Physician Income in the 1990s: Problems and Disappointments Cynthia Conrad, PhD. Barney School of Business and Public Administration, University of Hartford, 200 Bloomfield Avenue, West Hartford, CT 06117. 860/768-4202AbstractThe combined effects of cost containment measures in public programs with the emergence ofmanaged care have placed physicians in a difficult position. Their anticipated incomes have not comeforth, limiting their practice options. Simultaneously, younger physicians who have had to availthemselves of student loans are facing the twin problems of high debt leverage and repaymentschedules in tandem with income less than they had expected.The following discussion explores some theoretical explanations for the income problems currentlyaffecting physicians. In concluding, the discussion addresses likely outcomes and effects of the incomeproblems in terms of the options for physicians and the quality of care overall.IntroductionIn the 1990’s, subtle but sweeping changes are taking place in the income status of physicians in theUnited States. The professional classification of physician has always been synonymous with a stable,secure, and well compensating career. As the American landscape of health care has changed, so havethe perceptions of physicians of their income potential. Managed care programs have redefinedphysicians as both gate keepers and bearers of the burdens of cost containment. The impacts of suchresponsibilities have had powerful effects on physicians’ income.Some industry analysts believe that the forces responsible for the changes in physician incomes derivefrom two labor markets in which the physicians must compete. There are two labor markets affectingthe physician workforce and therefore their income: the physicians’ training market and the physicians’services market. The training market refers to medical education and the numbers of physiciansgraduating and going into various types of practice. The services market refers to the demand forphysician services, which is where we see the most pronounced effects of managed care.The Services Market: Managed Care and Effects on Physicians’ ServicesManaged care has had a direct impact on physician earnings and on the way they practice of medicine.Many mid-career, highly specialized physicians, have experienced reduced incomes in order toaccommodate managed care organizations. "A survey by Ernst & Young, New York City, found thatdoctors in practices that receive more than 50% of their gross revenues from managed care contractsearned an average of $116,600 in 1995, down from $137,900 in 1994. The same study indicated,conversely, that physicians in practice with less than 50% income from managed care organizations hadan income increase from $108,000 to $115,000 on average across specialties.Mergers and acquisitions among health care organizations have compounded the problems physicianshave had in maintaining competitive incomes in managed care organizations. "Merged hospitalsfrequently find they have too many physicians, with the result that some – especially specialists andsubspecialists lose income or even their jobs."Clearly the specialist physicians bear the largest brunt of the evolution to managed care. Their plightmay not improve, considering estimates that if 40% to 60% of Americans are enrolled in heathmaintenance organizations by the year 2000, the supply of specialists will outpace by 60% the number
required. The demand for the services of specialist physicians will decline as primary care physiciansbegin to provide the same services, at less cost.Managed care organizations have placed much more emphasis on care by primary care physiciansbased on the assumption that such care is more cost effective. Such presumptions ignore the possibleeffects on the quality of care provided by primary care physicians, who are often at a financialdisadvantage if they refer patients to specialists. Consider the following conversation published by Dr.Michael Greenberg in a commentary appearing in the American Medical News:‘You want to send this patient to a podiatrist? Outside the system? Whose capitation is this going tocome out of , yours or mine?’ I was unprepared for the questions from the primary care physician. Inmy 18 years of practicing dermatology, I commonly sent patients with difficult plantar warts topodiatrist… ‘I don’t give a damn, I responded. ‘This is not about money. It’s about doing what is rightfor the patient.’ But as the words left my mouth, something inside me went gray and numb. I stronglycared about doing what was right for this patient, but suddenly realized that I did care about the moneytoo. I was uneasy about how easily the lie had slipped out.Managed care has placed physicians in the difficult position of being patient advocates while trying tocontain costs. In the balance is the physician’s personal income.The Training Market: The Effects of Medical Education on Physician’s IncomeA medical education is hugely expensive. Young physicians in the past, considered the expense a soundinvestment and guarantee of high income. That assumption may no longer be valid in the 1990’s.Since 1960, medical student tuition has increased by 400% in private schools and 250% in publicschools, adjusted for inflation . Tuition has risen because federal and state government funding forresearch has declined. Additionally, managed care programs have reduced clinical income. Medicalschool tuition averages $20,000 per year in addition to other educational costs. Recent reports showthat almost 90% of medical students receive some type of financial aid. Much of that financial aid is inthe form of federally guaranteed student loans. Many medical students graduate owing massive debts,with devastating economic and psychological consequences. The pressure to meet large debt servicerequirements makes young physicians sensitive to changes in their income.Since 1993 there has been a surge in federal student loans in all areas of education, from $102 billion in1990 to $205 billion in 1995. The increase derives from the reauthorization of the Higher EducationAct of 1992, in which Congress created a new component of the guaranteed loan program. It allows allstudents, regardless of need to obtain loans with federal guarantees, but whose interest is notsubsidized. Medical students represent a large part of that borrowing. As we approach the new century,there is increasing concern about how educational indebtedness may substantially increase the rate ofdefaults.The increased costs associated with the prolonged medical education required for specialization,(combined with the diminished earning potential in the managed care environment) have turned manystudents away from pursing medical specialties. In 1994, the percentage of senior medical studentsexpecting to be certified in generalist fields increased substantially after a ten-year decline. Nearly 23%signaled their intentions to take generalist training, compared with less than 15% in 1991. The exactreasons for this trend are unclear, especially when we consider that interest in generalist careersdropped dramatically during the 1980’s with just over 30% of students choosing a generalist career. Itmay be that managed care has become significant enough now to affect medical students’ perceptionsabout their future job opportunities and earnings potential. The shift toward more generalist physiciansindicates a tightening labor market for physicians. A 1994 survey of California specialists found that
27%, including half the obstetrician-gynecologists and one-fourth of the internal medicinesubspecialists, planned to take training in primary care, in the following five years.Results of Current Trends in Physician Service and Training MarketsChanges in the training market will ultimately have effects in the physician workforce and physicians’incomes. As more generalists work for increasing numbers of managed care organizations, we willobserve a decrease in physician incomes overall. Even today, physicians who only recently began theirpractices, are being squeezed by economic forces. These individuals carry huge student loan debts,often exceeding $100,000 in some cases, and yet they are not able to earn the income they hadanticipated and now need. As a result, they experience limits on their freedom to go into privatepractice and diminished expectations in their lifestyles. The disappointment of these physicians will notgo unnoticed by incoming medical students. Their hopes for a secure and lucrative future will be lessoptimistic than their predecessors’.The costs of a medical education may change the ability of students to pursue a medical career, unlessthey have the resources to pay all the expenses without incurring debt category. If that happens, fewerstudents will go to medical school, and it would then become an option for students from only thewealthiest families.Another impact of the changes in the training and service markets for physicians is the de-emphasis ofspecializations. In the long term, the availability of fewer specialists will denigrate the quality ofmedical care. Seeing a specialist will become a rarity. Fewer specialists will produce less research andapplied advances in treatments and cures for human ailments.In the meantime, physicians are reassessing their earning potential and being disappointed. Theirpositions are not enviable. They have made huge, personal, monetary, and intellectual investments inthemselves, and now see their earning potential declining as their value diminishes in the markets inwhich they must compete.