Business

Income is up for physicians in big groups

A look at large practices finds increased efficiency making up for revenue losses, but that trend might have its limits.

By Tyler Chin — Posted Sept. 25, 2006

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Physicians in large group practices saw income gains last year tied to hiring demand and increased productivity, according to one survey. Meanwhile, some of the groups employing them continue to lose money.

The median physician income was up 8% and 6%, respectively, for primary care physicians and specialists in 2005, according to the 2006 Medical Group Compensation & Financial Survey from the American Medical Group Assn. The numbers are based on responses from 218 groups representing about 35,000 physicians. Alexandria, Va.-based AMGA, which represents large multispecialty practices, including some that own or are owned by hospitals, surveyed both members and nonmembers.

Median incomes for family physicians and internists at groups were $178,366 and $183,840, respectively, each up about 8.5%. Dermatologists had the largest gain: 12% to $306,935. Hematologists and oncologists had the smallest: 3.3%, to $263,284.

The median reflects a midpoint (half the physicians earned more and half earned less) while the mean is the average. For example, average incomes for family physicians and internists were $187,891 and $192,264, respectively.

Although the groups' financial performance dipped, physicians earned more money last year than in 2004 because groups were working harder, offering ancillary services and facing intense competition to hire and retain doctors, said Fred Haag, vice president of publications and communications at AMGA.

The results of the AMGA's survey represent a small minority of the physician population. Studies have found that 60% or more of all physicians practice in medical groups of three or fewer physicians.

A broader survey of physician income, released earlier this year by the Center for Studying Health System Change, found that physicians' average net income declined 7% over a nine-year period ending in 2003. That survey adjusted physicians' net income for inflation, which the AMGA survey does not.

"I'd agree that if you look over a [cumulative] span of time that physicians lost ground," said Brad Vaudrey, a director at Bloomington, Minn.-based RSM McGladrey, the consulting firm that conducted AMGA's survey. "But for this year, I'd say physicians' income gains outpaced inflation. So, it's just a catch-up from prior years."

Physician recruiter Merritt, Hawkins & Associates said its clients -- large group practices and hospitals -- are paying out more to hire doctors while their overhead is rising significantly at the same time. "We're seeing some practices' overhead [totaling] 53% to 55% [of revenue], which is bad," said Kurt Mosley, vice president of business development. "Good overhead is 45% to 48% of revenue."

Many groups are still losing money as a whole. Nationally, the median practice lost $1,264 per physician in 2005, according to the survey. Three out of four national regions, as defined by the AMGA, recorded per-physician losses. Part of the reason for the losses was less revenue, thanks to such factors as reimbursement cuts and the rising ranks of the uninsured. Despite these cuts and because of physician income gains, the per-physician loss actually is less than in 2004, when it was $1,365 per physician, and in 2003 at $3,477.

AMGA credited new technology -- including the implementation of electronic medical records --as well as new procedures and new changes to the multispecialty staff model -- such as increased hospitalist use -- as reasons practices have been able to narrow their losses. The increased efficiency also helps physician pay, which in large groups is often tied to doctors' productivity.

The dynamic of doctor income rising and group income in the red, even if it has improved, raises the prospect of whether physician income is headed for a fall, particularly in light of a 5.1% Medicare pay cut that is scheduled to take effect Jan. 1, 2007, unless Congress intervenes.

"In my opinion, eventually, yes," Haag said. "Organizations have to pay more and more money for these physicians, but while you're paying more and more for them, when you average in all of your expenses you're losing money. I mean, yeah, eventually there's going to be a breaking point."

Haag also noted that if a Medicare cut goes through, Medicaid and commercial insurers will likely follow Medicare's lead, putting further pressure on physician pay.

Physician recruiter Mosley, however, said he believes such a cut would instead cause practices to redouble their efforts in efficiency and ancillary services.

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