Physician Compensation Changing in New Medical Landscape

The consolidation of medical systems and the increased enrollment in Medicare Advantage stand to impact physician compensation in the United States, according to new research. This decline in physician compensation in major metropolitan areas can have an effect on the growing number of workers in other medical occupations.

Physicians in the United States number approximately 834,500, according to the US Bureau of Labor Statistics.¹ With physician growth per year approximately 4% nationwide, compensation for the job force is needed to encourage continued growth. According to the Medscape physician compensation report,² the total compensation average rose about 3% from 2022 to 2023, which slightly trailed the 4% increase in compensation for nonunionized employees in 2023.

According to Scott Manaker, MD, PhD, professor of medicine at the Hospital of the University of Pennsylvania, part of this could be due to the 2% Medicare reimbursement cut implemented in 2022 that could have hurt the income of physicians. “Other adverse economic trends are the shrinking of Medicare fee-for-service beneficiaries, where now more beneficiaries in Medicare are enrolled in the Medicare Advantage plans rather than the fee-for-service program that winds up being largely negotiated contracts with a variety of payers,” he said.

Physician compensation could shape the medical employment landscape in the US | Image credit: Iryna - stock.adobe.com

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

Although, overall, physician compensation is increasing, the Medicare cuts could spark cuts to physician compensation in different payment models. Manaker said that some early consequences of it are already being seen, with physician private practices decreasing, physician unionization, and physicians having a variety of employment models.

In this case, physicians will need to navigate how to get appropriate compensation for their work. This can include bargaining for vacation time or benefits when going into private practice as well as outlining the expectations of the job early. This can include physicians who are going into the many different employment models now open to them.

Manaker highlighted that 40 years ago the only 2 choices were to either go into private practice or join an academic medical center, but this has expanded since. “What has evolved over the past 30 or 40 years are a variety of other employment models, not only working part time 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 Scholar, a total of 807 physician practices primarily in dermatology, ophthalmology, and gastroenterology were bought by private equity firms between 2016 and 2020.³ Urgent care clinics also can employ emergency or intensive care unit doctors in their business as another site of employment for physicians. This can influence not only the price for the patient but also the compensation that a physician might get. Manakar said that, with all of those choices, physicians should specify what activities they would like to do for their compensation.

However, given these decreases in compensation in Medicare, other methods of providing care are starting to emerge. Specifically, nurse practitioners are rising in the United States, with the US Bureau of Labor Statistics estimating a 40% increase in nurse practitioners from 2023 to 2033, which makes it a job that is increasing faster than average.⁴ With average pay reaching six figures and the cost of education being lower, nurse practitioners can start seeing patients with a master’s degree program. This, said Manaker, could prove a threat to the physician workforce and their compensation.

“Many entities would prefer to hire perhaps 2 advanced practitioners with a much shorter time frame toward their contracting compared to a single physician with a much longer contract,” he said. Nurse practitioners make a median wage of $129,480 compared with a median wage of $239,200 for physicians,^1,4 which can make nurse practitioners more appealing for offices and businesses to hire if they want to save on costs.

According to a study published by the National Bureau of Economic Research,⁵ nurse practitioners were often given healthier patients to oversee, had lower productivity compared with physicians, and had patients who had longer lengths of stay in emergency departments. However, the probability that a randomly drawn nurse practitioner is less costly than a randomly drawn physician was as high as 38% and was approximately 28% when assuming the average treatment effect is as large as in the patients in the highest complexity quartile.

“How do physicians work collaboratively and, at times, supervise or back up advanced practitioners when they might be responsible for overseeing 2, 5, [or] perhaps 10?” Manaker wondered.

Physician compensation can have a major effect on a variety of areas in health care. Even though the overall physician compensation in the country continues to increase, Medicare cuts can affect how physicians are compensated and whether other means of care may be looked to. With nurse practitioners expected to grow in number through the next 10 years, keeping an eye on physician compensation can be a key to evaluating the health care landscape at large.

References

1. Physicians and surgeons. U.S. Bureau of Labor Statistics. Updated August 29, 2024. Accessed November 6, 2024. https://www.bls.gov/ooh/healthcare/physicians-and-surgeons.htm
2. Physician compensation 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. Life cycle of private equity investments in physician practices: an overview of private equity exits. Health Aff Sch. 2024;2(4):qxae047. doi:10.1093/haschl/qxae047
4. Nurse anesthetists, nurse midwives, and nurse practitioners. U.S. 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 professions: evidence from the emergency department. October 2022. Revised July 2024. doi:10.3386/w30608