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Physician Salaries Comprise Less Than 5 Percent Of Healthcare Dollars Spent Annually

In reviewing Ezekiel Emanuel’s New York Times article I thought of an interesting question. In Dr. Emanuel’s view it is not worth having tort reform or healthcare care insurance reform. He claims these reforms are an insignificant burden to the cost of the healthcare system.

I have demonstrated that the evidence for tort reform and reform of the healthcare insurance industry proves him wrong.

The question then is where is the $2.5 trillion dollars the U.S. healthcare system spends going?

President Obama and Dr. Emanuel think it is going to physicians. President Obama’s idea to control healthcare costs is to reduce physician reimbursement.

Physicians have the weakest expression of its vested interests among all the stakeholders because of lack of effective leadership.

Simple arithmetic reveals that reducing physician reimbursement will yield an insignificant reduction in healthcare costs.

Never the less on January 1st Medicare is going to decrease physicians’ reimbursement by 27%. This decrease is the result of the application of the government’s Sustainable Growth Rate (SGR).

The Sustainable Growth Rate (SGR) is a complicated and defective formula intended to contain the overall growth of Medicare spending for physicians’ services.  The intent was to keep physicians’ reimbursement in line with the nation’s ability to pay for that medical care.  The SGR formula uses the gross domestic product per capita in a complicated and inaccurate way.

In 2008 the Bureau of Labor statistics published a report that there were 661,400 physicians in the United States.

The report’s findings are summarized in the table below.

Projections data from the National Employment Matrix
Occupational Title SOC Code Employment, 2008 Projected
Employment, 2018
Detailed Statistics
Number Percent
Physicians and surgeons 29-1060 661,400 805,500 144,100 22 [PDF] [XLS]
NOTE: Data in this table are rounded. See the discussion of the employment projections table in the Handbook introductory chapter onOccupational Information Included in the Handbook.

Let us assume that 161,400 of the 661,400 physicians in the U.S. work in private medical related industries such as the healthcare insurance industry, the pharmaceutical industry, the physician executive industry and government services.  These physicians are not involved in direct patient care and do not generate direct patient costs to the healthcare system.

The number of non direct patient care physicians is probably higher (185,192 in other non practice positions and 476,208 in direct patient care). My assumption uses 500,000 physicians involved in direct patient care for all types of insurance to inflate physicians’ reimbursement.

The Bureau of Labor report states,

Physicians and surgeons held about 661,400 jobs in 2008; approximately 12 percent were self-employed. About 53 percent of wage–and-salary physicians and surgeons worked in offices of physicians, and 19 percent were employed by hospitals.  .

Let us also assume that physicians’ overhead is 50% of total collections. Therefore physicians’ take home salary is 50% of collections. Fifty percent is a fairly accurate assessment whether the physicians are self employed or hospital system employed.

“According to the Medical Group Management Association’s Physician Compensation and Production Survey, median total compensation for physicians varied by their type of practice. In 2008, physicians practicing primary care had total median annual compensation of $186,044, and physicians practicing in specialties earned total median annual compensation of $339,738.”

If we round off the salaries to $190,000 for Primary Care Physicians and $340,000 for Specialists and round off the number of Primary Care Physicians to 300,000 (actually 375,000) and 200,000 in Specialties (actually 125,000) and do the math, physicians’ salary comprise only 5% of the total $2.5 trillion dollars spent in the healthcare system.

The Math:

$190,000 per year per primary care physician x 300,000 physicians= $57,000,000,000 ($57 billion dollars for primary care physicians).

340,000 per year per specialists x 200,000 specialists= $68,000,000,000 ( $68 billions dollars a year for specialists).

$57 billion + $68 billion= $125 billion per year for the costs of physicians salary for direct patient care.

$125 billion (125,000,000,000)/ $2.5 ($2,500,000,000,000) trillion per year = 5%

If you double the physicians’ collections to include physicians’ overhead costs ,  physicians receive 10% of total dollars spent on healthcare system.

Improvements can be achieved in decreasing physicians’ overhead by having more integrated healthcare systems. Presently, most communities do a fair job.

Integrated electronic medical records could achieve a further decrease in the 5% of the total healthcare cost spend by physicians for overhead.

The government is spending billions of dollars on building bureaucracies, creating regulations, developing a IRS physicians fraud squad and creating committees trying to reduce 5% of the healthcare costs.

President Obama is approaching the problem of escalating healthcare system costs using the wrong premises. It will result in increasing healthcare system costs. Obamacare already has increased the costs of the healthcare system even though it is not fully implemented.

IF REALITY DOESN’T match your expectations, perhaps it’s time to re-examine your premises.”

Where is the other 90% of the healthcare system costs going?

*This blog post was originally published at Repairing the Healthcare System*

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One Response to “Physician Salaries Comprise Less Than 5 Percent Of Healthcare Dollars Spent Annually”

  1. Joe says:

    The most important point in all this, corporate and government ties which lead americans to believe physicians salary has anything to do with this issue. Never has or will be the driving force.

    Kaiser and others give the worst graphs and misleading figures showing healthcare “expenses” and a huge slice of the pie chart for physicians and leaving out completely profits by corporations while not an “expense” to them its expense to everyone else not on wall street or in the oval office. Its the only thing thats made healthcare an undue burden besides government.

    Corporations and stock holders also receive a smaller relative tax burden of 15% while physicians will average 30% total probably starting in 2013 if they are self employed. Who deserves more of that burden? Those who directly contribute and further healthcare? Or those who suck money out of it and have no regard for a patients well being?

    Australia or new zealand is where I’ll be practicing

    Despite what people think not a single european doctor would accept $250k to practice in our system with our patient population-more poverty, a more diverse population/genetics, more violence, more drugs, and more diverse environmentally for more diverse infections combined with more immigration.

    Nowhere else do students graduate 300k in debt nor work as many hours so factor that in.

    If they wanted more doctors theyd have more residency spots, which pay for themselves or make a hospital money in the end, but instead they provide more scholarships and funding to nurse practioners because in the end they can have them do an attendings work and call it mid level. And union power can help them with their lobbying and agenda.

    They could cap all doctors salary right now at that level and I bet every nickel in the world you will not see the cost of healthcare stop rising or stop being an undue burden on our economy. I’ll make this bet with anyone anywhere with every cent I’ll earn, i’ll take obama and anyone elses action but they wont cause they know its not the cause. Corporate profits and the governments vested interest in only that is everything.

    If obama wouldnt bet on it then you know its not the issue and people can start looking st the real issues and why our countrys citizens have been sucked dry.

    I personally am going to make them take the fine from my cold dead hands

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