Why Is Doctor Pay Decreasing and What Can We Do About It?

As you may recall from my recent analysis of the 2024 Doximity compensation report, doctor pay is decreasing in real terms. That’s a problem given that the same report indicated the large majority of doctors do not feel fairly compensated. Moreover, physicians are being asked to do more and more. We see this in doctors’ responses that indicate higher patient workload and greater administrative burdens as top causes of burnout.

Decreasing doctor pay coupled with greater workload is a recipe for disaster on both an individual and systems level. Burnout is at an all-time high among physicians. If things don’t change, that will only get worse.

So, let’s examine why exactly physician pay is decreasing and what we can do about it.

The Current State of Decreasing Physician Pay

In 2023, average doctor compensation increased by nearly 6%. This is a positive difference from 2022 when doctor pay fell by over 2%.

While this is great for 2023, overall trends still do not favor physicians. Inflation is slowing, but it has run rampant in recent years. With these inflationary pressures, doctor compensation has seen no real growth.

In simple terms, doctor pay has not kept up with inflation over the past several years. Thus, in real terms, pay is contracting. Our purchasing power based on our compensation for clinical and non-clinical care is less than it was before.

Other Factors Leading to Lost Income

Even though physician pay increased overall in 2023, multiple factors have led to declines in specific areas.

Declining reimbursement

Medicare physician payment has decreased by 26% since 2001. Additionally, a recent Harvey L. Neiman Health Policy Institute study found that physician reimbursement per Medicare patient decreased 2.3% between 2005 and 2021 when accounting for inflation. And this was despite a 45.5% increase in physician services to each patient. Again, less pay and more work.

Medicare data is the most widely available and thus serves as the benchmark in these cases. However, it appears insurance reimbursements are down across the board. Thus, a main factor here is decreasing insurance reimbursement for physician services.

Changing employment models

For the first time, the majority of physicians work within an employed model under a healthcare system, university, or private equity company.

Why this happened in the first place is up for debate. One view is that physicians wanted to trade the stress of running a business and dealing with insurance companies and government policies for a stable paycheck and no headache. That’s a large part of why I opted for an employed position.

The tradeoff here is that physicians gave up control of their business. We became employees. We found ourselves on the outside looking in when it came time to negotiate reimbursement rates, policies, and even practice guidelines.

And unfortunately, we also started to be viewed as expendable by our employers. Some physicians came to view themselves as expendable as well. So, we accepted a lower value and took on more work.

Lack of education

The last big factor I will discuss is a lack of education. No, not medical education. We all get plenty of that. But we lack an education in the business of medicine, practice management, negotiation, and personal finance.

We therefore feel like we do not have the ability to run our own practice, making an employed position the only option. Again, I am an employed physician. My chosen practice setting best allowed me to provide the type of care I wanted within my field of reconstructive microsurgery. But even within that framework, this education is important should our practice change or if we want to have leverage within an employed setting. Without knowing how to negotiate, we cannot leverage our unique skills and value for better pay.

And lastly, without good personal finance habits, we are tied to our paycheck. But once you enact a plan and reach financial freedom, you are no longer financially tethered. You can practice medicine on your own terms.

A Quick Aside: Plastic Surgery

In the Doximity compensation report, plastic surgery was one of the few specialties that bucks the trend. We saw an increase in pay even after factoring in inflation.

Why is that? I believe one driving factor is that the aesthetic portion of plastic surgery is an out-of-pocket, cash pay practice model. And, despite aesthetic surgery being a very minor portion of my practice, aesthetic surgery dominates the field of plastic surgery.

A cash-based practice allows plastic surgeons to negotiate prices and reimbursement directly based on supply and demand, as well as inherent skill and services offered. Insurance and red tape are cut out.

Even within an employed or hospital model, this trend may be due to the fact that plastic surgeons help reduce length of hospital stay and services needed by managing challenging wounds and surgical problems. These are important parameters for hospitals and they may be willing to compensate those improving the metrics.

Lastly, in general, I do believe that plastic surgeons tend to be more likely to learn about the business of medicine. Maybe because private practice is still such a big component of the field, unlike other specialties that have become predominantly employed. But really, this is just speculation.

The Impact of Decreasing Doctor Pay

Overall, this lack of growth in physician compensation may:

  • Increase specialty gaps
  • Worsen the physician shortage
  • Increase burnout

All of this leads to fewer doctors and worse patient care. Not good for medicine or society as a whole.

What Can We Do?

Many of the contributors to decreasing pay are out of our control. But there are always things we can do at both individual and system-wide levels.

On a system-wide level, we must advocate for physician well-being, including financial well-being. We also need to reassess the structure of medical practice. Perhaps a concerted effort toward more favorable practice settings are needed. Representation and a voice at the table with regards to policy is also necessary.

Realistically, however, there’s no quick or easy solution to the issue of compensation at a systems level.

At an individual level, my recommendation is for physicians to improve their financial education and build basic habits that will lead them to financial freedom — so they can practice medicine because they want to, not because they have to. Moreover, doctors should know how to negotiate with health systems and insurance companies to ensure fair reimbursement for the services they provide. We need to get into the game.

If we can take back control of our finances and come to better understand the business of care, we can do more to take back control of our profession.

Jordan Frey, MD, is a plastic surgeon at Erie County Medical Center in Buffalo, New York, and founder of The Prudent Plastic Surgeon.

Looking to improve your financial well-being? Check out Frey’s online course, Graduating to Success, a comprehensive and interactive 12-module course that helps doctors achieve personal, professional, and financial success during and after their transition from trainee to attending. Or read his best-selling book, Money Matters in Medicine.

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