Many Physician Businesses are Falling Behind
Despite the common public perception of doctors as an economic class of the “super-rich”, for the average physician the reality is quite different.
Despite an overall national trend of rising income and general economic prosperity in the late 1990s, and first three years of the new century, physician net income from the practice of medicine declined markedly and their private office overhead as a percentage of revenue surged to an estimated 54%, a substantial rise from 36% in 1997, and more than twice the 1980 median of 25%. (1)
Between 1995 and 1999, with CPI inflation averaging 2.5%, the average United States’ Professional Technical worker income rose 3.5%. In comparison, the percent change in average income decreased by 5.0% for all physicians, 6.4% for Primary Care physicians and 4.0% for Specialists physicians.
In addition, there is an increasing and demoralizing disparity between provider workload and compensation. The American College of Physicians (ACP noted that between 1999 and 2000, physician income declined by 13.9%, while total hours worked underwent a 6.7% increase. (http://www.acponline.org/hpp/e-consult.pdf).
In 2002, U.S. healthcare spending reached $1.6 trillion ($5,440 per person) with hospital and drug spending driving most of the increase. Hospital spending and prescription drug costs fueled the 9.3% increase over 2001. Total spending is expected to exceed $2 trillion by 2004.
In 2003, as a share of US gross domestic product, healthcare costs jumped to 15% up from only 5% in 1980. They are now projected to rise to almost one quarter of GDP by 2030. Last year, drug spending alone in the United States and Canada rose 9.1% to $230 billion, accounting for 46% of the estimated worldwide sales of $500 million. Many experts now believe that health costs are rising at a rate that, in the long term, employers and the federal and state governments will not continue to bear.
Health care spending (i.e medical costs) which climbed faster than the rest of the U.S. economy in 2002 at a 9.6% rate, slowed to a 7.4% rise in 2003. Hospital spending, which makes up the lion's share of health care costs, accounted for 53% of the total increase in spending in 2003, a year in which inpatient and outpatient hospital care costs rose by 8%, the biggest one-year increase since the government began tracking these figures. Spending on prescription drugs, meanwhile, grew by 9.1% in 2003 compared to 13.2% in 2002 and the peak of 18.4% drug cost growth set in 1999.
Compared to hospital and drug spending, aggregate physician spending is not growing as fast as in recent years. (2) Spending on physician care rose by only 5.1% in 2003 compared to a 6.5% increase in 2002. This is a significant decrease from the 8.6% growth in 2001, with physician spending reaching $339.5 billion representing 21% of total healthcare spending last year. Since 1960, as a percentage of U.S. personal health expenditures, physician spending has stayed about the same, while the hospital share grew and then declined and the spending on home health and nursing homes has grown substantially.( Distribution of Personal Health Care Expenditures by Type of service, 1960-2000: Table 1.5 See: http://www.cms.hhs.gov/charts/healthcaresystem/chapter1.pdf).
According to a recent study by the Center for Studying Health System Change, a public policy research organization in Washington, DC, between 1994 and 2003, the average annual growth in healthcare spending, by type of service showed the following percentages:
Physician = 4.29%
Hospital Outpatient = 9.98%
Hospital Inpatient = 1.39%
All hospital services = 5.67%
Prescription drugs = 12.14%
Prescription drugs alone now account for 11 percent of all U.S. healthcare spending, twice the level of just ten years ago.
In the face of aggregate declining inflation adjusted revenues and because of inexorable increases in key fixed costs to a national median of about 55%, many physicians in Rhode Island and other insurer-dominated, highly regulated markets continue to struggle to make ends meet. According to the 2003 American Medical Group Association’s (AMGA’s) Medical Group Financial Operations Survey, many doctor’s groups are experiencing losses in the midst of an increasingly regulatory and competitive environment. (3) An important part of declining profitability is the more than doubling of median practice overhead for U.S. physicians over the last 30 years, from 25% in 1976 to 36% in 1996 and 54% in 2002.
Based on financial performance on a per physician basis (by region), the average group lost $3,977 per physician. The biggest average losses were in the Northern ($11,943) and Southern ($12,954) regions. In 2002, the average annual compensation for a group practice internist decreased by 1.8% compared to increases of 2.2% for a family physician and 0.9% for an OB/GYN physician.
Doctors continued to fall behind othe economic sectors last year as well. According to the US Commerce department ans Sullivan, Cotter & associates, in 2003,the average compensation increase of 1.3% for U.S. primary care physicians again lagged behind the 1.9% increase in the annual inflation rate. A recent survey by Akel & Associates found that 67% of physicians expect their practice revenue to "decline or remain the same" in the next three years.
In Rhode Island, however, the situation is substantially worse because more than 75% of office-based physicians are practicing, not in medium or large group practices, but as individuals or in small groups with 5 or less members.
Even more ominous from the consumer perspective, with private and public reimbursement in the lowest 10th percentile compared to all other states and fixed by the payers for over three decades, most of the independent solo practitioners in Rhode Island are in even deeper financial trouble than in other states. Issues contributing to their escalating financial challenges include rising liability premiums, cutbacks in retroactively dated Medicare reimbursement and unfunded legislative and regulatory mandates including HIPAA.
Looking forward 3-5 years, physician accessibility and quality is further threatened by an average educational debt of a U.S. medical school graduate of $109,457 (4) and surveys indicating that 52% of America’s active physicians’ if given a second chance, say they wouldn’t go into medicine again. (5) And in fact, the most recent Meritt, Hawkins & Associates national survey predicts an impending physician shortage in the United States. In their 2004 nationwide survey of 436 physicians, in the next 1 to 3 years, more than 50% of physicians between the ages of 50 and 60 are currently planning to retire, seek nonclinical jobs, or significantly reduce the number of patients they see.
Doctors just entering practice and those still in training also have financial problems.
According to the 2004 report from the Association of American Medical Colleges (AAMC), there has been a 238% increase of tuition and fees in the 126 medical schools in the United States since 1984, an annual average increase of almost 12 %.
In 2003, the median education debt of a US medical school graduate increased to $117,000. Graduates of private medical schools incurred a median debt of $135,000, while the median debt for public medical school graduates was $100,000. By contrast, in 1984, median debt for private and public medical school graduates was $27,000 and $22,000 respectively. Overall, medical education debt was 4.5 times as high in 2003 as it was in 1984, while average tuition and fees was 2.7 times as high in private medical schools and 3.8 times as high in public medical schools.
For first-year students in 2003-2004, average tuition and fees in private medical schools was $32,488 for state residents and $34,067 for nonresidents. The average for public medical schools for residents was $16,172 and $33,653 for nonresidents. (6) According to US News & World Report, for example, in 2004 one year's tuition at the private Harvard Medical School cost $34,766. An additional $19,234 in fees, supplies and living expenses increased the total annual cost to $53,900.
The danger is that medical education may soon not be within reach for many qualified students. And at the same time, student debt may become unmanageable if practice expenses, including malpractice premiums, continue to rise and physicians' income remains flat or continues to decrease.
The AAMC survey also found the average annual income for a US physician was $187,500 in 2003. In the face of soaring educational debt, practice operating expenses exceeding 60%, declining profitability and crises in medical liability insurance cost and availability, it remains to be seen whether this potential income level will continue to attract the "best and brightest" into the medical marketplace for physician services.
This increasingly hostile market for physicians is also increasingly threatening for patients, employers and government who must pay for health care products and services and especially for the more than 41 million Americans without private or public health insurance coverage.
According to Paul B. Ginsburg and Bradley C. Strunk of the Center for Studying Health System Change(http://www.hschange.org), "Costs--and therefore private health insurance premiums--will likely continue to outstrip growth in the overall US economy by a significant margin for the foreseeable future. Although some argue that ever-higher spending for medical care is a good thing, the continuing rapid growth in health spending will make insurance unaffordable to more and more people. Ultimately, policy makers are likely to confront a stark trade-off between health care costs and access, perhaps leading to a willingness to discuss taboo subjects, such as rationing of health care."
(1) Medical Economics Annual Surveys, for 1997 (October 26, 1998) and for 2002 (November 7, 2003).
(2) Health Affairs, 23 (1): 147-159, 2004.
(3) See: http://www.amga.com or call: 703-838-0033.
(4) Association of Medical Colleges, 2004.
(5) Merritt, Hawkins & Associates, 2003.
(6) Physicians Financial News, June 15, 2004 (page 3)The complete report, entitled "Medical School Tuition and Young Physician Indebtedness", can be found on AAMC's Website at (http://www.aamc.org/publications) .
June 14, 2004:
Despite an overall national trend of rising income and general economic prosperity in the late 1990s, and first three years of the new century, physician net income from the practice of medicine declined markedly and their private office overhead as a percentage of revenue surged to an estimated 54%, a substantial rise from 36% in 1997, and more than twice the 1980 median of 25%. (1)
Between 1995 and 1999, with CPI inflation averaging 2.5%, the average United States’ Professional Technical worker income rose 3.5%. In comparison, the percent change in average income decreased by 5.0% for all physicians, 6.4% for Primary Care physicians and 4.0% for Specialists physicians.
In addition, there is an increasing and demoralizing disparity between provider workload and compensation. The American College of Physicians (ACP noted that between 1999 and 2000, physician income declined by 13.9%, while total hours worked underwent a 6.7% increase. (http://www.acponline.org/hpp/e-consult.pdf).
In 2002, U.S. healthcare spending reached $1.6 trillion ($5,440 per person) with hospital and drug spending driving most of the increase. Hospital spending and prescription drug costs fueled the 9.3% increase over 2001. Total spending is expected to exceed $2 trillion by 2004.
In 2003, as a share of US gross domestic product, healthcare costs jumped to 15% up from only 5% in 1980. They are now projected to rise to almost one quarter of GDP by 2030. Last year, drug spending alone in the United States and Canada rose 9.1% to $230 billion, accounting for 46% of the estimated worldwide sales of $500 million. Many experts now believe that health costs are rising at a rate that, in the long term, employers and the federal and state governments will not continue to bear.
Health care spending (i.e medical costs) which climbed faster than the rest of the U.S. economy in 2002 at a 9.6% rate, slowed to a 7.4% rise in 2003. Hospital spending, which makes up the lion's share of health care costs, accounted for 53% of the total increase in spending in 2003, a year in which inpatient and outpatient hospital care costs rose by 8%, the biggest one-year increase since the government began tracking these figures. Spending on prescription drugs, meanwhile, grew by 9.1% in 2003 compared to 13.2% in 2002 and the peak of 18.4% drug cost growth set in 1999.
Compared to hospital and drug spending, aggregate physician spending is not growing as fast as in recent years. (2) Spending on physician care rose by only 5.1% in 2003 compared to a 6.5% increase in 2002. This is a significant decrease from the 8.6% growth in 2001, with physician spending reaching $339.5 billion representing 21% of total healthcare spending last year. Since 1960, as a percentage of U.S. personal health expenditures, physician spending has stayed about the same, while the hospital share grew and then declined and the spending on home health and nursing homes has grown substantially.( Distribution of Personal Health Care Expenditures by Type of service, 1960-2000: Table 1.5 See: http://www.cms.hhs.gov/charts/healthcaresystem/chapter1.pdf).
According to a recent study by the Center for Studying Health System Change, a public policy research organization in Washington, DC, between 1994 and 2003, the average annual growth in healthcare spending, by type of service showed the following percentages:
Physician = 4.29%
Hospital Outpatient = 9.98%
Hospital Inpatient = 1.39%
All hospital services = 5.67%
Prescription drugs = 12.14%
Prescription drugs alone now account for 11 percent of all U.S. healthcare spending, twice the level of just ten years ago.
In the face of aggregate declining inflation adjusted revenues and because of inexorable increases in key fixed costs to a national median of about 55%, many physicians in Rhode Island and other insurer-dominated, highly regulated markets continue to struggle to make ends meet. According to the 2003 American Medical Group Association’s (AMGA’s) Medical Group Financial Operations Survey, many doctor’s groups are experiencing losses in the midst of an increasingly regulatory and competitive environment. (3) An important part of declining profitability is the more than doubling of median practice overhead for U.S. physicians over the last 30 years, from 25% in 1976 to 36% in 1996 and 54% in 2002.
Based on financial performance on a per physician basis (by region), the average group lost $3,977 per physician. The biggest average losses were in the Northern ($11,943) and Southern ($12,954) regions. In 2002, the average annual compensation for a group practice internist decreased by 1.8% compared to increases of 2.2% for a family physician and 0.9% for an OB/GYN physician.
Doctors continued to fall behind othe economic sectors last year as well. According to the US Commerce department ans Sullivan, Cotter & associates, in 2003,the average compensation increase of 1.3% for U.S. primary care physicians again lagged behind the 1.9% increase in the annual inflation rate. A recent survey by Akel & Associates found that 67% of physicians expect their practice revenue to "decline or remain the same" in the next three years.
In Rhode Island, however, the situation is substantially worse because more than 75% of office-based physicians are practicing, not in medium or large group practices, but as individuals or in small groups with 5 or less members.
Even more ominous from the consumer perspective, with private and public reimbursement in the lowest 10th percentile compared to all other states and fixed by the payers for over three decades, most of the independent solo practitioners in Rhode Island are in even deeper financial trouble than in other states. Issues contributing to their escalating financial challenges include rising liability premiums, cutbacks in retroactively dated Medicare reimbursement and unfunded legislative and regulatory mandates including HIPAA.
Looking forward 3-5 years, physician accessibility and quality is further threatened by an average educational debt of a U.S. medical school graduate of $109,457 (4) and surveys indicating that 52% of America’s active physicians’ if given a second chance, say they wouldn’t go into medicine again. (5) And in fact, the most recent Meritt, Hawkins & Associates national survey predicts an impending physician shortage in the United States. In their 2004 nationwide survey of 436 physicians, in the next 1 to 3 years, more than 50% of physicians between the ages of 50 and 60 are currently planning to retire, seek nonclinical jobs, or significantly reduce the number of patients they see.
Doctors just entering practice and those still in training also have financial problems.
According to the 2004 report from the Association of American Medical Colleges (AAMC), there has been a 238% increase of tuition and fees in the 126 medical schools in the United States since 1984, an annual average increase of almost 12 %.
In 2003, the median education debt of a US medical school graduate increased to $117,000. Graduates of private medical schools incurred a median debt of $135,000, while the median debt for public medical school graduates was $100,000. By contrast, in 1984, median debt for private and public medical school graduates was $27,000 and $22,000 respectively. Overall, medical education debt was 4.5 times as high in 2003 as it was in 1984, while average tuition and fees was 2.7 times as high in private medical schools and 3.8 times as high in public medical schools.
For first-year students in 2003-2004, average tuition and fees in private medical schools was $32,488 for state residents and $34,067 for nonresidents. The average for public medical schools for residents was $16,172 and $33,653 for nonresidents. (6) According to US News & World Report, for example, in 2004 one year's tuition at the private Harvard Medical School cost $34,766. An additional $19,234 in fees, supplies and living expenses increased the total annual cost to $53,900.
The danger is that medical education may soon not be within reach for many qualified students. And at the same time, student debt may become unmanageable if practice expenses, including malpractice premiums, continue to rise and physicians' income remains flat or continues to decrease.
The AAMC survey also found the average annual income for a US physician was $187,500 in 2003. In the face of soaring educational debt, practice operating expenses exceeding 60%, declining profitability and crises in medical liability insurance cost and availability, it remains to be seen whether this potential income level will continue to attract the "best and brightest" into the medical marketplace for physician services.
This increasingly hostile market for physicians is also increasingly threatening for patients, employers and government who must pay for health care products and services and especially for the more than 41 million Americans without private or public health insurance coverage.
According to Paul B. Ginsburg and Bradley C. Strunk of the Center for Studying Health System Change(http://www.hschange.org), "Costs--and therefore private health insurance premiums--will likely continue to outstrip growth in the overall US economy by a significant margin for the foreseeable future. Although some argue that ever-higher spending for medical care is a good thing, the continuing rapid growth in health spending will make insurance unaffordable to more and more people. Ultimately, policy makers are likely to confront a stark trade-off between health care costs and access, perhaps leading to a willingness to discuss taboo subjects, such as rationing of health care."
(1) Medical Economics Annual Surveys, for 1997 (October 26, 1998) and for 2002 (November 7, 2003).
(2) Health Affairs, 23 (1): 147-159, 2004.
(3) See: http://www.amga.com or call: 703-838-0033.
(4) Association of Medical Colleges, 2004.
(5) Merritt, Hawkins & Associates, 2003.
(6) Physicians Financial News, June 15, 2004 (page 3)The complete report, entitled "Medical School Tuition and Young Physician Indebtedness", can be found on AAMC's Website at (http://www.aamc.org/publications) .
June 14, 2004:
posted by Bob Coli, MD at 9:57 AM
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