Behind the Times: Physician Income, 1995-99

Originally published as Data Bulletin No. 24 by the Center for Studying Health System Change (HSC), March 2003. HSC was a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

Between 1995 and 1999, at a time when wages and salaries across most of the U.S. economy were rising briskly, average physician net income from the practice of medicine -- adjusted for inflation -- fell 5.0 percent. Primary care physicians were hit hardest, experiencing a 6.4 percent decline in inflation-adjusted earnings, compared with a 4.0 percent drop for specialists. These declines stood in sharp contrast to the experience of workers in professional, specialty, and technical occupations, whose real wages rose 3.5 percent over the same period. The trend also marked a reversal from 1991 to 1995, when physician income growth had outpaced inflation while earnings for other professionals lagged behind the cost of living.

Despite these setbacks, medicine remained one of the highest-paid professions in the country. More than half of all patient care physicians earned more than $150,000 in 1999, with average reported net income of approximately $187,000. Specialists -- particularly those performing expensive procedures -- earned considerably more than other doctors. The mean reported income for specialists was $219,000, compared with $138,000 for primary care physicians.

Factors Behind the Income Decline

The growth of managed care was a likely driver of the decline in real physician income during this period. Managed care plans successfully held down medical spending by pressing providers for lower prices and restraining utilization of services. Medicare also kept its fee schedules tight. The managed care squeeze on physician income eased somewhat in the latter part of the decade as plans became less restrictive. The volume of physician services (excluding Medicare) grew at an average annual rate of 2.7 percent between 1997 and 1999, after rising only 1.4 percent per year between 1995 and 1997. Fees received by physicians also increased faster in the later period -- 2.1 percent annually versus 1.1 percent. As a result, the decline in physician income slowed, and larger increases in service volume in 2000 and 2001 may have reversed the trend.

The sharper income decline among primary care physicians was somewhat surprising. In 1998, Medicare had adopted policies designed to benefit primary care physicians relative to surgical specialists, and private health plans often followed Medicare's payment structure. However, the effects of those policies may have been offset by managed care's retreat from a central role for primary care physicians and its move toward providing patients with enhanced access to specialists. Technological change also historically tended to boost specialist earnings more than those of primary care physicians.

Policy Implications

The real-dollar decline in physician income helped explain the intensity of organized medicine's objections to Medicare payment rate cuts, as well as the documented decrease in physician participation in charity care during this period. Congress canceled the scheduled 2003 Medicare fee cut and provided a small increase, but the underlying mechanism for setting payment updates remained in place, ensuring the issue would resurface. Physician income had never been an explicit factor in setting Medicare payment policy, but the experience of sharp payment reductions in 2002 and the prospect of further cuts introduced a new element: trends in beneficiary access to care. If income pressures influenced physicians' willingness to serve Medicare patients, then income could take on a more prominent role in payment policy going forward.

Sources and Further Reading

HSC Community Tracking Study Physician Survey, 1996-97, 1998-99, and 2000-01. | Reed, Marie C., and Paul B. Ginsburg, Data Bulletin No. 24, Center for Studying Health System Change, March 2003. | Cunningham, Peter, Mounting Pressures: Physicians Serving Medicaid Patients and the Uninsured, 1997-2001, Tracking Report No. 6, HSC (December 2002). | Bureau of Labor Statistics Employment Cost Index data for professional, specialty, and technical workers.