Healthcare Affordability–BB’s Look At How Doctors Are Paid

how doctors are paid featureAs you can see from the title of this blog post, it is not how MUCH doctors are paid that I attach to the affordability issue, but rather HOW doctors are paid.  Affordable health care in the United States will not be obtained by simply “slowing” the future growth rate of health spending as most government reform efforts concentrate, but rather on HOW doctors are paid. For over 50+ years, government health policies have created out-of-control spending patterns that are ingrained in the very fabric of our healthcare system.  These government policies have and continue to put healthcare businesses’  financial gain ahead of consumer affordability and quality of care. In this blog, I will be looking at one such area of out-of-control spending; namely, how doctors are paid for their services.

How Doctors Are Paid and Medicare

Government health policy, largely filtered through Medicare reimbursement practices, has created doctor reimbursements that far exceed those in other countries. There are two reasons for the outsized medical doctor reimbursements we have today:

  • The last 50+ years of Medicare reimbursement has created and nurtured a payment structure geared to financially rewarding medical doctors first and foremost. This Medicare payment structure filters to the rest of the healthcare system.
  • Our government does not fully address a doctor shortage especially in certain areas of the country (servicing rural and low-income consumers). Increasing the number of doctors with particular medical specialties to meet public needs today and in the future should be a top priority.

History of How Doctors Are Paid Under Medicare

High medical doctor salaries today reflect 50+ years of reimbursement in a fee-for-service environment of over-treatment, over-testing, and mistreatment. Since its inception in 1966, Medicare fee-for-service reimbursement schemes have been altered over the years in attempts to slow the growth of doctor’s pay, but not deliver cost-effective quality care. The schemes can be categorized as follows:

  1. Fee-For-Service: “Usual, Customary, and Reasonable” Fees (1966 to 1991) — Lasting 25 years, this golden ($$$) age for name-your-price health care delivery laid the foundation for making doctors the highest paid workers in the world today. Doctors maximized income by over-treating, over-testing and using the most expensive services possible. Errors in treatment and even mistreatment were rewarded under this payment scheme. With little-to-no government oversight, national health spending skyrocketed.
  2. Fee-For-Service: Medicare-Administered Pricing Fees (1992 to 2015)— In this scheme, every service performed on a patient (with over 10,000 identified) is assigned a relative value unit that determines the dollars that will be paid. Inputs into the formula used by CMS include the doctor’s actual work performed (i.e., the time it takes to perform the service, the technical skill and/or physical effort required to perform the service, the amount of mental effort and judgment required, and the stress arising from any potential risk to the patient from performing the service) , the healthcare business’s expenses, and malpractice insurance. A secretive American Medical Association (AMA) committee (called the RUS Update Committee) composed of medical doctors supplies much of the information to CMS  regarding doctor’s contributions to each service. The resulting annual Physician Fee Schedule defines what CMS will pay doctors for every service they might perform. how doctors are paidThis scheme can be broken up into two subgroups:
    1. No Total Spending Caps (1992-1996)—prices for services rose per medical inflation (which was always higher than inflation in the rest of the economy)
    2. With Total Spending Caps (1997-2015)—called the Sustainable Growth Rate (SGR), this scheme attempted to limit the growth of how doctors are paid by tying allowable growth in fees to the consumer price index rather than letting growth be governed by medical inflation. The SGR formula calculated the difference between actual and targeted expenditures and came up short 17 times during the life of this reimbursement scheme. When spending exceeded the budget, Medicare was supposed to take back the previous year’s overpayment with lower reimbursement rates for the following year.  Tying how much doctors are paid to the growth in the overall economy may have had merit, but  asking doctors to return money already earned in the form of future earnings is a crazy policy doomed for failure.   Doctors refused to accept the mandated cuts and Congress dutifully cancelled them (through special laws dubbed doc fixes). When SGR was repealed in 2015, the accumulated $500 billion health spending savings from 17 doc fixes disappeared. Healthcare affordability would have to be found somewhere else in the future.
  3. MACRA  (2015-?) —enacted to get finally end the politically unworkable SGR reimbursement scheme.  Medicare payments to doctors will increase by 0.5% each year through 2018. Starting in 2019, the fee-for-service reimbursement scheme will be phased out and replaced with a value-based fee structure.  MACRA also puts an end to self-policing of healthcare quality by the medical community (they failed to do a good job of it) and ties quality reporting by doctors with reimbursement.

Looking over the  reimbursement schemes, many BB’s Brigade members are probably wondering how much they would have been making today if they had

  • Spent 25 years setting their own pay scales based on what they considered “usual, customary, and reasonable”
  • Spent another 4 years having their unions (or other appointed representatives) tell employers how much time they spent on every assigned task assigned and how much stress each task entailed. Salaries would have been based on the tasks accomplished and not on how many hours were actually worked. Quality of work would never have been reviewed.
  • Spent another 18 years having employers threaten to reduce salaries followed by the annual government bail out after employees threatened to quit. Employees could even hire cheaper employees to do their work and get paid by the distant employers their higher salaries.

Who would ever want to leave these fabulous fee-for-service compensation packages with so many holes left to exploit?

 High Salaries Due to Doctor Scarcity

In addition to how doctors are paid, the scarcity of doctors also affects our ability to achieve healthcare affordability.  High doctors’ salaries are also the result of the limited supply of doctors in many parts of the country.  Some medical specialties are in high demand and the supply is limited.  Our government, providing poorly funded half-measures, has failed to remedy the supply shortfall as lobbyists for doctors fight to keep supplies low and salaries high. Many would-be physicians are turned away each year because medical school openings are limited. Residency programs need to be funded and expanded to train critically-needed medical specialties.

Foreign doctors wishing to practice in the United States are confronted with so many barriers that it make practicing in the United States next to impossible. Given that our quality of care is not the highest in the world, foreign doctors might be able to teach our doctors a thing or two if given a reasonable chance to show what they can do. I would suspect that many credentialed medical doctors from various countries could become functioning members of our medical community through mentoring programs. I can envision a program where foreign doctors are partnered with American doctors until they can practice solo in our healthcare system. The measurement of their quality of care delivery could be the model by which all American doctors would someday be measured. This mentoring program could fill a critical need for medical doctors in the Veterans Health Administration, critical access hospitals, and rural hospitals that go begging for doctors today.

How Much Are Doctors Actually Making

Salaries (including bonuses but excluding insurance, stock options, and other benefits) for several medical specialties are given in the table below:

how doctors are paid by specialtyPediatricians are the lowest paid at $224,000 and orthopedic surgeons are the highest paid at $555,000 on average. Because doctors are paid by service performed, new doctors receive the same payments as those who have many years of clinical experience.  In addition, doctors who deliver poor quality healthcare are compensated as well (maybe more because mistakes are also paid) as those who deliver the best quality healthcare.

For comparison, I have included the average salaries with professions requiring comparable education and training as well as firefighters and the President of the United States, who like medical doctors provide valuable services to the public.

Research Scientist with PhD— $76,600

Clinical Psychologist (with PhD)— $73,000

Firefighters (median)— $44,000

President of the United States–$400,000.

The Bottom Line

Many factors contribute to our national health spending  that is double what it is in other countries.  How doctors are paid in the United States is one such factor. High doctor salaries are the direct result of (1) government inaction to remedy doctor shortages, (2) healthcare reform that does not correct the cumulative effects of 50+ years of fee-for-service payment schemes, and (3) government health policy that puts the financial gain of doctors ahead of cost-effective quality care for consumers. Doctors will continue to ask and receive the astronomical salaries show above without reform that is geared to deliver Affordable Health Care and Beyond for ALL Americans first and foremost.

The doctors’ salaries (and many eye-opening statements worth reading) come from the article entitled “Competition for New Docs Pushing Pay Higher” .

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