Doctors' earnings make a stride

The short-term news is good in most of the 20 fields weanalyzed. But over the past decade, median net has kept up with inflationin only one major specialty.

All right, so you managed to pay your practice expenses, square everything with the IRS, and have a little left over last year. For doctors who are satisfied with short-term gains, the earnings picture looks pretty good. Surgical specialists ended 1998 with a 3 percent increase in practice net, while all nonsurgeons were up 2.4 percent. And, thankfully, inflation merely nibbled at that gain: The government's Consumer Price Index rose only 1.6 percent.

But long term, the Medical Economics Continuing Survey shows,the picture hasn't been nearly so bright (see page 174). Between 1989 andlast year, median net earnings for all fields of practice climbed just awhisker short of 25 percent--from $131,620 to $163,940. Over that same period,however, the mild inflation rate we've learned to love still added up toa total increase of 36 percent.

Of the major specialties for which we have complete data, only FPs sawgains in median net income for each year since 1989, and their nearly 50percent increase was the only total gain to surpass the cost-of-living growth.General surgeons came close, boosting net earnings by slightly more thanone-third. Ob/gyns' performance was especially disappointing. The last timethese specialists made any substantial headway was back in 1989, when theysaw double-digit percentage increases in net income. Since then, ob/gyns'earnings have been relatively flat, delivering a total gain of $6,210, orjust 3.3 percent, for the entire period.

Our survey sample includes MDs and DOs in office-based private practice.Among the 20 fields we analyzed, only half had increased gross practicerevenue in 1998. In fact, the median gross for all fields of practice combined($256,280) was a 0.7 percent step backward. Steadily declining managedcare reimbursement was the clear culprit. Among doctors who participatein at least one HMO, 1998 median gross income dropped by more than $6,500,while doctors who don't participate in HMOs saw their income rise slightly.

Only five years ago, doctors were scrambling to sign up with managedcare plans. "I don't like the idea of HMOs," one New Jersey internisttold us then. "But if I don't join them fast, I'm afraid I'll losemost of my patients." It was a valid fear: In 1995, doctors who contractedwith HMOs typically netted about $40,000 more than HMO holdouts. Then theirlead started narrowing, and in 1998 it dipped to about $28,000.

"If the trend continues," predicts Cincinnati management consultantDavid C. Scroggins of Clayton L. Scroggins Associates, "I wouldn'tbe surprised to see more doctors deciding it no longer pays to participatein some of their plans. They won't walk away from the big plans that paya large percentage of their reimbursement, but they'll become more analyticalabout which ones to stay with. I already see some doctors taking a hardlook at the plans that pay poorly." (An extensive analysis of our surveydata on managed care will appear in an upcoming issue.)

Improved practice efficiency more than made up for revenue drops in certainfields. For example, our survey shows internists losing 2 percent of mediangross revenue compared with the year before, but winding up 1998 with a7.7 percent gain in net earnings. Similarly, FPs lost almost 4 percent inrevenue, but gained more than 4 percent in net income.

Ob/gyns didn't even hold the line last year: Their net dropped almost2 percent. The chief reason, management consultants are convinced, is theirdual role--half surgeon, half primary care physician. "Insurance reimbursementfor their office visits hasn't been too bad," says Scroggins, "butob/gyns have been hurt far more than FPs or pediatricians because of reimbursementcuts for surgical procedures."

Pediatricians, in fact, did quite well last year. They boosted grossreceipts a substantial $19,000, which allowed them to spend more freelyon office expansion and other expenses. Still, they finished 1998 with nearly$8,000 more in net earnings.

Most US doctors, however, couldn't afford the luxury of increasing theirpractice outlays unless the spending led directly to a better bottom line.Consultant Barry S. Pillow of HealthCare Consulting Inc. of Greensboro,NC, tells of one group practice that moved to larger, pricier quarters lastyear. The new space was more efficient, which let the partners see morepatients. That, in turn, boosted the group's profit by 12 percent.

Pillow says more practices have started upgrading their computer systems,an outlay that allows them to improve electronic filing of insurance claims."It can also allow the practice to accept insurance reimbursement electronically,"he points out, "and that can be done without any staff intervention--apotentially big cost saving."

Where do your earnings fall on our survey scale? To make comparisonsby specialty, age, geographic region, and other variables, consult
the accompanying tables and charts. Watch for more detailed figures on fees,reimbursements, practice expenses, managed care participation, and physicianproductivity in up- coming issues this fall. For a description of how theContinuing Survey was conducted, see table below.

The 1990s: Earnings grew, but you lost ground

Between New Year's Day 1989 and New Year's Eve 1998, there were six upyears and three down years for office-based physicians as a whole. But holdyour cheers: The up years weren't enough to compensate for inflation--evena leisurely climbing cost-of-living index. Bottom line: The typical doctorhas substantially less actual buying power.

For unincorporated physicians, net is individual income from practiceminus tax-deductible professional expenses, before income taxes. For incorporatedphysicians, it's total compensation from practice (salary, bonuses, andretirement set-asides) before income taxes. Data apply to individual office-basedMDs and DOs. Source: the Medical Economics Continuing Survey andthe US Bureau of Labor Statistics

Income by type of practice setting

Doctors in suburban locations had healthy one-year gains in 1998 practicenet--a welcome change after their previous year's flat earnings. Rural doctorskept pace with their suburban colleagues in dollar gains--about $6,000.

For primary care doctors, still plenty of vacancies in the upper incomeranges

The earnings ladder: Primary care is still near the bottom

Gross revenue dipped in 1998 for 10 of the 20 fields of practice we analyzed,with precipitous drops for ob/gyns, ophthalmologists, and urologists. Effectivepractice management tactics, however, meant one-year gains in net incomefor everybody except dermatologists, neurologists, and ob/gyns. Even so,only 12 specialties stayed ahead of last year's 1.6 percent inflation rate.

Assessing 1998 earnings by:

Doctors in practice less than three years yielded an insufficient sample. Figures are medians for all fields of practice combined.

How other specialists compare

How gross and net may vary by region

Figures are medians for all fields of practice combined

No surprise: More patient visits generally bring more earnings... asdo longer hours

Managed care revenue: Are the gains evaporating?

For the second year in a row, doctors who participate in HMOs saw theirgross income drop significantly. And in 1998, their net income dropped,too. True, the decrease was just a few hundred dollars, but it representsthe first dip in net income since we first began looking at HMO participationin 1993. Meanwhile, HMO holdouts made strong gains: Their 1998 net was upnearly $5,000.

Figures are medians for all fields of practice combined.

A big step up for women doctors

Female physicians increased their median net by 9 percent in 1998, comparedwith just 1.2 percent for their male counterparts. Virtually all their gainswere in nonsurgical fields. For all fields of practice combined, women stillearn only 72 percent of what men do. However, only two years earlier, ourdata showed them earning 67 percent as much as male physicians.

Want to boost your earnings? Try breaking the rules

A successful earnings strategy demands keeping practice spending low,staying on good terms with as many managed care plans as possible, and hiringa tough, savvy office manager. At least you'd think so. But that's not quitethe approach taken by internist Martin L. Serota and his primary care partnersin Pinole, CA, a few miles northeast of San Francisco.

For starters, the Greater Pinole Physicians Group doesn't have an officemanager, despite the practice's size: 19 physicians and nearly 55 officestaffers. Instead, Serota has appointed three key employees to individuallyoversee clinical activities, billing, and general administration.

Serota stresses controlling costs, but accomplishes this goal withoutstinting on ECG monitors, computers, mammography machines, otoscopes, andoxygen tanks. "At this point," he notes, "virtually noneof our equipment is more than 5 years old." Even so, the practice hasreduced its outlays in the past year from 62 percent of gross revenue to52 percent.

Say what? "Our policy is to pay our bills on time, whichcreates a better business relationship with our vendors," Serota says."The result is more favorable contracts with them and quicker turnaround."As president of the practice, Serota does most of the negotiating, and hespends several hours a week with vendors and with insurance company brass.For this effort, he's paid what he calls a "modest" separate salary.He still finds time for 5,000 patient visits a year.

If paying vendors' bills on time leads to favorable contract terms, whatdoes the practice have to trade for higher reimbursement from managed careplans? "With our range of primary care fields, we offer ease of contractingand credentialing, and, with our 19 physicians, we offer one-stop shoppingand a large market share," he declares. At the for-profit hospitalwhere they admit most of their patients, the group's doctors provide approximately10 percent of the hospital's total admissions, but these represent nearlythree-quarters of the institution's managed care patients.

"The negotiating process works very well," Serota says, "becauseour MDs are willing to take a stand." For example, earlier this yearSerota and his partners became the first doctor group in the Bay Area tobreak away from Blue Cross of California's huge PPO. That plan isn't especiallypopular with many other doctors, either, but most fear losing the Blue Crosspatients.

The partners also backed Serota when he recommended dropping two otherlow-paying plans, and he's about to talk tough with a few more whose contractrenewal offers he considers unsatisfactory.

If the Blue Cross episode is one of the practice's defining moments,another came three years ago when Serota and his partners filed for divorcefrom an MSO over disputes involving patient volume.* (The MSO had originallypurchased most of the practice's original office equipment and kept it afterthe breakup, a chief reason Serota has new office equipment today.)

The practice seems to be doing fine on its own. In 1998, operating profit(patient revenue minus office expenses and doctors' compensation) rose tenfold--from0.5 percent to 5.1 percent. As in previous years, that profit will be plowedback into the practice, easing the way for even more growth.

By year's end, the practice expects to add its first two ob/gyns, bringingthe physician staff to 21. Serota estimates that it costs up to $10,000in capital expenditures, plus some $40,000 in seed money for accounts receivable,to get each new physician established. So next year's earnings may takea hit.

Serota expects that his own practice finances will continue to flourish.He figures his share of 1998 patient revenue at nearly $340,000--an increaseof 6 percent over 1997. In the same period, when the typical internist'snet income nationwide was about $142,000, Serota's salary, including a 10percent raise for the year, came to about $177,000. That's the payoff, Serotafigures, from the bold moves he's made.

*See Suits vs stethoscopes: "Who's to blame when doctor-hospital mergers turn sour?" Jan. 26, 1998

How the survey was conducted

Questionnaires for this year's Medical Economics Continuing Survey, developedand fielded under the direction of Sandy Johnson, field manager, were mailedin early March to 92,339 MDs and DOs in private, office-based practice throughoutthe US-a random sampling selected from the AMA master list maintained bythe Phoenix Marketing Group. A follow-up mailing to non-respondents wasmade in mid-April.

By the early June cutoff date, 12,608 MDs and DOs had responded. Afterwe set aside returns with apparent discrepancies and those from physicianswho hadn't been providing office-based patient care throughout 1998, ourworking sample consisted of 8,474 physicians. These were coded by the MedicalEconomics research staff and then tabulated by computer under the directionof Gene Richman of Crosstabs Inc. of Syosset, NY.

The survey sample was selected to be representative as to specialty,type of practice, age, geographical region, and gender. The results wereweighted to reflect these criteria. The final survey sample closely representsthe universe in terms of these variables.

Joel Goldberg. Doctors' earnings: You call this progress?. Medical Economics 1999;18:172.