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Physician pay: the bottom line

From the April 1996 ACP Observer, copyright © 1996 by the American College of Physicians.

By Edward Doyle

When the AMA released its latest statistics on physician pay at the end of last year, the outlook appeared bleak. Between 1993 and 1994, for the first time ever, median pay for physicians dropped by 3.8%. Internal medicine as a whole fared somewhat better--pay for general internists remained unchanged--but the news left many physicians worried about their financial future.

But the statistics do not tell the whole story. Despite the widespread belt-tightening taking place in medicine today, plenty of evidence shows that the situation is not so dire for all physicians. Health care is still reinventing itself, and there is still tremendous variation in how--and how much--physicians are paid.

Probably the single factor most affecting physician income is the move by payers to slash medical costs. In the last year alone, for example, HMOs reduced their premiums by 3.8%, meaning potentially less money for patient care--and physician pay. According to Steven Berkowitz, ACP Member, a practice consultant with the Hay Group in Dallas, while indemnity insurers in the early '90s spent an average of $60 on total professional services per patient per month, managed care organizations today spend an average of $35.

Subspecialists are bearing the brunt of these cuts. Of the $60 spent for professional services in 1990, $12 went to primary care services and $48 went to specialty care. Of the $35 spent today, $15 goes to primary care and $20 goes to specialty care. "Look at where the reduction in costs comes from," Dr. Berkowitz explained. "It's all from the specialty side."

Although these statistics would seem to signal trouble for subspecialists as a whole, at least some of medicine's most highly paid practitioners have proved resilient. In Northern California, for example, hospital-based specialists like anesthesiologists, surgeons and radiologists have seen their incomes drop 30% to 40% in the last three years, but internal medicine subspecialists have tended to fare much better. Edward O'Neil, PhD, executive director of the Center for the Health Professions at the University of California, San Francisco, explained that many internal medicine subspecialists have cushioned their fall by providing more primary care services. "Medical subspecialists' capacity to substitute primary care contracts or services is what's keeping them from looking like the radiologists," Dr. O'Neil said.

It shows just how resourceful physicians can be when their incomes are on the line, but it also serves as a reminder of how complicated an issue physician pay can be. Subspecialists who are boosting their incomes by providing primary care have helped halt the big pay increases for generalists as many large physician groups no longer face a desperate shortage of primary care physicians.

Closing a gap?

Subspecialists' embrace of primary care services may also be helping reduce disparities in pay among specialties. According to AMA data, salaries for general internists have steadily increased during the past few years while median pay for their subspecialty counterparts has slid. Experts say that as managed care and the health care market reevaluate how much individual services and procedures are worth, the differences between subspecialty and generalist pay will continue to erode. Experts predict that cardiologists, for example, instead of making three to four times as much as generalists, will one day make only two times as much as primary care providers.

While the statistics may show that pay among specialties is flattening, there are still huge differences in what subspecialists and generalists are paid across the country. Alex Hunter, a consultant with St. Louis-based Cejka & Company, pointed out that pay levels for internal medicine subspecialists have gone up and down over the past few years, showing that the market is still in a state of flux. "I don't think the market has decided definitively what it's going to do with respect to managing care and managing the financial resources of subspecialty internal medicine," Mr. Hunter said. "Even within practices, integrated practice groups, multispecialty groups and physician hospital organizations, the physicians themselves have not decided."

For now, however, two accurate predictors of physician pay are the type and size of a clinician's practice: The larger the group, the better the pay. Multispecialty groups generate more income than their single-specialty counterparts.

While many physicians are benefiting from the move to larger groups, the trend has its share of losers. Proceduralists such as gastroenterologists and subspecialists at academic medical centers have watched their incomes fall sharply. Dr. Berkowitz explained that many large groups are hiring one or two proceduralists--gastroenterologists, for example--and having them perform all of the group's procedures, thus reducing the number of referrals--and income--for other subspecialists in the area.

So far the proceduralists have been hardest hit, but cognitive subspecialties may be next. Mr. Hunter from Cejka explained that internal medicine subspecialties like rheumatology and infectious diseases may also be vulnerable to medicine's move to large groups because it takes such a large pool of physicians to employ just one or two of these subspecialists. Again, the result promises to be less work for other subspecialists in the community.

What about the self-employed?

The move to groups has already begun to affect the difference in pay between self-employed physicians and those who work for someone else. Historically, physicians employed by others have made about a third less than self-employed practitioners; the rationale has always been that self-employed physicians are financially rewarded for their initiative and risk taking.

But as more and more physicians become employees of group practices and other organizations--the AMA says that 39% of all physicians are now employed by someone else--there is debate about whether employed physicians are in fact paid less than their self-employed counterparts. On the contrary, say some compensation experts, physicians employed by large groups are being paid more. Cejka's Mr. Hunter, for example, maintains that physicians who become employees of a group or have their practice purchased by a hospital can usually expect to see a 10% to 15% increase in their pay.

In areas of the country where managed care is just heating up, pay statistics are being fueled by the incomes of physicians joining these larger groups. In the Southeast, for example, experts say that hospitals and managed care organizations scrambling to enroll physicians and practices in larger settings are paying physicians a premium. William Quirk, a principal with the management consulting firm Towers Perrin, for example, recounted that one practice was so anxious to acquire an ob/gyn practice that it proposed paying each physician more than $400,000, near the top of the pay scale for that specialty. "Most of my clients nationwide are anxious to acquire practices," Mr. Quirk explained. "They're afraid if they don't buy a practice, someone else will."

And for physicians who do not mind working a little harder, the larger and more mature groups can be a good place to work. While groups in the past have tended to salary physicians, groups with significant levels of managed care revenue are beginning to rely on incentive programs that give physicians a chance to boost their pay. Darrell Schryver, a consultant with the Medical Group Management Association, explained that once groups reach a point where 30% to 40% of their patient base is capitated, many stop paying physicians a straight salary and instead begin basing pay on factors like production, the number of hours worked and other contributions to the practice's bottom line. "Physicians are starting to say if we don't have some kind of production factor or incentive, there's no incentive for people to work harder," he said. "The trend is not so much on measuring straight production but measuring the worth of the physician within a group."

And while physicians may find that working for someone else can pay off financially, experts say they should remain wary. As Mr. Quirk pointed out, all kinds of organizations are trying to cut costs to the bone, and they view employing physicians as a means to that end. "People can only control integrated delivery systems if they can control the physicians," he said, "and they can't control the physicians without controlling their wallets."

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