Value-Based Medicine

Physician Compensation: Reasonable, Well-earned and a Bargain for Society

By Melissa M. Brown, MD, MN, MBA

We have devoted many columns on how valuable ophthalmologists’ efforts are to patients and society. Now, let’s reiterate that our compensation is very hard earned. Physician pay is a touchy issue, especially in this era of Medicare cuts. Does our compensation adequately reflect our hard work, both in training to become physicians and in the hours we devote to our patients once we are in practice?

Let’s Do a Cost/Benefit Analysis

Value-Based Medicine performed a net present value analysis on the costs associated with obtaining an advanced degree after a bachelor’s degree, including the fees for professional school and the opportunity costs of:

• Not working while in graduate school.

• The salary paid residents vs. the difference paid working PhDs (assuming it took four years, the same time as medical school).

I have a comparison of the costs of advanced degrees,^1-4 the incremental lifetime salaries over that obtained with the average bachelor’s degree (mean annual wage of $52,2005) in the Table (below).^6-11 With net present value analysis,¹² the financial figures are discounted/compounded to US 2012 real dollars using a 3% annual discount rate and the first year a person works in his or her end-profession as the base year. All subjects are assumed to have gone to graduate or medical school immediately after receiving their bachelor’s degrees and are modeled to work until age 65.

Our Findings

People with a MBA who work in health care have a considerably higher financial return-on-investment than most physicians, including ophthalmologists. The lifetime earnings of MBAs in health care are essentially the same as those of ophthalmologists, despite the fact the latter spend six extra years studying for their profession and incur an extra $500,000 in costs during the time of training beyond the undergraduate college level.

Mean tuition (an average of public and private school tuitions) is another important factor, because students typically pay it in pre-tax dollars, whereas salaries, whether in residency or in the workforce, are routinely taxable. Tuition is repaid in post-tax dollars as well. The average, four-year, medical school tuition (adjusted for the time value of money) of $232,311 is 253% greater than the mean three-year law school tuition of $91,687 and 572% greater than the average, two-year MBA school tuition $40,600.

We designed this analysis to take into account the financial return on investment (ROI) — that is, how much the average physician typically makes seeing patients. Most physicians spend many additional hours on non-revenue generating activities typically not present in other professions. These activities include research, research study analyses and reports, and transportation between offices, hospitals, nursing homes, operating rooms and so forth.

While people in every profession may well work longer than the designated work hours, the extraordinary hours medical school students spend in class or studying likely exceed 100 hours a week for four years, a number they often matched during internship and residency (from home or by phone elsewhere) despite the 80-hour work-week limitations on house-staff.

You’ve Earned It

What is the take-home message? Ophthalmologists and other physicians make a reasonable salary. However, relative to MBAs in health care, physicians receive less of an ROI on their educational investment.

However, be confident that your compensation is well earned. To get there, you have worked beyond any realization the public or legislators have. Furthermore, for those considerable efforts, the patient value and the financial return of dollars to society, especially patients, in the form of less trauma, depression, decreased costs, fewer nursing home admissions and so forth, are phenomenal. Now we just need to work on getting the word out beyond the medical community. OM

References

1. Internet Legal Research Group. Law school rankings by tuition. Available at:
http://www.ilrg.com/rankings/law/tuition.php/1/asc/Tuition. Accessed December 12, 2012.

2. E-how. The average tuition of dental schools. Available at:
http://www.ehow.com/info_7970710_average-tuition-dental-schools.html. Accessed December 12, 2012.

3. Association of American Medical Colleges (AAMC). Tuition and student fees reports. Available at:
https://services.aamc.org/tsfreports/select.cfm?year_of_study=2011. Accessed December 15, 2012.

4. Infozee. MBA tuition fee, living cost & expenses. Available at:
http://www.infozee.com/channels/mba/usa/expenses.htm. Accessed December 10, 2012.

5. eHow Money. Bachelor’s degree average salaries. Available at:
http://www.ehow.com/info_7748259_bachelors-degree-average-salaries.html, accessed December 15, 2012.

6. Indeed.com. Available at:
http://www.indeed.com/salary?q1=BA&l1=. Accessed December 18, 2012.

7. Bureau of Labor Statistics. National occupational employment statistics and wage estimates. Available at: http://www.bls.gov/oes/current/oes_nat.htm#00-0000. Accessed December 18, 2012.

8. Salary.com. Available at:
http://www1.salary.com/Opthalmologist-salary.html. Accessed December 12, 2012.

9. eHow. Pay scales. Available at:
http://www.ehow.com/info_8617158_pay-scale-cosmetic-surgeon-salaries.html. Accessed December 16, 2012.

10.My MBA career. Available at: http://www.mymbacareer.com/mba-facts/mba-salary.html. Accessed December 19, 2012.

11. The Salary of MBAs. Available at:
http://www.ehow.com/info_8278870_salarymbas.html. Accessed Dec. 20, 2012.

12. Brown MM, Brown GC, Sharma S. Evidence-Based to Value-Based Medicine. Chicago, American Medical Association Press, 2005:207-208.

Melissa M. Brown, MD, MN, MBA, is president and CEO of the Center for Value-Based Medicine in Philadelphia. She can be reached via e-mail at mbrown@valuebasedmedicine.com.