Staying ahead of inflation: Physician compensation is increasing faster than the cost of living

Physicians are among the highest-paid professions. In the Occupational Outlook Handbook, the U.S. Bureau of Labor Statistics (BLS) provides information for 324 occupational profiles, covering four out of five jobs in the economy.1

In the section describing occupations with the highest median annual pay, physician specialties occupy nine of the top 10 occupations. Of course, while physicians are among the highest-paid professions, they earn their compensation with years of training, long working hours and high stress. 

Physicians and healthcare leaders know the difficulty of maintaining their high level of compensation as overhead costs continue to increase and there are ever more demands that physicians “do more with less.”

Still, looking at actual compensation levels over time, as reported in the MGMA DataDive Provider Compensation, compensation has continued to increase almost each year for virtually every specialty. Figure 1 provides a side-by-side comparison of how total compensation has changed in the past 10 years for a cross section of eight primary care, medical and surgical specialties.  

Each specialty has enjoyed a substantial increase in compensation over the 10 years, with some variation in their increases. The highest-paid specialties are in the medical and surgical specialties, with family medicine without OB, general internal medicine and general pediatrics having relatively similar compensation levels that are a fraction of the higher-paid specialties.

Figure 2 provides additional perspective depicting the percent change in compensation over the 10-year period. While the three primary care specialties have lower compensation, they experienced a greater percent increase in median compensation than all other specialties except urology, with family practice without OB having the greatest gain. The increase in median compensation for family practice without OB — from $189,402 to $254,665 — represents a 34% increase, or an average increase of 3.4% per year. 

The graph also provides the most important gauge for interpreting the change in compensation. The far-right bar represents the change in the U.S. Historical Consumer Price Index for All Urban Consumers (CPI-U),2 which measures the average change in prices over time that consumers pay for a basket of goods and services. This is the most used statistic to measure inflation in the United States. Over the past 10 years, the CPI-U has increased 17%, or an average increase of 1.7% per year. 

Of the eight specialties shown in the graph, only gastroenterology reported an average increase less than the average for the CPI-U, falling 1% behind the increase in inflation. The stagnation in gastroenterology compensation is partially due to the high compensation levels in 2010, as it was and remains one of the highest-paid medical specialties. In addition to the 34% increase reported for family medicine without OB, general internal medicine had a 31% increase, and general pediatrics had a 21% increase while the three surgical specialties saw compensation increases greater than 25%, all substantially outpacing inflation.

In addition to showing how physician compensation has outpaced inflation, drilling into the trend data provides insights into how compensation for physicians in hospital-owned practices compares to what their peers earn in physician-owned groups.

A physician-owned practice is, in economic terms, a “closed system” in which physician compensation is paid from the residual pool of funds remaining from total practice revenue after all practice expenses and staff and advance practice provider salaries and benefits are paid. As a closed economic system, physician compensation is directly related to provider production, the practice’s payer mix, the business office’s ability to collect on billings and the amount of practice overhead. If any of these change, there is a direct impact on physician compensation.

Hospital-owned practices operate in a different environment since they are part of a larger health system that can subsidize practice expenses and therefore base the amount paid to physicians on the “market” of what other healthcare organizations pay their doctors.

Figure 3 compares median compensation of the past 10 years for physicians in these eight specialties who are in hospital-owned practices to the compensation reported by physician-owned practices. The 10-year average percent difference for these specialties rounds the variances that may occur in any one year and provides perspective on how primary care physicians in physician-owned groups have greater compensation than their peers in hospital-owned practices. Over the 10 years, family practice physicians in physician-owned practices (without OB) reported compensation that was 107% of their peers in hospital practices; general internal medicine physicians had compensation that was 105%; and general pediatrics physicians had 102% of the compensation reported by the same specialties in hospital-owned practices.

The graph also shows three specialties in which physicians in hospital-owned practices had greater compensation than the doctors in physician-owned practice. Healthcare executives familiar with the revenue generated by hospital admissions and ancillary services easily understand why hospital systems are willing to pay a premium to recruit and retain noninvasive cardiology, general orthopedic surgery and urology physicians.

Primary care physicians who may be evaluating if they should leave independent practice for the security of employment may want to more closely examine the proposed employment contract to find out if there could be an economic consequence to their decision.

The BLS reports historical information documenting the state of the U.S. economy, and in addition to reporting the professions with the highest compensation, predicts which professions will have the most growth in the future. There is little doubt that as their compensation continues to outpace inflation, physicians will remain the top-paid profession in the country with the best economic forecast.

Notes:

1. BLS. “Physicians and Surgeons.” Occupational Outlook Handbook. Available from: https://www.bls.gov/ooh/healthcare/physicians-and-surgeons.htm.
2. BLS. “Historical Consumer Price Index for All Urban Consumers (CPI-U): U.S. city average, all items, by month.” January 2021. Available from: https://www.bls.gov/cpi/tables/supplemental-files/historical-cpi-u-202101.pdf.