general internists, he said that "a number of patients still call me first."

But the picture is not so rosy for all cardiologists. MGMA data show that while noninvasive cardiologists watched their income rise by more than 5% in 1997, their invasive counterparts took a 7.7% hit.

In part, the differences in income for both invasive and noninvasive cardiologists can be explained by looking at changes in average gross charges. While average gross charges of noninvasive cardiologists rose by more than 8%, gross charges for their invasive colleagues dropped by almost a full percentage point.

Analysts say the drop in both gross charges and income for invasive cardiologists reflects several trends. Michael Burchardt, CEO of the Nebraska Heart Institute in Lincoln, Neb., explained that physicians at his practice have become more cost conscious when it comes to ordering invasive procedures. Before ordering a cardiac catheterization or other invasive procedure, he said, physicians at the group are increasingly trying noninvasive options like nuclear medicine and echocardiography.

In many parts of the country, physicians are also turning to noninvasive procedures because of pressure from health plans. But even in Lincoln, where managed care has little presence, the 25 physicians at Nebraska Heart Institute have changed their behavior. "It's a conscious effort on our part to limit the expense of these procedures as much as possible in preparation for managed care," Mr. Burchardt said.

Managed care isn't the only thing hurting the income of invasive cardiologists. Mr. Burchardt said that as the U.S. population ages, his group is seeing more patients who are enrolled in Medicare. Because commercial insurers in his area tend to pay more than Medicare, the shift in patient mix has meant that the group's income for invasive procedures has been largely flat.

Employed vs. independent

One factor affecting physician pay is the decision to trade independence and income for a more predictable schedule and benefits. According to AMA data, nearly 39% of physicians worked for someone else in 1997, compared to slightly more than 35% in 1995. Employed physicians worked five to seven fewer hours a week and made less money than their self-employed counterparts.

Employed physicians, however, are seeing larger raises in their income than self-employed physicians. According to the most recent AMA data, employed physicians' income rose 4.4% from 1995 to 1996 to a median income of $142,000, the second similar gain in two years. By comparison, median pay for all private-practice physicians actually decreased by $1,000 in 1996 to a median income of $198,000.

The cash that physicians can earn from selling their practice also makes buyout offers difficult to resist. In parts of the country like the Southeast, where managed care has a relatively weak presence, physicians have many opportunities to sell. Practice management companies typically pay physicians between $300,000 and $400,000 per physician for practice assets such as real estate and equipment.

Nevertheless, some who have sold are less enthusiastic about the trade-off, which typically amounts to about a fifth of a practice's net revenues. The 150 doctors at Holt-Krock Clinic in Fort Smith, Ark., for example, sold their practice to the practice management company PhyCor Inc. to take advantage of its expertise in medical management. They have since gone to court to break that contract, arguing that their incomes declined between the years 1994 and 1997, in some cases by as much as $40,000 a year. Their lawsuit says that PhyCor's promised administrative savings failed to materialize because the practice was already being run efficiently when PhyCor stepped in.

Across town, the Cooper Clinic, the group where Dr. Prewitt is medical director, rebuffed buyout offers from a local hospital and others. Cooper Clinic revenues are up this year, partly because of improved echocardiography and nuclear-medicine technologies, but also because of practice efficiencies, according to Dr. Prewitt.

Even for practices that have chosen to remain independent, income can be variable. IMG Health Care, a 46-physician multispecialty practice in New Orleans, has kept its independence, but the rising costs of doing business sometimes strain physician incomes. "We are operating at close to a 60% expense ratio, where we used to be in the high 40s," said Frank P. Incaprera, FACP, the group's medical director and Governor for ACP-ASIM's Louisiana Chapter. "We're making more money, but we've had to increase the risk we're taking through total medical capitation to do it."

And salaried physicians who gave up their independence for financial security may soon find that they have to work harder to earn that steady paycheck. As outside ownership grows nationwide, more doctors are getting larger portions of their earnings from bonuses and incentives. This trend is expected to continue next year as fully 60% of hospitals that own practices expect to modify compensation plans to help decrease the amount of money hospitals lose annually—on average $53,917 per employed physician in 1996.

Finally, a decline in the use of capitation may soon strain the finances of both salaried and self-employed physicians. Although capitated payments have always made up a relatively small portion of physician income, the percentage of income coming from capitated contracts went down for the first time in recent years, from 8.4% to 7% in 1997. For practices that have invested heavily in technology and redesigned clinics to handle more patients in anticipation of greater volume from capitation, the trend could be disastrous.

One of IMG Health Care's plans that covers 3,000 lives is eliminating capitation in favor of a fee-for-service contract "on a very marked discount basis," said Dr. Incaprera. "They say it's patient preference. We say it is so they can earn the benefits that physicians have been earning recently by managing capitation well."

Academic practice

Managed care is also affecting physicians in academic practice, but the compensation picture there remains somewhat brighter.

According to MGMA data, 1997 median salaries for primary care physicians in academic practices rose by 3.7%, to $114,771, compared to 0.7% or $151,000 for academic specialists. Pediatricians led primary care physicians at academic medical centers with a 3.2% increase in compensation; among subspecialties, invasive cardiology was up 13.1%, rheumatology was up 13.4% and nephrology, 9.1%.

Experts say that academics have fared somewhat better than other physicians because compensation trends in university settings tend to lag behind those of private practices by a year or so.

As with most physicians, however, even academic practitioners find their workload is increasing. In Sacramento, Calif., Faith T. Fitzgerald, MACP, professor of internal medicine at the University of California, Davis, and the College's Governor for the Northern California I Chapter, routinely makes her rounds at 2 a.m. The hour isn't by choice, she explained, but with a roster of 150 regular patients and teaching duties at the university, her only other alternative would be to limit the time she spends with patients.

A better way?

In the central North Carolina mill town of Concord, internist Robert W. Surratt, ACP-ASIM Member, weary from admitting a midnight stroke patient, arrives for a 6 a.m. meeting with the administrator of a local hospital. The subject is direct contracting between a coalition consisting of local doctors, the hospital and a large business, a trend that analysts say is increasingly shaping health care delivery and physician compensation.

Dr. Surratt represents 250 physicians as president of the Cabarrus Physicians Organization, an independent practice association in Concord. The doctors he represents have agreed to link their compensation, for better or worse, to how successfully they control the medical costs of a local 9,000-employee textile manufacturer. "We've created a semi-insurance product without being an insurance company," Dr. Surratt explained. "There is no middleman, and we've put the patient back in front of the doctor in the process."

Dr. Surratt said that direct contracting appeals to both physicians and employers because they retain and split the 20% to 25% of managed care premiums that typically go to overhead. Physicians and employers must pay administrative costs themselves and doctors often assume insurance like financial risk, but Dr. Surratt and others involved in direct contracting say they can administer such contracts, including aspects of managed care like utilization review, for less than 10 cents on the premium dollar. Direct contracting also allows physicians to retain the 5% that for-profit managed care organizations typically pass on to their stockholders.

The impact on physician compensation, said Dr. Surratt, is directly related to how well clinicians manage costs: Because his plan is physician-owned, physician compensation will increase-as long as the doctors are able to control costs.

Paul Dorf, principal and director of consulting for Hospital and Health Care Compensation Services Inc. in Upper Saddle River, N.J., said that direct-contracting plans are gaining strength, often in regions such as the Southeast, where managed care has made the least headway. Surprisingly, however, the trend is also more pronounced in Minnesota, Massachusetts and California, longtime strongholds of managed care. Officials of the 340,000-employee California Public Employees Retirement System, for example, are considering aligning directly with physician groups to trim costs.

But direct contracting is only one way that physicians are trying to become more independent. Some are reconfiguring their practices so they are less dependent on managed care altogether.

Denver internist Rob Gleser, MD, sold his practice to Columbia/HCA Healthcare Corp. in 1995. A year later, in search of smaller patient loads and greater control, he re-purchased it with two other physicians.

On one recent morning, Dr. Gleser prepared to see the first of 14 patients on his schedule for the day. The patient was just one of about 1,000 individuals who will undergo an executive physical exam and lifestyle risk analysis this year. The two procedures are a mainstay of the clinic's business that allow Dr. Gleser to work a 40-hour week and still earn $140,000 after expenses, the median for general internists this year.

"We made a conscious decision that we didn't want to be driven to see 30 to 40 patients a day at 10 bucks a head," said Dr. Gleser, whose practice accepts patients from less-restrictive preferred provider plans, but not capitation plans. "We've been able to achieve a balance of 12 to 15 patients a day, our earnings ratio is considerably higher than that of the average internist and we spend more time talking with and listening to patients."

Dr. Gleser's practice has also turned to other sources of revenue to help make up for a lack of patient volume. The practice performs acupuncture and other forms of alternative medicine and even has its own vitamin line. "We can't increase charges on the insurance side, but the contracts we have with corporations for physicals and the other things we do allow us to opt out of participating in things we don't like," Dr. Gleser said. "We want to be able to practice the kind of medicine we believe in."

Ed Martin is a freelance writer in Charlotte, N.C.

A look at what's being factored into physician pay

In their search for ways to make physicians more productive, many groups are considering a number of elements on which to base and divide compensation plan incentive pools. Here's a look at some that are being factored into physician pay:

Patient satisfaction and access. Consultants say there are several ways to measure patient satisfaction, including patient surveys, patient focus groups, the number of patient complaints, waiting times and member disenrollment, which includes analyzing the number of people assigned to a particular physician who end up leaving their managed care plans.
The Hitchcock Clinic in New Hampshire, for example, tracks survey results, the time it takes patients to get appointments and whether the practice is hitting industry benchmarks for Pap smears, mammograms, routine eye screenings for diabetics and other services. "Quality is measured in terms of patient satisfaction and access," said Jean Abramson, director of contracting for the group's southern New Hampshire region. "It's in the eyes of the customer."
Hamot Health Foundation, a hospital based network in Erie, Pa., is creating a system that will take patient access into account when determining salaries. The group is considering looking at the hours that each practice is open for patient care and the number of evening and weekend hours it provides.

Practice participation. Some groups are trying to encourage attendance at meetings by linking physician participation to their pay. Hamot is creating a compensation system that will include some type of leadership or participation measure. Salaries might suffer if physicians fail to attend less than three-quarters of the staff meetings and half of quarterly meetings, for example.
The Hitchcock Clinic also has a teamwork component that pays physicians for their ability to work together by looking at factors such as internal referral rates. The Carle Clinic, a 300-physician multispecialty group in Champaign, Ill., simply pays stipends to committee chairs, board members and officers for their administrative work.

Referrals and capitation. The Hitchcock Clinic has a budget to refer capitated patients to specialists outside of the group. While physician pay will be reduced if that budget is exceeded, physicians receive no extra pay for skimping on specialty referrals and coming in under budget. "We don't want doctors to feel pressured to cut medically appropriate services," said Jean Abramson, director of contracting for the Hitchcock's southern New Hampshire region.

Cost controls. Deborah L. Walker, principle of Boehm/Walker Associates in Surfside, Calif., said there are a number of ways to measure cost control, including expenditures per relative value unit (RVU), average length of stay per DRG, cost per member per month, non-emergency emergency room visits and ancillary utilization.

The Hitchcock Clinic gives departments a choice of one or more of the following ways in which to measure cost control: bed days per 1,000 members, use of ancillaries such as labs and X-rays, pharmacy use, emergency room use and use of outside rehabilitation or skilled nursing facilities.

The danger, of course, is complexity. Ms. Walker recommended limiting the number of indicators to five. Randy Bauman, president of Delta Health Care, a health care consulting firm in Nashville, Tenn., is wary of attempts to make patient satisfaction and other subjective variables seem objective. "The compensation plan isn't always the best place to manage physician behavior," Mr. Bauman said. "I think things that are simple work best."




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