As always, Princeton economics professor Uwe Reinhardt brings a provocative perspective to a sensitive subject: physician pay.
Turning to Adam Smith’s An Inquiry Into the Nature and Causes of the Wealth of Nations (1776), Reinhardt focuses on Chapter 10 of Book 1, titled “Wages and Profit in the different Employments of Labour and Stock” as the text for an Op-ed published in Friday’s New York Times.
Reinhardt observes that, when it comes to physicians and lawyers, Smith “appeared to lean on the medieval doctrine of ‘just price.’ Thus he wrote:”
“We trust our health to the physician: our fortune and sometimes our life and reputation to the lawyer and attorney. Such confidence could not safely be reposed in people of a very mean or low condition. Their reward must be such, therefore, as may give them that rank in the society which so important a trust requires. The long time and the great expense which must be laid out in their education, when combined with this circumstance, necessarily enhance still further the price of their labour.”
Reinhardt, who is a health-care economist declares that he finds “Adam Smith’s perspective persuasive. But,” he asks, “what income would give physicians ‘that rank in the society which so important a trust requires’?”
He then offers his answer: “Suppose we say, as I would, that the income physicians earn after practice expenses, working full time caring for patients, should put them somewhere into the top fifth percentile of the nation’s distribution of income (meaning 95 percent of families would have a lower annual income). What income level might we then be talking about?”
The chart below, based on the latest figures available, reveals that the wealthiest 5 percent of all families earn $250,000 a year.
Source: U.S. Bureau of the Census, 2009 Annual Social and Economic Supplement
Many primary-care physicians earn considerably less than $250,000, Reinhardt observes, pointing to this 2009 report by the Medical Group Management Association (MGMA), an organization that represents medical group practices which shows median compensation for internists, family practitioners and pediatricians ranging from $186,000 to $191,000.
Here, the good news is that the America’s Affordable Health Choices Act approved by three House committees would raise Medicare compensation for primary care physicians by at least 5 percent—and by 10 percent in regions where primary care doctors are in short supply, while also providing bonuses for managing chronic diseases and loan-forgiveness for medical students who choose primary care. These raises also would apply to pediatricians, and to the Public Sector Insurance Plan.
But until now, physicians who practice what some call “thinking medicine” (listening to and talking to patients) have barely kept up with inflation. The MGMA table shows that from 2004 to 2008 the average pediatrician’s total compensation, adjusted for inflation, rose by just 1.5 percent while an internists’ inflation-adjusted compensation fell by .5 percent.
Meanwhile, these doctors were working harder than ever before. Over the same four years, the amount of money internists collected from patients and insurers rose by 13 percent, while pediatricians’ revenue climbed by 19 percent. This confirms what we already know: they were seeing more patients, and billing for more treatments. But the cost of keeping a practice afloat also was rising. After paying expenses, these doctors were running hard, but running in place.
By contrast, specialists who make most of their money doing procedures saw their inflation-adjusted income rise. The average dermatologist’s salary rose by 4.6 percent, while gastroentologists gained 6.4 percent and orthopedic surgeons saw their income climb by 5.3 percent over the same four years. Granted, these are not enormous gains, but these physicians were staying nicely ahead of inflation, and since median compensation in many specialties was already well above average earnings for the top 5 percent of all Americans–with dermatologists earning an average of $368,000, orthopedic surgeons $476,000 , and gastroentolgoists $449,000– the increases were coming on top of a strong base. Moreover, it’s worth noting that this is median income; half of these specialists earn more than this, often far more.
Reinhardt argues that an annual income of $250,000 should be enough to provide “rank” in society and to assure physicians that we respect and trust them. Nevertheless, he acknowledges, “from the perspective of the ‘just price doctrine,’ of course, one can easily understand, that against the huge and relatively easily earned incomes of executives in banking and business, physicians feel vastly ‘undercompensated’ — just as Adam Smith predicted it.
Here, I would submit, Reinhardt points to the heart of the problem. Over the past twenty-five years, salaries in finance, banking, real estate and insurance have become grossly inflated, distorting our sense of what is “enough” to a point that earning more than 95 percent of one’s countrymen just doesn’t seem sufficient as a sign of trust and respect. Perhaps we need to find another marker (something other than $$$) to signal rank in our society.
Maggie, I doubt I am the only one wondering what is the MAIN healthcare reform related point of your post here. Considering the problems with our current healthcare system and the dire predictions about its sustainability, what suggestions does this post lead to?? For example, are we to pay the current type of providers less, or are we looking for more and different provider types (who are paid less) than what got us in trouble up to now?
Again, if future universal coverage/access with sustainability are the keys, what are you saying here??
As a family doc I’ll take a 5-10% raise. It’s better than nothing. The real question is whether it will induce many more med students to choose primary care. Not likely. A 10% raise per year for 3 or 4 years and you’ll start to see some results.
The point is that all doctors should be on a good salary. ($250K is to much) That way they can focus on health whether it is primary or specialty care.
The current “pay for procedure model” is filled with perverse (even harmful) incentives
If Doctors want to become extremely wealthy let them get the hell out of the “former” profession of medicine.
Dr. Rick Lippin
Southampton,Pa
“Perhaps we need to find another marker (something other than $$$) to signal rank in our society.”
I don’t know about rank in society, but I think people who become doctors, nurses, teachers, and social workers can derive a lot of personal satisfaction from feeling needed and touching many lives in a positive way over the course of their careers. For many who choose these careers, it’s a calling and not just a job. While that may not put food on the table, it’s psychic income that should make them and their families feel justifiably proud of their contribution to society.
When it comes to financial income and rewards, some skills pay off a lot more than others in our society. While some may find the lack of perceived fairness offensive, it’s the way it is. People who are mainly motivated by money and what it can buy will choose a field that pays well assuming they have the natural attributes and abilities that those occupations require. As for banking and finance, which I’m very familiar with, it should be noted that these are among the worst occupations for those who value job security. Countless times, including this most recent financial crisis, I’ve seen many people lose very high paying jobs and not be able to replace them (in the field) at any price because there is so much shrinkage in employment. As I often tell my son, just about everything in life involves tradeoffs.
In principle Smith’s point makes sense, but this top 5% is pulled from thin air. Are physicians in France or Germany in the top 5% of earners? Certainly not in Germany. Do they lack sufficient respect there? And what about educators…do they also deserve incomes in the top 5%, given their critical role and the respect they need in order to do it effectively?
As for the $250,000 figure, don’t forget it is for an entire household. A physician doesn’t have to earn that much to qualify for top 5% of households as long as the spouse works.
Finally, I think the whole thrust of this piece is regrettable. In terms of ideal, sustainable policy, we should be focused on bringing the incomes of specialists down, not the incomes of primary care physicians up.
Wealth does certainly not equal “rank” does anyone respect a banker or stockbroker anymore? Throughout history much of a Doctor’s rank was derived from our respect for the endless hours they worked, for unselfishly getting up in the middle of the night to come to your house and attend to a child or wife, for working on the wounded in the middle of an active battlefield. They can be the closest thing to God on Earth. The whole concept of Corporate run healthcare has destroyed this in a mere 40 years. Communities have to take care of the financial needs of the healers it is cultural suicide not to.
Morale among the practicing physicians I work with is at an all time low. Most do not feel respected of valued lately, and this is a tremendous psychological pay cut.
Reformers have targeted doctors to promote reordering of medicine more to their liking. I think we will find that well treated doctors provide better cheaper care than those in an adversarial atmosphere. One of the points never mentioned in the effusive praise for the Cleveland Clinic or the Mayo Clinic: these systems are run to make the surgeon’s professional life as satisfying as possible. (Imagine that! Valuing an undoubtedly overpaid specialist. He does things that help you, without thinking if you are to believe our primary care colleagues.)
At some point the vilification campaign against doctors must end, or no one will want to be a doctor at any income. As the influence doctors is reduced their ability to advocate for the best interests of patients is lost.
Our medical care actually is the best in the world. Tyros may be fooled by life span statistics; correcting for our very high murder and accident rates our lifespan is longer in the US. It is too expensive, but it is the best. Let us not draw unwarranted conclusions about what must be changed based on the idea that we have bad care here.
We have too expensive care.
We need to start with the evidence.
I’m a specialist who agrees that primary care physicians should be better compensated. Do I have to agree, however, to be the one to subsidize this effort? Is this a zero sum game? Or, is this a way to divide the medical community so we cannot speak with one voice. http://www.MDWhistleblower.blogspot.com
I’m sure primary care doctors will enjoy getting more money. I would too. they may actually deserve it. But I’m still looking for an iota of evidence that increasing such payments would improve American healthcare. I think it spends money without achieving anything beyond making them feel better. $s would be much better spent on training more paraprofessionals to take over some of the jobs such docs do now.
NG,
The main point of the post is that it is ok for the government to decree physician incomes.
And banking incomes.
We’ve already established it is ok for the government to own car companies, fire and hire the executives, and vacate bond obligations.
I wonder if it will be ok for the government — an “independent board”, no doubt — to decree writers’ incomes.
Barry–
You write–some skills simply pay more in this society–.”and this is the way it is.”
No, it is only recently (since the 1980s) that CEO pay, and pays for bankers, stock brokers, mortgage bankers and high-end real estate brokers begna to ris (this is why mqny call the 1980s the “Greed Decade” – and CEO compensation took off in the 1990s.
See this Forbes chart http://74.125.95.132/search?q=cache:blfRsXzPoNkJ:www.forbes.com/2009/04/21/executive-pay-ceo-leadership-compensation-best-boss-09-bosses_map.html+CEO+and+pay+and+historical&cd=1&hl=en&ct=clnk&gl=us.
It is eye-popping.
To Tim and Others about government potential actions.
I look at government actions as nothing more than social actions to help our society survive and hopefully in the most harmonious manner. When physician assistants and nurse practitioners were first contemplated, organized medicine fought that idea, but then gave in for many reasons. Can you imagine how much worse our system would be today without these midlevel providers. That kind of sponsored action is the kind of real reform that may well give access to everyone for at least clearly proven care. You got to ask just what is the purpose or mission of our healthcare system?
In this regard, there is/has been a battle going on in Alaska which may well mimic the situation we are/could be facing in rural America now and may well face almost everywhere if we just open access to everyone with only the current system rules in place. In Alaska, there are few dentists to see the rural population. Fortunately, the Tribes in Alaska are not subject to the dental practice acts that force the ongoing lack of care to be institutionalized. The tribes therefore decided to do something about it, and they have instituted a program from New Zealand, Australia, and other places that will train a dental midlevel provider, which should help bring at least basic care to all areas.
It is a lot to look at, but I have included several links to describe the program below.
The State of Minnesota has started to look into possible replicating this program so it may not just be confined to rural Alaska. This is the kind of social policy and interaction that we may well need to break the stalemate to allow us to give everyone sustainable access to proven care of all kinds.
http://www.law.duke.edu/shell/cite.pl?24+Alaska+L.+Rev.+105
http://www.asdha.com/attachments/Alaska_Dental_Health_Aide_Program.pdf
http://www.pubmedcentral.nih.gov/articlerender.fcgi?artid=1449361
http://www.iom.edu/File.aspx?ID=63944
http://www.lacrossetribune.com/articles/2009/02/13/mn/05minn.txt
http://www.alaskapublichealth.org/pdf/dental_aid061606.pdf
One of the factors driving CEO pay, and that of other senior executives, higher is the increasing importance of stock options and restricted stock awards. Much of this trend was driven by a law Congress passed in 1993 which eliminated the tax deductibility of compensation above $1 million unless it was performance based. Back in the 1970’s, CEO’s earned about 40 times as much as the average worker in the company. Today, it’s often more like 400 times. At any rate, only a tiny handful of people ever get to be CEO of a Fortune 500 company. Doctors working in private practice or for non-profit hospitals and clinics do not have stock options.
The financial services industry has always been a comparatively high pay field vs. others, especially the so-called helping professions. The fact that financial sector compensation may have increased even more in the last 20 years or so is beside the point. The point is that people who are primarily interested in making money have always identified the financial sector and the business world more generally as offering the best opportunity to do that. These fields also require fewer years of education than medicine does. This is why I say it’s the way it is and was.
It is curious that the anomaly of CEO pay persists… Everyplace I have worked, the higher in the hierarchy, the more clueless…. I guess when there is a huge pile of money, those who can take a large share of it…do. By the way, hospital CEO’s pay themselves like they are running Google, instead of like they are running a hotel where the added value comes from the surgeons.
It’s time we stopped using class-based and gender-based cultural myths like Adam Smith’s writing that served only to “explain” that social institutions should be accepted as received to keep the class and gender “system” in place (“that’s how it is”, as one poster put it). This is the trouble with reifying economic models–they are not the “truth” in themselves, but only a theoretical construct to take out for a spin and see whether they hold up to reality. Using this standard, the “just price doctrine” is not supported by the evidence. Examples: slavery, the economic engine of the South, without which the regional economy couldn’t survive. House slaves ensuring the health, safety, and moral growth of the master’s children. Uncompensated household services by “housewives”, services that have been valued at many thousands of dollars per year, but not paid. We also know that what is deemed to be a “just price” for labor and value declines when women enter a profession in large numbers (ex. secretaries, teachers before they were unionized). It obviously depends on whether “value” is defined as “value” in the same way when males and females do the same work (or would you deny the existence of the well-documented gender gap in wages, especially in male-dominated fields?) We also know that the first women doctors had to start their own med schools because of the serious opposition from the male medical establishment who did not “value” the mental and physical capacities of women, nor the “value” of their separate medical education.
As a sociology grad student 35 years ago I outgrew Weber and the other “labor theorists” and apologists for the “professions” and social stratification who conflated “the way things are” with their justification for social control. No amount of “economic modeling” can change the evidence. It’s time we all outgrew them and treated facts as facts. Reinhardt has gone off the deep end this time, “putting lipstick on a pig.”
For various reasons, many physicians, including myself , feel that we are not rewarded by a social norm of respect for the service we provide. Accordingly, we turn our attention to a monetary norm in order to provide us satisfaction. We therefore want a salary commensurate with the our belief of what our contribution and sacrifices for “society” are.
Everyone–
Just read this thread–as provocative as Reinhardt’s Op-ed. It’s always good when you’re talking to each other.
And a number of you are asking me questions that I truly want to answer
But I’ve been traveling for the past two days, arrived home at 11 tonight, bone-tired.
Reading this thread woke me up.
I’ll weigh in tomorrow, and also try to post on the conference I attended in D.C. (organized by Don Berwick,
Atul Gawande, & Elliot Fisher)
mm
I agree with the comment jimjaf made. I also think that some of the most essential services that are provided in this country are not compensated as if they are “most essential.” By comparison, celebrities and sports figures certainly do not provide essential services. These inequities will never change. I still believe that many jobs in health care (especially at the level of a physician) afford people a nice lifestyle and of course many jobs in health care (at the lower educational level) barely allow the worker to get by despite the good work they do. Some do not even have healthcare of their own. Considering that — aren’t there very dedicated and skilled health care aides despite their poor pay? Ultimately in health care we hope to attract those who are dedicated to their patients and passionate about the field for reasons other than money alone.
Nice topic. I also found an interesting post and comments on the Questing Do Doctors Make To Much Money? on doctor brayer’s blog.
http://bit.ly/Fokay