Stuart R. Gallant, MD, PhD

The Washington Post just published an article by Andrew Van Dam, “How much money do doctors really make and why is it such a lot?”  The author leads the story with the line, ”The average U.S. physician earns $350,000 a year.”  He then lists the standard knocks on physician salaries:  1) physicians in other countries make less money, 2) the US educates too few doctors, 3) if we licensed more physicians, we could save some money by paying them less.

Today’s post will take a look at what’s driving physician salaries.  In particular, we’ll be considering a bunch of factors that the Washington Post article ignored.

Caveat:  I do have the letters MD after my name, but it’s been some time since I’ve seen a patient.  So, I don’t have a dog in the fight about physician pay.

The End of Private Practice

Years ago, most physicians used to run their practices as small businesses.  They hired office staff and nurses, rented office space, purchased equipment and drugs.  I caught the very end of this trend during my medical training.  I worked in the office of a warm, intelligent, older physician south of Sacramento.  We saw a population of farmers, farm workers, and their families.  In the afternoon, we always took a break to discuss some aspect of medical practice together.  I learned a lot during my time in that medical office.

Forces beyond the control of individual practitioners have largely ended that way of work.  Managed care organizations have better economics of real estate, personnel, administrative costs, and insurance.  As if that was not enough, the transition to the electronic medical record was too costly and complex for many small practices to negotiate.

Today, many physicians have more in common with office workers than small businesspeople.  Doctors are hired on contracts which provide clear parameters on their responsibilities.  In addition, there are a whole host of targets that fall outside their contract, things like how many patients they see per day and the mix of patients and procedures.  These targets are tied directly to physician pay incentives.  And, physicians who do not meet their targets can be fired.

Jack Welch Arrives in the Medical Clinic

In 1981, Jack Welch was named General Electric’s youngest chairman and chief executive officer.  His calling card was cutting nonprofitable business areas.  He closed GE units and factories and laid of many workers.  For the GE workforce that remained, he instituted the 20/70/10 ranking system—the top 20% received bonuses, the middle 70% were encouraged to do better, and the bottom 10% were fired.  His nickname was “Neutron Jack”—as in the neutron bomb which got rid of people and left buildings standing.

Today, doctors are ranked in a similar way.  Some key factors that go into physician rankings are:

• Relative Value Units (RVUs)—essentially how much revenue they bring into the medical service provider.
• Patient Satisfaction—patients receive questionnaires which ask waiting time, visit time, whether their concerns were fully heard, and whether treatments were completely explained.

When combined with the contract system, the 20/70/10 ranking system leads to the following results:

• Physicians have little control of how long they will spend with an individual patient.  Doctors cannot generally say, “Oh, Ms. Jones—she has a complex heart condition—I’d like to book her for an hour appointment.”  Technically, they can do that for one patient, but the practice administrator will still expect them to make up for that “lost productivity” later in the day by seeing another patient.
• Physicians who have complex skill sets—surgeons for example—may be pushed to do simple but lucrative procedures—for example endoscopies.  Certainly, endoscopies are important.  But, this incentive hurts the physicians by preventing them from keeping their skill set sharp, and it hurts patients by making it harder to find a skilled surgeon when they need one.
• In this system, many different medical specialties confront burnout.  It’s been well publicized that primary care physicians confront a challenging workload—every 15 to 30 minutes they have a patient appear in their exam room.  That patient must be heard, diagnosed, treated, and documented—either within that visit or at the end of the day after the clinic closes when medical notes are often finished in the electronic medical record system.  It’s a heavy work burden driven by the low reimbursement for primary care (compared to specialty care).  Interestingly, high reimbursement specialties (such as cardiology) which deliver the lion’s share of medical provider revenue also have significant burnout.  Administration applies the same 20/70/10 system to these specialties—out of a desire to maximize overall patient revenue.  So, cardiologists end up working early morning, nights, and weekends to keep up.

Changes to Healthcare

The decline of private practice and the advent of physician ranking have had a profound effect on physician’s day to day life.  What other forces underlie the changes in America’s medical system?

• Medicare and Medicaid:  Medicare and Medicaid represent 38% of total healthcare spending.  Government mandates have a strong effect on healthcare provider behavior.  For example, Congress enacted the Protecting Access to Medicare Act (PAMA) in 2014 which controlled the reimbursement for laboratory tests.  PAMA has led to manufacturers of these tests discontinuing many diagnostic tests—in some cases dozens per manufacturer—because of low reimbursement.  Certainly, some of these tests were of limited value and could be replaced by other tests.  But, Congress was so concerned about the effect of PAMA that Congress passed a temporary patch in late 2022 to delay the implementation of price caps.
• Healthcare Cost Limitations:  The Federal Government, the states, and private insurance purchasers remain concerned about the rate of increase of healthcare costs.  For instance, Massachusetts state law sets a benchmark for healthcare cost growth—in 2024, it was 3.6%.  Waivers for rates above that must be sought from the Health Policy Commission’s Board of Commissioners.

The implications of these types of controls can be dire.  In summer 2023, Massachusetts based Tufts Medicine announced significant operating losses and raised the prospect of defaulting on an $800 million agreement with bond holders.

What Are The Options for Physicians?

Doctors across the specialties are under a lot of pressure.  They have a number of options available:

1. Work Hard:  There’s a joke about two people being chased by a lion.  The first one shouts, “Don’t bother to run, you’ll never outrun a lion.”  The second one shouts back, “I don’t have to be faster than the lion, just faster than you.”  Today, medical practitioners are being judged against vast databases of information about other providers.  If a given provider is more efficient than average and keeps their nose to the grindstone, they can benefit from an alliance of interests with their employer.  The administration of a managed care organization wants to push its doctors to work hard and deliver high RVUs.  If a given physician can keep up the pace, then they are assured a good income.
2. Transition to Supervision:  As more physicians are leaving the profession due to dissatisfaction and stress, in many cases they are being replaced by “midlevels”—skilled providers who are not medical doctors.  Midlevels have a lower level of training and a lower salary.  Midlevels are required to work with a licensed doctor.  This type of supervisory work may offer career growth and increased satisfaction for some physicians.
3. Leave Medicine:  Physicians have a marketable skill set that can be used in many settings.  To some extent, it’s a question of how much change the individual doctor is willing to take on.  It’s usually an easy switch to do chart review in the legal setting—malpractice lawyers require skilled physicians to consider the thought process of medical teams when there is an adverse medical outcome.  For physicians willing to consider more change, the medical device and pharmaceutical industries required doctors in the development process, in clinical trials, and in sales and marketing.  In truth, everyone is up against 20/70/10 ranking.  But, removing the risk of malpractice can significantly reduce the workplace stress experienced by an MD.
4. Push Back:  Transition from the small business owner model of doctoring to the individual worker model can lead to a change in mindset.  Recently, some residents such as those at Mass General Brigham have moved to form unions.  It makes a certain amount of sense that residents—the hardest working group of doctors—would be drawn to unionization.  Unions of highly paid professions, such as airline pilots, are not without precedent.  It’s too early to say whether we will see more MDs with union cards.

Conclusions

At some point, the healthcare system will reach a hard wall.  It takes a finite amount of time to undertake the tasks of a physician (take a history, do a physical exam, consider possible diagnoses, plan and execute treatment, and follow up).  If doctors are asked to work faster than realistically possible, adverse outcomes will increase.  Hopefully, we will be wise enough as a society to prevent that from happening.

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