What is fair pay for doctors? (And why does nobody talk about it?)

Just like any other professionals, physicians want to to be fairly compensated for their services.  

But unlike any other professional compensation, physician compensation is rather "fuzzy" and in many cases, kind of "hush hush".  Accountants, attorneys, architects, and other working professionals are able to confidently tell their clients: "My rates are $X per hour, per case, or per project." Their clients may not always like the amount that they quote, but at least they know what that amount is. 

With doctors....well, not so much.  


Unfortunately, there is a big problem when it comes to transparency with physician services.  The biggest reason why doctors cannot tell patients what services would end up costing them is that doctors don't know how much they are getting paid for it in the first place, due to the ambiguity of reimbursements from health insurance contracts, Medicare, and Medicaid. 

There are different models under which physicians operate. Unless you're doing concierge medicine (about 7-8% of all physicians in the US at this time), chances are you are either in a private practice (small or large) or are employed by a hospital or foundation.

Private practice compensation is fairly straightforward: physicians contract with PPO and HMO carriers and then bill for their services.  Whatever insurance companies deem "fair" is then paid to the doctor.  It is also up to the doctor to collect due balances from patients (depending upon deductibles, co-insurances, etc).  After the practice is done paying for its overhead (employees, rent, supplies, etc), whatever is left is the doctor's actual compensation. 

On the other hand, most employed physicians working for large hospitals or medical foundations are generally paid based on their productivity, using a metric known as RVUs (relative value units).  In this case, 'relative value' refers to any service a physician performs (seeing patients, doing procedures, surgeries, etc).  Typically, the employer (let's say a hospital) determines a monetary value per such RVU (known as work-RVU) and then pays its physicians that amount per number of work RVU's.   Naturally, that amount per RVU is what drives compensation in this case. By the time the physician gets paid, all overhead expenses are sort of factored in this calculation.   A lot of factors are involved when coming up with the "conversion factor' that dictates the dollar value of work-RVUs:  geographical location, insurance contracts, number of employees, number of administrators, etc. 


So, neither model is perfect when it comes to fairness.  After all, physicians are, in one way or another, still at the mercy of insurance companies when it comes to paying for their services and it's still up to those insurance companies to determine what is actually "fair". 

As far as how those insurance companies determine what is "fair" for a given service, there is change coming that will affect both private and employed physicians.  MACRA/MIPS, a new Medicare initiative, will completely change the way physicians (and hospitals for that matter) are getting paid.  There is going to be more emphasis on quality of care and patient outcomes than simply on 'productivity' alone. As always, most insurance carriers will follow in Medicare's direction.  

This new model has a lot of flaws and is still poorly understood by many. It remains to be seen what its impact is going to be for patients and physicians. Unfortunately, if we we have learned anything from many changes in healthcare delivery over past two decades, very few of these changes end up actually benefiting the physicians.  

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