American College of Physicians: Internal Medicine — Doctors for Adults ®

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A look at the trends in physician pay

While overall pay remains flat, doctor-employees may face trouble

From the February 2001 ACP-ASIM Observer, copyright 2001 by the American College of Physicians-American Society of Internal Medicine.

By William Hoffman

Physician pay: an overview
A breakdown of physician pay by specialty

The latest surveys show that pay for physicians as a group continues to remain relatively stagnant, barely keeping pace with inflation. While some categories of physicians—certain subspecialists, for example—are seeing double-digit increases in reimbursement, several trends may make it harder for physicians to boost their incomes, particularly doctors working for large organizations.

Productivityincentives have always been popular in private practice, but recent data indicate that they are becoming more popular among large not-for-profit organizations that employ physicians. While incentives reward hardworking practitioners, a growing number of these organizations appear poised to raise productivity standards.

At the same time, many of these organizations also say they are preparing to ratchet down physician pay. Some plan to cut physician salaries, while others may slash physician incentives. Either way, the financial belt-tightening may put a dent in the wallets of physician employees.

Here’s a look at how those trends, and factors like geography and part-time work, are affecting physician pay.

The numbers

The good news for general internists is that they remain on the high end of compensation among generalists. The bad news, however, is that they are continuing to lose economic ground to other primary care specialties.

The Medical Group Management Association (MGMA), which publishes the "Physician Compensation and Production Survey," found that median compensation for all internists rose to $145,397 in 1999. That’s a one-year increase of 3.01% from 1998 and a five-year increase of 4.36% from 1995 to 1999.

The MGMA survey also found, however, that primary care physicians like non-obstetric family physicians and pediatric/adolescent medicine physicians are gaining on internists in terms of income. From 1995 to 1999, family practitioners' pay rose 9.56% to $141,493. During the same period, pay for pediatric/adolescent primary care doctors rose 10.79% to $143,011.

Compared to some subspecialist compensation, however, those gains appear anemic. According to MGMA data, hematologist/oncologist compensation soared 35.32% from 1995 to 1999 to $255,167, while pay for gastroenterologists jumped 26% to $264,500. (For more salary figures, see “A breakdown of physician pay by specialty.”)

Infact, across 17 categories of subspecialists tracked by MGMA, five-year median pay rose 13.86% to $245,910. By comparison, primary care pay rose 7.98% over the same period to $143,970.

A key factor affecting that growth is how physicians are paid. David N. Gans, survey operations director for MGMA in Englewood, Colo., said that survey data show that doctors who receive 100% of their pay based on their productivity tend to be better paid than physicians who work under a mixed productivity-salary compensation package or those paid via straight salary.

The MGMA survey found that in 1999, general internists earned a median of $151,188 when their pay was based entirely on productivity; $145,610 when more than half of their compensation was based on productivity; $143,857 when more than half of compensation was based on salary; and $134,688 when they were salaried. (The survey found that about 37% of group practices base physician pay strictly on productivity.)

Mr. Gans also noted that the link between compensation models and actual pay existed for most of the 59 categories of physicians MGMA surveyed.

While productivity-based incentives are nothing new, analysts say they are poised to become more popular, particularly among organizations that employ physicians. The MGMA survey found that more than 28% of employers were considering modifying their compensation methodology in 1999, compared to 19% of physician groups.

What kinds of productivity incentives are being used? Popular methods for calculating physician pay include gross and adjusted charges, net collections, patient encounters, patient panel size and relative value units (RVUs). Among the various models, only net collections were more popular among group practices than among providers, the MGMA survey found.

Other survey data indicate that groups that employ physicians, such as health systems and hospitals, are increasing their use of incentives. Detroit-based Sullivan, Cotter and Associates Inc., which tracks not-for-profit health care organizations in its "2000 Physician Compensation and Productivity Survey," found that 69% of institutions, most of them hospitals and medical centers, offered some type of incentive plan. In addition, 74% of respondents that collect physician performance data based salary increases on individual performance.

While most organizations that responded to the Sullivan survey said they use more than one physician performance measure to determine pay, the most popular measures were patient encounters (used by 79% of respondents); direct patient care hours (78%); patient satisfaction (60%); cost-effectiveness (49%); total RVUs (33%); work RVUs (32%); net collections (29%); and gross revenues (23%).

On average, the organizations surveyed by Sullivan said that these incentives accounted for an average of about 15% of total physician pay for both generalists and subspecialists. The Sullivan survey, however, found some notable differences among how physician employers use incentives for primary care physicians and subspecialists.

For example, 69% of organizations determined incentive awards for primary care physicians based solely on individual performance, while 3% based compensation incentives on group performance. When it came to paying subspecialists, 65% of employers based incentives on individual performance, while 10% looked at group performance.

With primary care physicians, patient satisfaction, net revenue and patient encounters were the top three incentive measures used to reward individual physicians for performance. In primary care group settings, net revenue, patient satisfaction and utilization were the top measures.

To reward individual subspecialists, these organizations most commonly used incentives that focused on gross revenue, net revenue and patient satisfaction. In subspecialty group settings, gross revenue, net revenue and patient satisfaction were the top measures.

In organizations that offered incentives, 58% of eligible primary care physicians and 61% of eligible subspecialists received some award.

Cracking down

While data from the Sullivan survey indicate that a growing number of organizations that employ physicians are using incentives to boost productivity, there are signs that many of these organizations are also cutting physician pay.

Tim Cotter, Sullivan’s managing director, said that many organizations are freezing—and in some cases reducing—physician base pay. He noted that 35% of health care organizations surveyed said they planned to cut compensation for selected specialties in 2000. That number is up from 20% in 1999, the Sullivan survey found. More providers are also denying base-salary raises to their employee-physicians, Mr. Cotter added.

And of the 35% of organizations that planned to cut physician pay in 2000, 92% reported they would make those cuts by basing more physician pay on productivity bonuses. "I don't think anyone imagined the extent to which [these organizations] would be willing and able to cut pay," Mr. Cotter said.

The Sullivan survey also showed that roughly half of the health systems and hospitals that use physician performance standards planned to raise those standards, potentially making it harder for physicians to earn productivity-based bonuses. In 1999, by contrast, only 40% of organizations said they planned to raise their standards.

Why is there so much focus on physician salaries among groups that employ physicians? Mr. Cotter speculated that physician compensation has historically been an easy target for budget-conscious health care managers. "If health systems were exceptionally profitable today,” he said, “there would not be as much focus on physician compensation.”

Other analysts say that physicians face an even bigger problem when it comes to compensation. "To some degree, the excess physician supply is the Achilles heel of negotiations for sufficient physician reimbursement," explained Alan B. Nelson, MACP, the College’s Special Advisor to the Executive Vice President. Making matters worse, he said, the public is notoriously unsympathetic to physicians' complaints about income.

Location and other factors

The recent pay surveys also confirmed that factors like geography still affect physician reimbursement. Here is a look at some of those trends:

  • Geography.Internists in the South were generally better compensated than their counterparts elsewhere in the nation, according to figures from the American Medical Group Association. Median 1999 income for Southern internists was $167,513, compared to $154,162 in the North, $148,182 in the West and $138,506 in the East.

    MGMA's survey also found median compensation for all primary care physicians and specialists was higher in the South. In 1999, primary care physicians earned a median income of $153,096, compared to $142,708 for primary care physicians in the East, $144,006 in the Midwest and $137,970 in the West.

    MGMA found a similar spread among specialists. In the South, specialists earned a median of $326,144, compared to $233,356 in the East, $278,392 in the Midwest, and $215,879 in the West.

    Shawn D. Schwartz, manager for the National Health Care Consulting Group at RSM McGladrey Inc. in Minneapolis, said that regional disparities may be due in part to the relatively lower penetration of managed care in the South, where fee-for-service medicine is more common.

    Mr. Gans explained that the most important influence on physician compensation in a given geographical area is the level of competition among various payers and providers. Patients in urban areas often enroll in managed care plans, while rural areas and small cities have more Medicare patients.

    In addition, Mr. Gans said that MGMA data show that as the number of provider organizations, physician groups and managed care competitors increase, physician compensation tends to decrease compared to national means.

  • Part-time physicians. Mr. Schwartz said that preliminary data from his firm indicate that part-time doctors are well compensated compared to full-timers, especially if they work on a productivity basis. Productivity for part-timers appears to be higher, he said, possibly because part-time physicians devote their limited time to patient care and avoid productivity-draining activities in administration or other areas.

  • Deferred compensation. Mr. Schwartz also said that anecdotal evidence points to increased use by providers of deferred compensation plans that might skew pay trends. Most surveys don't track deferred compensation in detail, he noted, because asking questions about current vs. future value and comparing different pay packages make data collection troublesome and analyses unreliable. Some physicians, however, appear to be earning as much as 30% of their annual income from deferred compensation plans, he observed.

William Hoffman is a freelance writer in Fairfax, Va.

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Physician pay: an overview

1999 % change '95-'99
All primary care $143,970 +7.98
All specialties $245,910 +13.86
Internal medicine $145,397 +4.36
   
Source: MGMA "Physician Compensation and Production Survey: 2000 Report Based on 1999 Data." Dollar figures represent median pay.

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A breakdown of physician pay by specialty

A breakdown of physician pay by specialty
     
Specialty 1999 % change from '98
     
Cardiology/invasive $340,010 -2.85
Radiology/diagnostic $315,048 +15.90
Cardiology/noninvasive $278,712 -0.07
Gastroenterology $264,500 +10.08
Hematology/oncology $255,167 +20.07
Anesthesiology $244,755 -$2.18
Surgery/general $236,572 +4.84
Otorhinolaryngology $235,945 +2.84
Ob/gyn $219,022 +1.26
Pulmonology $199,221 +4.82
Internal medicine $145,397 +3.01
Family practice
(excludes ob/gyn)
$141,493 +2.33
   
Source: MGMA "Physician Compensation and Production Survey: 2000 Report Based on 1999 Data." Dollar figures represent median pay.

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