The Greedy Physician

In the current debate over healthcare access and financing, the greedy physician has been cast as a stumbling block for making reform possible.

Consider the finances of a solo cardiologist.

If he is fortunate to have a busy practice, he might bill about $2 million for his services in a year. About half of those services are given to Medicare patients, and Medicare pays him about 35 cents on the dollar, or about $350,ooo. About 40% of his patients have commercial insurance. These days, commercial insurance plans reimburse for services as a percentage of Medicare reimbursement rates, and he receives about 45 cents on the dollar for these services, or about $360,000 each year. About 10% of his patients have Medicaid coverage or no insurance at all, and he is paid about 25 cents on the dollar for those services, or about $50,000 per year. This gives him a total income of about $760,000 a year for the $2 million of services he rendered. About 60% of this income goes to pay for his office space, utilities, insurance, and staff. If he controls his costs well, he keeps 40%, or $304,ooo, for his personal income.

To generate that income, the physician works an average of 100 hours per week. This puts his hourly wage rate at about $50/hr, assuming we allow him "time and a half" for the 60 hours of overtime he works in a week. That's a little less than GM estimated for the total wage of their average auto worker during recent Congressional hearings.

One can argue that doctors and/or auto workers are overpaid, but their wage is about the same. Of course, the average auto worker didn't have to train in college, medical school, and residency to learn his trade. The average auto worker doesn't usually get called away from his family on nights or weekends or holidays to take care of a malfunctioning car or assembly line, and he rarely has to talk to a plaintiff's attorney if a car didn't turn out great.

To finance expanded healthcare, though, large cuts are proposed to physician's fees, which have been judged to be the real problem here. In Cardiology, for example, the proposed cuts in 2010 are estimated to be about 40%. Naively, we might think that means the physician will have to accept $30/hour for his services. In truth, though, it is unlikely that his landlord, or utilities, or suppliers will consider it their patriotic duty to cut their bills to the physician by 40%. So the 40% reduction in payments to the physician will leave him no salary at all after he pays his staff. That's right. $0/hr. I think that's less than the federally mandated minimum wage. Financially, he would do better by closing his practice and working at a fast food restaurant.

He could try to keep his practice doors open by investing in diagnostic equipment to perform testing that is done on outpatients in the hospital. That would allow him to finance the professional care he is now being asked to render for free. Too bad that Congress is preparing legislation to restrict his ability to do that.

Since he is respected in his field, he could speak to groups of physicians to educate them on the treatment of illnesses. He has been approached by pharmaceutical companies and device manufacturers who are willing to sponsor him. Too bad that Congress feels this is a conflict of interest for the physician, even though members of Congress can receive funds from lobbyists to deliver lectures on their areas of expertise.

He could layoff a large portion of his office staff, which unfortunately would eliminate those live people on the phone his patients want to speak with when they have a problem, or need a prescription refilled, or want to make an appointment. This might save him $100,000 per year in overhead.

He could always increase his work week to 120 hours. This could increase his payments by about $90,000 under the new reimbursement rates, and he would still have almost 7 hours a day to shower, sleep, and spend time with family. With $190,000 salary from staff cuts and expanded work hours, he could make almost $30/hr ... at the cost of firing staff and reducing service to his patients.

Hmmm....did someone say that Goldman Sachs is hiring? Or McDonald's?