Physician Pay Makes Up About 8% of Total Healthcare Costs

June 1, 2011

Physician compensation accounts for roughly 8% of the total annual healthcare costs in the U.S., and more than a third of physician pay comes from fixed sources, such as a flat salary, hourly rate or stipend, according to a new survey.

Physician compensation accounts for 7.5% of the total annual healthcare costs in the U.S., according to Jackson Healthcare, an Atlanta-based healthcare staffing and technology company.

Overall U.S. healthcare spending in 2009 was $2.5 trillion, according to the most recent estimate from the Centers for Medicare and Medicaid Services (CMS). Of that amount, $505 billion was paid for physician clinical services. According to data from Medical Group Management Association (MGMA), physician compensation accounts for 37% of total collections, or $186 billion; that amount comprised 7.5% of total U.S. healthcare spending.

Calculating the percentage using the most recent statistics on the number of practicing physicians in the U.S. from the American Medical Association and salary figures from MGMA, annual aggregate physician salaries total $216 billion, or 8.6% of total U.S. healthcare costs. The MGMA statistics were obtained from a 2010 report using 2009 data.

"At eight percent of total healthcare costs, if physicians worked for free we would still have a serious cost problem," said Richard Jackson, chairman and chief executive officer of Jackson Healthcare. "What this figure shows is that physician pay is not the primary contributor to healthcare costs."

A recent survey by Jackson Healthcare provided a breakdown of all the sources from which physicians are compensated. Among the survey’s key findings:

• 82% of physicians polled received no compensation from prescriptions, lab tests, diagnostic imaging, hospital admissions and facility/surgery fees.

• 36% reported their total compensation was solely from fixed sources.

• 12% reported variable compensation based upon productivity.

• 8.0% reported variable compensation from practice ownership.

• 6.2% total compensation comes from the following sources:

o 2.3% from charges from diagnostic imaging.

o 1.3% from charges associated with facility fees for surgeries.

o 1.1% from charges associated with hospital admissions.

o 1.0% from charges from lab tests.

o 0.5% from charges from prescriptions.

In the survey, “fixed compensation” was defined as salary, hourly rate or a stipend that does not vary with productivity. “Variable compensation” was defined as bonuses, productivity incentives, profit from ownership or any other compensation over and above fixed salary or hourly rates. Jackson Healthcare conducted the web-based survey of 1,512 physicians in April.