How physicians can protect our financial security.
If many economic experts are correct, the United States economy is in serious trouble. The combination of rising inflation and historically high debt levels threatens the marketplace's stability, particularly in the healthcare sector. No one benefits from inflation. It generates a vicious cycle of rising interest rates, unemployment, and investor uncertainty. Healthcare is particularly vulnerable to inflation because of the complex laws that limit our ability to raise fees. At the same time, the door on alternative methods for physicians to maintain income may be closing.
Physicians have prospered over the past thirty years relative to the general population.
The past thirty years have been a period of low inflation, and physicians have fared reasonably well. Health care expenditures have increased 20% over the past 20 years due to an aging population, new technologic advances, and the introduction of the Affordable Care Act. Combined with a limited supply of physicians, this growth has helped physicians and hospitals maintain some control over their income despite cost-cutting measures.
Low inflation moderated cuts by the federal government and, in some cases, allowed for increased fees to specific providers. Keeping Medicare rates close to a level slightly above inflation has prevented the mass exodus of physicians out of Medicare, as is the case with Medicaid, which currently only covers 60% of providers' costs. Medicare fees pay about 90% of actual costs to hospitals and physicians, but physicians have made up for this by their contracts with private insurers, who typically pay more.
Historically, medicine has always been considered a service-oriented advocation, not a way to become wealthy. The introduction of Medicare in 1965 and the generous private health insurance plans negotiated by powerful unions increased income to hospitals and physicians dramatically. Before Medicare, physician incomes were about twice that of an average worker. Now they are more than five times that of an average worker; this increased income allowed physicians to invest and prosper with many becoming wealthy.
Low inflation over the past thirty years has helped physicians in several ways.
American physicians are the highest paid in the world, with an average salary of $270,000 in 2020, according to the Medical Economics Annual Physician Report. In the same report, the authors note that most physicians have maintained or increased income using new technology, working harder, newer practice models and taking advantage of increased payment for quality measures.
Shifts in practice patterns have also benefitted physicians. A shortage of physicians has encouraged hospital systems and insurance companies to lure physicians with high salaries and bonuses in return for becoming employees. According to Forbes, the percentage of physicans in private practice declined from 41 percent in 1983 to 17 percent in 2014. The trend continues, attracting new physicians burdened with high debt. These physicians typically generate less income than they earn, something hospitals have been willing to subsidize in return for more referrals into their systems and specialists. For example, hospitalists typically earn $150,000 less than their productivity, and the trend is spreading to other specialties.
The medical bubble is about to burst.
Rising inflation, a massive federal deficit, and the inevitable rise in interest rates can change the fortunes of physicians who do not recognize and prepare for future economic changes. The time to change in before, not after inflation gets out of control.
A recent op-ed piece in the New York Times claimed that inflation rates have little bearing on the economy's health in general. The authors are burying their collective heads in the sand to deny our past mistakes and endanger our future, unlike the ostrich, which buries its head in the sand to protect the future by checking on its buried eggs. Rising inflation will have dire consequences for all social programs, but especially for healthcare. A quick look at how the federal government allocates our tax dollars should show how dangerous inflation and rising interest rates can be to physicians.
The majority of federal spending is now to service the debt and for social security and Medicare. Revenue has been flat.
As a student, I overheard an undergraduate asking a faculty member at Princeton University how much it costs to live in Princeton, N.J. The professor wisely answered, "You will undoubtedly spend more than you earn, so if you have a good relationship with a bank and you will be fine." He was describing a simplified version of Keynesian economics, named after the economist John Maynard Keynes who opined in the 1930s that government and the central banks could maintain the GNP in times of recession by borrowing money to stimulate the economy, which would repay the debt created. He advocated lower taxes and suggested that deficits were not a problem if the economy grew.
Except for a brief period in the 1980s when we had a surplus, we have managed our growth in GNP through borrowing money selling bonds. Roosevelt embraced the policy by creating the new deal, spending his way out of the depression. The same approach raised money to finance the war machine during World War 2 and how we dealt with the COVID-19 pandemic. The result is that we now face a historically high debt to GNP ratio. During the Regan, Bush, and Trump administrations, tax cuts exacerbated the problem by inadequately stimulating GNP enough to reduce the deficit as promised by Keynesian economists. A contributing factor has been that we have been continuously at war somewhere in the world for the past twenty-five years.
COVID-19 may be the straw that breaks the camel's back, increasing the national debt to thirty-nine trillion dollars. The per capita debt is $69,000 for every man, woman, and child in the U.S. Paying that off would alleviate one problem but would fail to account for future promised obligations, as well as newly created social welfare programs.
Countries like Spain and Greece, which cannot increase the money supply, must deal with their debt by implementing austerity measures, drastically cutting social services. The U.S. has avoided this because our dollar remains valuable, and we have never defaulted on debt repayment. Yet.
Physicians are at particular risk as inflation increases.
For new physicians, the situation will be worse. The cost of medical education and undergraduate education has soared over the past 30 years. It costs sixty thousand dollars a year to attend a four-year college like NYU or Cornell and seventy thousand a year to attend a private medical school. Even the Caribbean medical schools charge sixty thousand a year.
These trends make medical education affordable only for the wealthy and limit diversity. They may ultimately make Medicine an undesirable career choice. At the same time, as medical school enrollment is increasing, Medicare has been reluctant to spend the money to increase residency positions.
How physicians can protect our financial security
Physicians will never be poor, but the favorable financial bubble will burst due to bad fiscal policy, changing public opinion, and unfavorable laws limiting our practice options. Regardless, the services of honest, informed, and affable physicians will always be needed. Our place in society and self-esteem will be defined not by dollars but by our good deeds. Perhaps that's how it always should have been.
These are the opinions of Simon Douglas Murray, M.D., and not those of this publication or its owners. I am not a financial advisor, just a small-town country doctor.