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#9 CLAIM: Doctors all have huge salaries and are charging too much.

FALSE

True, American doctors make a lot of money – and a lot more than they would in other industrialized countries — roughly twice as much.The average incomes of $274,000 for specialists are 6.6 times the salaries of the average patient, and $173,000 for general practitioners which is 4.2 times the salaries of the average patient.

But surely in a nation that rewards ballplayers and singers millions of dollars a year we shouldn’t begrudge these thousands to the people who save our lives and help us live longer, healthier lives?

In fact, there is a big gap in pay between primary care doctors who manage our overall care and the doctors who perform special procedures and operations.

Let’s take a moment to look at why the salaries for specialists and gp’s are so different. [All following info comes from Annals of Internal Medicine]

Type of Doctor % change in income 2000-2004 Median (midpoint) income for the field
Family practice (primary care) 7.5 $156,000
Hematologists and oncologists 35.6 $350,000
Diagnostic radiologists 36.2 $407,000
Invasive cardiologists 16.9 $428,000

So there is a gap in income between primary/preventive care and specialty care, and it’s growing. Why?

And while we’re at it, how are doctors’ fees and salaries determined anyway?

In 1992, Medicare started the Resource-Based Relative Value Scale (RBRVS) system, which serves as a benchmark for private insurers’ payment rates to physicians for their services. The RBRVS is calculated by multiplying the relative value unit (RVU) – which is the monetary value for a particular medical condition treatment – by a formula adjusting for cost inflation (the Medicare conversion factor) and a formula adjusting for geographical location.

One problem that has existed since the beginning is that there is a big difference in fees between the typical primary care office visit and procedures provided by specialists.

Here is a recent specific example from Chicago:

Type of health care Type of doctor What fee covers Classification 2005 Medicare fee
Office visit for a complex medical condition Primary care 25-30 minute: patient history, physical exam, medical decision-making Evaluation and management $89.64
Hospital outpatient office visit for a medical procedure Specialist: gastroenterologist 25-30 minute colonoscopy Procedure $226.63
Private office visit for a medical procedure Specialist: gastroenterologist 25-30 minute colonoscopy (including equipment and nursing time) Procedure $422.90

What’s driving these huge difference in fees are the differing amounts for the RVUs:

  • Work and practice expenses each account for about half of the fee value
  • Malpractice is a small fraction

The main difference between the office visit and the colonoscopy lies in the work portion of the RVU, which is given a higher value for a colonoscopy because the “intensity” (skill, effort, judgment, and stress) is thought to be greater for procedures than for visits in which the doctor uses his mind, rather than machines, in the course of treatment.

One 2002 study of 34 private insurers found that most use fees based on RBRVS, but that many offer specialty-specific adjustments.

Type of field % of standard Medicare fees that private insurer reimburses
Primary care office visits 104%
Surgical, diagnostic procedures, imaging 119-120%
Diagnostic procedures, imaging 250% = record high
Surgical 330% = record high

In other words, the primary care–specialty fee gap is greater under private insurance plans than in Medicare; private insurers “favor” specialty care over primary care more so than Medicare does.

BOTTOM LINE

If individual doctors can’t control the reimbursement rates for their services and the amounts that are billed their patients, then what incentive or even ability do they have to control costs?

Particularly when these costs are driven by the very nature of the system: insurance companies that are trying to maintain profits by making doctors justify every treatment. According to the Wall St. Journal, tension between insurers and physicians over claims payments “has spawned a booming industry of intermediaries” known as denial management.

These payment disputes are costing medical providers and insurers about $10 billion each in unnecessary administrative expenses (2004 report by the Center for Information Technology Leadership) such as software systems that help navigate insurers’ payment systems and prevent denials, or the hiring of firms to “dig through past claims in search of short-changed payments and tussle with insurers over rejected charges,” as the Journal reports.