Money matters

We could be in a physician compensation bubble, DOs write

A growing number of physicians are currently being paid more than their employers are being reimbursed for their services, says Seger Morris, DO, MBA.

After working in the business world before pursuing medicine, Seger S. Morris, DO, MBA, went through his medical training with a different perspective.

“With a background in finance and business operations, it was very hard for me to focus strictly on the clinical care of the patient without thinking about the health care system as a whole and how that was driving the care physicians were able to give patients,” says Dr. Morris, chair of the AOA’s Bureau of Emerging Leaders and the New Physician in Practice member of the AOA Board of Trustees.

“I wanted health care policy to be part of my career so I could hopefully make a difference in the overall structure of the health care system and help physicians take better care of their patients.”

One of Dr. Morris’ chief concerns with the health care system is physician compensation—he believes it’s a bubble that’s about to burst.

In a paper he co-wrote with Heather Lusby, DO, for the American Association for Physician Leadership, he explained why, and what physicians can do to protect themselves. Following is an edited Q&A. Please note that the opinions below are Dr. Morris’ and do not reflect the views of The DO or the AOA.

What are the signs that there’s a physician compensation bubble in the U.S.?

There are three things happening. First, the Medicare reimbursement rate per unit of productivity is declining relative to inflation. It has been for 20 years. Second, based on survey data, physician compensation has been increasing while reimbursement is declining. The third trend is that fewer physicians are in private practice and more are employed.

Basically, a growing number of physicians are currently being paid more than their employers are being reimbursed for their services. Many employers, like hospitals, are bridging the gap through their profit margins from ancillary services. But if something happens to those profit margins, there’s no money left to subsidize physicians’ salaries.

What happens if the bubble pops?

Then physicians will be looking at either being replaced by advanced practice clinicians or having to work for less money, unless payment reform takes place. That would start with Medicare, then private insurers would follow suit. We need to see higher reimbursement rates from Medicare. There needs to be an adjustment for general inflation, and there hasn’t been.

Seger S. Morris, DO, MBA

If we see inflation dramatically increase in the coming years, which is a possibility, hospitals and health systems may struggle to adjust physicians’ salaries accordingly while reimbursement rates are flat, declining or increasing more slowly than inflation.

In your paper, you talk about the financial downsides of both being an employed physician and being in solo practice. Is there a third option that’s better?

When you go into private practice, you are taking on all these risks, including slow reimbursement growth, and red tape is making you less efficient.

As an employed physician, there’s less risk at first glance, and you have supply and demand on your side because there’s a need for physicians right now. However, there are plenty of policy proposals to shift the work of physicians to nurse practitioners or physician assistants, which I do not support because I believe in physician-led team-based care. But if this happens, the pool of people may be expanded, and there won’t be as much demand for physicians.

In any case, when you’re employed, your job is only as stable as your employer’s stability, and if they aren’t getting paid as much, they may come to a point where they can’t pay you.

An arrangement like direct primary care or concierge medicine would be an exception because you’d have no involvement with third-party payers. This is a great option if you’re in an environment where people can afford it.

In many areas, especially rural and underserved areas, either there’s not enough people to make it work or they don’t have the money to do it.

What can physicians do to protect themselves financially in the current environment?

Physicians need to diversify their skill set so that they have another source of income in addition to clinical medicine. If you develop an understanding of the health care system, finance or accounting, you’ll be qualified to do a lot of things that don’t just involve clinical medicine.

Physicians can be chief medical officers, they can be quality officers, they can be medical directors of home health agencies and hospice agencies. Pharmaceutical companies and medical device companies are looking for physicians’ insights.

I have an MBA. It’s a good degree to have. The AOA offers discounted tuition on an EMBA program and an MHA program. Becoming a Certified Physician Executive is an option. It’s a widely regarded certification, as is certification in health care quality. Getting these certifications can be very valuable and show employers you bring additional value beyond the bedside.

Physicians can also make physician reimbursement a priority in their advocacy efforts. This is the single most important thing every physician should do.

Related reading:

How much money doctors are making in 2018

What residents are getting paid in 2018

The 10 cities where doctors are most in demand

2 comments

  1. As a 35 year EM doc, I certainly see what Dr. Morris is talking about.
    I used to (operate(?)) a small EM practice (5 – 7 of us, Chapter S) where we could only pay what we made. I’m seeing, as an employed physician now, rates going through the roof. When a person is being paid more than they’re worth (with limits on the thought) there’s a problem.

    1. Physicians need to figure out how to forgo participation with insurance, but without cutting each other’s throats for patients. When that happens compensation will follow free-market rules, cut out the obscene middleman profits, and reflect the true value of physicians to their patients.

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