Physician compensation is changing in the new medical landscape

Consolidation of medical systems and increased participation in Medicare Advantage will impact physician compensation in the United States, according to new research. This decline in physician compensation in major metropolitan areas could have an effect on the growing number of workers in other medical professions.

According to the U.S. Bureau of Labor Statistics, there are approximately 834,500 physicians in the United States.¹ Because annual physician growth is approximately 4% nationally, compensation for the workforce is needed to drive continued growth. According to the Medscape physician compensation report,² the total compensation average rose about 3% from 2022 to 2023, slightly lagging the 4% increase in compensation for non-union workers in 2023.

According to Scott Manaker, MD, PhD, professor of medicine at the Hospital of the University of Pennsylvania, some of this could be due to the 2% Medicare reimbursement cut implemented in 2022, which could have hurt doctors’ incomes. “Other adverse economic trends include the shrinking of Medicare beneficiaries on a fee-for-service basis, with more beneficiaries now enrolled in Medicare in the Medicare Advantage plans rather than the fee-for-service program that ultimately consisted largely of negotiated contracts exists with a variety of payers,” he said.

According to Manaker, payers can activate the Medicare fee-for-service program and pay a percentage of the program. However, the enrolled patient population changes and the program may be different than what the population needs. The cuts could also extend to 2025, with another 2.8% cuts, Manaker said.

Although physician compensation is increasing overall, Medicare cuts could lead to cuts in physician compensation across payment models. Manaker said some of its early effects are already visible: the number of physicians’ private practices is declining, physician and physician unions have a variety of employment models.

In this case, doctors will have to consider how they can receive appropriate compensation for their work. This may include negotiating vacation time or benefits when working in private practice, as well as outlining the expectations of the job early. These could be doctors who are exploring the many different employment models that are now open to them.

Manaker emphasized that forty years ago the only two choices were to go to private practice or go to an academic medical center, but this has since expanded. “What has evolved over the last 30 to 40 years is a variety of different employment models, not just part-time work, but venture capital and private equity firms have bought a variety of practices in a number of specialties,” he said.

According to a study published in Health affairs scientistBetween 2016 and 2020, a total of 807 physician practices, mainly in the fields of dermatology, ophthalmology and gastroenterology, were purchased by private equity firms.³ Urgent care clinics can also employ emergency room or intensive care physicians into their businesses as another workplace for physicians. This can affect not only the price for the patient, but also the reimbursement a doctor may receive. Manakar said that with all these choices, doctors must specify what activities they want to do for their compensation.

However, given these declines in Medicare compensation, other methods of delivering care are beginning to emerge. Specifically, the number of nurses in the United States is increasing, with the U.S. Bureau of Labor Statistics estimating a 40% increase in the number of nurses between 2023 and 2033, making it a job that is increasing faster than average.⁴ With the average salary reaching six figures and the cost of education lower, nurse practitioners can begin treating patients with a master’s degree. This could pose a threat to physician staff and their compensation, according to Manaker.

“Many entities may prefer to hire two advanced practitioners with a much shorter contract time frame, compared to a single physician with a much longer contract,” he said. Nurses earn an average wage of $129,480, compared to an average wage of $239,200 for physicians,^1.4 This can make nurse practitioners more attractive for offices and companies to hire if they want to cut costs.

This is evident from a study published by the National Bureau of Economic Research.⁵ Nurse practitioners often had healthier patients to monitor, had lower productivity compared to physicians, and had patients requiring longer emergency room stays. However, the probability that a randomly selected nurse is cheaper than a randomly selected doctor was as high as 38% and was approximately 28% when the average treatment effect is assumed to be as large as for the patients in the highest complexity quartile.

“How do physicians collaborate and sometimes supervise or support advanced practitioners when they could be responsible for supervising two, five, (or) maybe ten?” Manaker wondered.

Physician compensation can have a major impact on several areas of healthcare. While overall physician compensation in the country continues to rise, cuts to Medicare could impact how physicians are compensated and whether other forms of care can be considered. With the number of nurses expected to grow over the next decade, keeping an eye on physician compensation can be a key in evaluating the healthcare landscape as a whole.

References

1. Doctors and surgeons. US Bureau of Labor Statistics. Updated August 29, 2024. Accessed November 6, 2024. https://www.bls.gov/ooh/healthcare/physicians-and-surgeons.htm
2. Physician reimbursement report. Medscape. April 12, 2024. Accessed November 6, 2024. https://www.medscape.com/slideshow/2024-compensation-overview-6017073
3. Singh Y, Reddy M, Zhu JM. Lifecycle of private equity investments in physician practices: A review of private equity exits. Health Af Sch. 2024;2(4):qxae047. doi:10.1093/haschl/qxae047
4. Anesthesiologists, nurse midwives and nurse specialists. US Bureau of Labor Statistics. Updated August 29, 2024. Accessed November 6, 2024. https://www.bls.gov/ooh/healthcare/nurse-anesthetists-nurse-midwives-and-nurse-practitioners.htm
5. Chan Jr DC, Chen Y. The productivity of occupations: evidence from the emergency department. October 2022. Revised July 2024. doi:10.3386/w30608