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

As 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. The delivery of affordable, quality health care in the United States will only be achieved by overhauling HOW doctors are paid.  Let’s take a closer look at how doctors are paid (and have been paid in the past) for the services they provide in the U.S. healthcare system.

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How Doctors Are Paid and Payment Models Today

While some doctors are paid directly by their customers (i.e., direct cash payments or special arrangements called concierge medicine), over 90% of all private doctors are paid through special financial arrangements negotiated between individual payers (insurers and government agencies) and the private healthcare businesses (doctors and hospitals) that deliver healthcare services. These financial arrangements can be subdivided into four basic payment models as shown below:

  1. Fee-For-Service— Doctors are paid for every healthcare service (itemized in great detail by the extensive American Medical Association (AMA) medical coding system) they provide. This payment model has encouraged doctors to deliver “quantity over quality” of care (over-treating, over-testing and using the most expensive services possible) to maximize income and profits. Errors in treatment and even mistreatment were rewarded under this payment model. Healthcare payers have had to micro-manage healthcare business practices to keep a lid on these income and profit maximizing loopholes that the fee-for-service payment model allows. This payment model provides no benefits to healthcare consumers and has been the predominant way doctors have been paid over the past 50+ years.
  2. Episode of Care (also called bundled payments) — Doctors are paid a single payment to cover all of the healthcare services needed by a patient during an episode of care, defined by a specific medical condition across a full cycle of care (e.g., from hospitalization for a heart attack to rehabilitation services). This patient-centered payment model encourages all healthcare providers involved in the episode of care to coordinate (talk to each other) for the most cost-effective care but does not encourage cost-effective, quality care between episodes.
  3. Capitation—Doctors are paid a single payment to cover all of the healthcare services needed by a patient for a specific period of time (usually a year).  Because doctors are paid the same amount for healthy and sick patients under this payment model, healthcare businesses are encouraged to shun sickly customers and skimp (and even withhold care) in their effort to maximize income and profits.
  4. Comprehensive Payments (also called condition-adjusted capitation)—Doctors are paid a combination of capitation plus an additional payment for patients that are sicker than the average patient. While this payment model does not discourage doctors from taking on sickly patients, it still encourages skimping on care in an effort to maximize income and profits.

I have summarized the positive and negative aspects of each of these payment models in the table below:

how doctors are paid payment modelsThe above payment models hold even when doctors are paid on a salary- or contract-basis within a healthcare business.  Doctors’ services are still billed to payers under one of the above payment models by the businesses that employ them. Profits generated by these salaried or contracted doctors are usually shared with the doctors who generate them (i.e., in the form of bonuses or other profit-sharing arrangements).

Efforts are being made to move from payment models that discourage quality and cost-effectiveness (fee-for-service) to payment models that are more value-based (the other three above) where quantifiable quality and cost-effectiveness measures can be more easily tied to payment. The progress toward these “value-based” payment models has been slow going and fought vigorously by doctors’ lobbying groups.  Before Obamacare (PPACA), less than 5% of all doctors were paid under payment models that held them accountable for quality and today the number is still only about 30%.

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 and high quality of care.  When the supply of doctors is low, especially in many parts of the country, salaries naturally rise rapidly. Health care is a public need that cannot be done without when the price gets too high. Health care is largely delivered close to where the consumer lives and the marketplace (fees for services) is set on a local level. A scarcity of doctors in any given location means doctors in those areas can demand high salaries.

New doctors are intensely recruited (signing bonuses are common) because of the intense competition for doctors by hospitals, healthcare systems, and government facilities. Some medical specialties are affected more than others. Our government, providing poorly funded half-measures, has failed to remedy the supply shortfall and lobbyists for doctors fight to keep supplies low and salaries high. Many would-be doctors 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 could 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?

Decades of fee-for-service payments have made doctors rich. In 2015, the 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.

Summary–How Doctors Are Paid and Why It is Important

For over 50+ years, U.S. government health policies have created and enabled the out-of-control spending patterns that are ingrained in the very fabric of our healthcare system. How doctors are paid contributes to this unaffordable situation where Americans pay twice what others do in other industrial countries for worse quality.

How doctors are paid is important because the healthcare consumer will not get cost-effective, quality care if the payment model doesn’t tie pay to its delivery. Doctors will always fight vigorously to safeguard the outsized incomes they have enjoyed for decades. As payment reform takes away income from over-testing, over-treating, and mistreating under the fee-for-service payment model, doctors will look for ways to replace the lost income. Healthcare consumers have probably already observed one fallout of payment reform; namely,  doctors today spend a lot less time with patients than they did in the past and seem less aware of patients’ individual needs.

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 models, and (3) government health policy that puts the financial interests of doctors ahead of the consumers’ need for affordable, high quality care. 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.

Other Sources

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

last updated December 14, 2017

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