Doctor Earnings - and Why They Matter

President Obama and the Democrats may salvage something of health reforms using reconciliation to get past recalcitrant colleagues and a united Republican opposition. It's a far cry from what could have been achieved through a better, more proactive approach in the past year, yet a third of a loaf is better than none.

Administrative lapses have heavily contributed to the political stumbles. The Obama administration has failed to compile readily available data and publicize findings that undermine claims by special interests and their political allies who oppose reform. Reforms aimed at drastically curbing costs are bound to hurt some or most industry players, so they are all pointing elsewhere in the race to pin blame for health costs.

While the focus has been overly on insurers, a Feb. 25 study in Health Affairs by authors from a non partisan research group shows how hospitals and doctors bear much responsibility. The negotiating power lies with consolidated hospital chains facing little competition, and physicians increasingly banding together to command yearly double digit payment increases. (The study is limited to California, so it does not touch upon the national scarcity of doctors that contributes to their leverage.)

So how can Obama's administration including the HHS help simply by putting the facts out? One example is making widely available Medicare's true rates data, as described in my Nov. 21, '09 post. Another is shedding light on "true" doctor earnings.

Doctor and clinical services make up 21% of all US health care expenses, or half a trillion dollars annually. And this does not include the significant chunk going to salaried doctors directly employed by hospitals that account for an even larger 31% of total expenses. It is common knowledge that US doctors make much more than their counterparts elsewhere. According to available statistics it is twice or thrice as much as in other industrial countries. There are plenty of surveys on US physician earnings, but even these understate reality as elaborated subsequently.

This information is important for many reasons:

• It helps justify what are reasonable payments under the existing system, by Medicare as well as other payers who often use Medicare rates as a basis for their own negotiations. Medicare payment cuts to physicians under the Sustainable Growth Rate (SGR) legislation have been threatened since 2002 and amount to over 21% for 2010. Facing doctor protests, Congress has always suspended any cuts after 2002 and the whole formula will likely be scrapped under pending new legislation. Any new system should factor in reliably ascertained doctor earnings.
• It enables comparison of doctor earnings across specialties within the US, as well as across countries, particularly the first world peer economies. This tells us where the health dollars are going, and high salaries as a group are likely to indicate scarcity in specialties, needing policy corrections.
• It helps to determine if the problem is one of egregious waste or of egregious overpayment, and to consequently identify appropriate solutions. For example, a diagnostic radiologist drew in revenues averaging $1.46 million while earning "only" $438,000. Where does the remaining $1 million go? (It's not towards equipment and its usage as that is billed separately.) If it's mostly waste then a different model (say of radiologists employed on fixed monthly salary with reasonable performance bonus) can save a lot. On the other hand, the real earnings may simply be much higher than even the reported numbers. That strengthens the case for bringing them down through cutting payments, increasing radiologist supply domestically, and trade options.

While the reported earnings of US doctors have attracted some attention for quite a while, even these figures likely heavily underestimate true earnings for the following reasons:

• Almost all estimations are based on optional surveys with no penalties or safeguards against incorrect answers by doctors or other respondents. Doctors are acutely aware of public sensitivities about their earnings, and how this can impact Medicare payment rates that largely underpin their entire compensation structure. So they have every reason to under-report earnings.
• The studies most relied upon like the Occupational Employment Statistics and AMGA survey only include salaried physicians. According to BLS, self-employed physicians overall earn more than salaried ones, thus skewing the results downwards. Even including the self-employed may not help, given the greater propensity and leeway in this category to understate earnings.
• The response rate in these surveys is very low (e.g., under 9% according to p. 10 and p. 18 of the AMGA 2009 Executive Summary.) If the higher earning practices are reluctant to disclose "inconvenient truths" and shy away from participating, this again skews numbers downwards.

For all these reasons the Obama administration should compile the true doctor earnings statistics and make them public without further delay. This is a purely administrative task needing no legislative clearance and can even be done entirely under the political radar.

What's more, there's a ridiculously simple, quick and cheap way to accomplish this. How? By tapping into the already available sea of past IRS audited data on physician tax returns. Physicians as a higher earning group would have a higher proportion of returns subjected to audit. These audited returns will yield a much better representative, "non-optional" sample, not just for correct earnings but also to study expense patterns to identify waste and scope for reforms.