Physicians Lose Ground in Real Income Between 1995 and 2003

Primary Care Physicians Fare the Worst, Seeing Real Income Decline by 10.2 Percent

News Release
June 22, 2006

FURTHER INFORMATION, CONTACT:
Alwyn Cassil (202) 264-3484 or acassil@hschange.org

WASHINGTON, DC—In sharp contrast to other professionals, physicians’ net income from the practice of medicine declined about 7 percent between 1995 and 2003 after adjusting for inflation, according to a national study released today by the Center for Studying Health System Change (HSC).

"The downward trend in real incomes since the mid-1990s likely is an important driver of growing physician unwillingness to provide such pro bono work as charity care and serving on hospital committees," said Paul B. Ginsburg, Ph.D., coauthor of the study and president of HSC, a nonpartisan policy research organization funded principally by The Robert Wood Johnson Foundation.

The decline in physicians’ real income stands in sharp contrast to the wage trends for other professionals who saw about a 7 percent increase between 1995 and 2003 after adjusting for inflation, the study found.

Among different types of physicians, primary care physicians fared the worst with a 10.2 percent decline in real income between 1995 and 2003, while surgeons’ real income declined by 8.2 percent. But medical specialists’ real income essentially remained unchanged.

"Flat or declining fees from both public and private payers appear to be a major factor underlying declining real incomes for physicians," said HSC Researcher Ha T. Tu, M.P.A, a study coauthor.

Despite the downward trend in real incomes, medicine overall remains one of the most well-paid professions in the United States: At least half of all patient care physicians earned more than $170,000 in 2003, and physician average net income was about $203,000, the study found. Although surgical specialists have lost ground to inflation since the mid-1990s, they remain the highest earning of all physicians, with average incomes of $272,000 in 2003—29 percent higher than medical specialists and 86 percent higher than primary care physicians.

Based on HSC’s nationally representative Community Tracking Study Physician Survey, the study’s findings are detailed in a new HSC Tracking Report—Losing Ground: Physician Income, 1995-2003—available here. The 1996-97 and 2000-01 surveys contain information on about 12,000 physicians, and the 2004-05 survey includes responses from more than 6,600 physicians. Response rates for the surveys range from 52 percent to 65 percent.

Other key study findings include:

• The average number of hours worked by physicians for all medically related activities fell slightly from 55.5 hours a week in 1995 to 53.2 hours in 2003. Medically related activities are defined as time spent on administrative tasks, professional activities and direct patient care but not time spent on call when not actually caring for patients.
• Physicians spent more time on direct patient care, which is defined as face-to-face contact with patients, patient record keeping and office work, travel time connected with seeing patients, and communication with other physicians, hospitals, pharmacies and others on a patient’s behalf. With patient care hours increasing while total medically related work hours fell, physicians are now spending a significantly larger proportion of their work time caring for patients than they did in the mid-1990s-86 percent vs. 81 percent.
• Flat or declining fees from both public and private payers appear to be a factor underlying declining or stagnating real incomes for physicians. Medicare payment rate increases for physician services amounted to 13 percent from 1995 to 2003, according to the Medicare Payment Advisory Commission (MedPAC), while inflation increased 21 percent. Private payment rates have lagged even more. In 1995, commercial fees were 1.43 times Medicare fees on average; by 2003 this fee ratio had fallen to 1.23, according to MedPAC.
• The volume of physician services increased substantially between 1999 and 2003, largely because of growth in the number of tests and procedures. Among Medicare beneficiaries, minor procedures grew 6 percent a year on average between 1999 and 2003, according to MedPAC, while office visits grew 4 percent and major procedures 3 percent.

According to the study, the strong growth in tests and procedures helps to explain in part why medical specialists have seen their incomes growing at a faster pace than primary care physicians, who rely more on cognitive services, such as evaluation and management of patients, to generate revenue
. Among medical specialists, physicians with procedure-based practices, such as gastroenterologists or cardiologists, also are better positioned to invest in specialty facilities to generate additional income than, for example, a psychiatrist, who like a primary care physician, provides cognitive-based services.

Downward pressure on incomes is likely linked to the movement of physicians away from primary care into certain medical specialties that offer higher compensation and have kept better pace with inflation. The composition of the physician population changed between 1995 and 2003, with the proportion of medical specialists steadily increasing from 32 percent to 38 percent, while the proportion of primary care physicians and surgical specialists each declined by about 3 percentage points.

"In choosing which area of medicine to specialize in, many physicians today already show preferences for medical specialties that offer more control over work hours," Ginsburg said. "Reinforced by diverging income trends between these specialties and primary care, the result is likely to be an imbalance in the physician workforce and perhaps a coming shortage of primary care physicians and other specialties that provide primarily cognitive services."

### ###

The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by The Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.