By Dr. Daniel Smith, WCI Columnist
I’m going to ask a blunt question. How much has your income risen over the last five years? Was it at least 21%? I’ll tell you that the rents from my rentals and home values certainly have; however, my physician income per patient has most certainly not. I’m asking because that’s how much inflation has risen over the same time period. In fact, if I could go back five years ago, I’d have bought another eight rentals at the outset.
Even with the COVID eviction moratorium, the income from my rentals actually increased slightly more than inflation—about 23%. The best part I haven’t mentioned yet is the principal paydown of another ~9% and the home value increase of nearly 40% over the same time period! Even by leaving out mortgage principal paydown and property value appreciation, my rental income beat inflation, as any investor worth their salt is looking to do.
But let’s contrast that with physician-owner situations. I’d bet that if you own your practice, your staffing costs increased by at least 21%, not to mention prices for consumables, rent, utilities, and other back-office expenditures. If you’re an employed physician, have you noticed your employer or hospital cutting back on spending and scrutinizing costs with an increasingly jaundiced eye? The reason, which we all can guess, is due to inflation. But why should physicians accept lower and lower relative incomes when just about everything else is becoming more costly?
Why Care About Inflation?
Inflation is simply the increase in costs for goods and services over time. However, for the physician, inflation is the carbon monoxide of fixed wages, a slow and seditious denigration of your financial health. It’s one of Bill Bernstein’s big four threats to your wealth: inflation, deflation, devastation, and confiscation.
Confiscation by the government or another entity is uncommon in America because our legislation is predicated upon English Common Law, which holds the ownership of property as a citizen’s right. Devastation is certainly possible for those whose incomes are subject to natural and man-made disasters, like the Dust Bowl of the 1930s which decimated farmers and those upon whom they relied or the financial crisis of 2008 which relied upon the stability of mortgage payments. Deflation in America is also uncommon with the most recent example being the Great Depression where prices dropped 7%-10% per year from 1930-1933.
Inflation in small doses, according to many economists, has a neutral to positive effect on an economy: making exports cheaper to foreign buyers, making debt “cheapen” as time passes (i.e. your one dollar you owe your bank is worth 21 cents less in purchasing power now than five years ago), and encouraging companies to borrow to build new things and create more jobs. Inflation that gets readers’ attention tends to be that of countries in financial stress: Venezuela (at nearly 10,000%!), Zimbabwe, and Iran, for example.
High inflation erodes purchasing power and, thus, public confidence that tomorrow’s needs might not be met with tomorrow’s dollars. Panic-buying ensues, which pushes inflation higher. Fortunately, we don’t have runaway inflation thanks to the Federal Reserve mandate of low, stable inflation (monetary policy like raising interest rates or the sale of securities on its balance sheet) and a previous history of good financial policy and prudence on the legislative side. Then, why the concern with our low to moderate inflation?
It's because . . .
Physician incomes lag inflation . . . considerably.
The 21% figure I quoted above came from the Consumer Price Index (CPI), as measured from February 2021-February 2023. The federal government measures the CPI to help it determine what the inflation rate is and has been. The CPI guides our central bank’s decisions about monetary policy (federal discount rate, bond purchasing, and reserve requirements) and our legislators regarding fiscal policy (tax and spend; i.e. the budget). The CPI also drives inflation-adjusted rates on Social Security benefits, federal workers’ pay, and elective deferral limits for qualified retirement plans. Conspicuously absent from the list of inflation-adjusted federal expenditures is Medicare pay rates for physicians.
Inflation concerns are not new, however. In 2021, the AMA released this graph of the CPI compared against pay increases for acute-care hospitals, skilled nursing facilities, and outpatient hospitals. Trundling along at the bottom is physician pay—which, from 2001-2021, increased a marginal 10.5% while the CPI increased 50%. This means that over the course of that 20-year span, physician incomes dropped by 39.5% in after-inflation dollars. Further, the cost of just running physician practices increased by nearly 40% nominally.
Why is this happening? Originally, CMS (Center for Medicare and Medicaid Services) was tasked to measure increases in expenditures. It anticipated future growth by compiling the Medicare Economic Index (MEI, seen above in green) and projecting the sustainable growth rate (SGR) by which physician pay raises were determined annually. In 2015, a Republican legislature and a Democratic president (so that everyone can be equally incensed) signed into law MACRA, which changed physician reimbursement from the SGR to a collection of metrics presented as a way to move physicians to value-based care.
For anyone grousing about how Congress is made up of career politicians who don’t have a clue about the sector they’re legislating, this bill was sponsored by a retired OB-GYN from Texas. For the record, Congresspeople vote themselves their own pay increases.
More information here:
You Can’t Hedge Against Inflation in the Short Term
What to Do About Physician Incomes During High Inflation?
#1 You Could Do Nothing
Physician incomes, by any measure, are far above average, and far be it from me to suggest you spend more of your precious time doing anything other than what you value highly. No doubt that as inflation increases, your nominal, though not your real, earnings will increase with time. If you are content to have less purchasing power over time, then feel free to skip the rest of this column and spend your morning how you please. If I were near retirement or was part of a high-income DINK (Double Income, No Kids) couple, I’d probably feel this way too.
#2 You Could Spend Less and Save More
Rarely a bad idea, unless you’re already a miser anyhow, and one that probably most of us could use a bit more of. The problem with spending less and saving more is that it’s an uphill battle. I can’t continue to spend commensurately less as inflation erodes my purchasing power just to keep up with what I am making.
#3 You Could Make More Money
Now there’s my kind of idea. Granted, most docs work plenty of hours, and for most of us, working only plenty of hours would be an improvement in our work schedule. Instead, I’m lobbying for leveraging your most valuable asset—your medical degree and future earning potential—for producing income that keeps up with inflation.
A Call to Action for Side Hustles
Ben Franklin is quoted as having said, “If you fail to plan, you plan to fail.” So, the first step after recognizing the problem with physician pay is to make a plan. Some of this is going to sound a little unconventional, but stay with me.
Figure Out Which Debt to Carry and Which Debt to Erase
We know that good debt is usually fixed rate, non-callable, and low interest—and for a good reason. Credit card debt is bad because it’s high-interest rate. Margin loans are bad because they’re callable (if your speculative asset drops in value, you’re getting a call from your broker for cash) and usually not low interest. Loans for cars are generally foolish; let’s all admit you just bought too much car. Josh Katzowitz, I’m talking to you here.
Home mortgages tend to be good for all four reasons above. Loans for practice improvement, expansion, and purchase can be good, given they improve revenue streams and are on reasonable terms. Carrying some low-interest, consolidated student loan debt can also be good debt to carry because it frees up cash for you to invest or to use for your financial benefit.
Figure Out What Your Side Hustle Will Be
Most of us possess arguably the most difficult professional credential to obtain in the United States. It is a gateway for multiple kinds of side hustles: medical directorships, IV fluids bars, medical spas, locums physicians, urgent care, professorships, research opportunities, consulting, concierge medicine, chart review for attorneys or insurance companies, sideline sports coverage, those surveys Rikki Racela made so much money on. The list is far longer than any of these, but these are the ones that come quickly to mind. For those who say that jobs where physicians practice medicine are subject to the same pay problem, that’s correct. However, because it is a side hustle, you have leverage in that you have the freedom to negotiate. If the pay isn’t high enough, do something else!
If medically oriented side hustles aren’t your preference, then by all means do something completely unrelated. WCI readers are go-getters, or you wouldn’t have gotten into medicine. Find an unmet need that you believe you can fill, and do it. If you have a passion for wine, open a bar specializing in Spanish vintages. If you’re excellent with computers, try to contract with some local practices to be their impromptu IT guy on a case-by-case basis. If you aren’t already well-versed in some prosaic skill or trade, read up on a new one!
Doctors are lifelong students by nature and by necessity. Transfer some of that ability to learning a new skill or getting a new degree. A colleague of mine just finished his MBA, and he was amazed at the new world of possibilities open to him. Maybe you start a small blog on physician finance that becomes a huge success to the degree that it overshadows your physician income (I think, though, that niche might have already been taken).
On the investment side, your large incomes all mean that you are or will be accredited investors, opening up riskier but potentially more lucrative investments available only to you. While it’s not as active as some other hustles, it’s also something that is out of reach for many people because of the requirements. Maybe you buy a timber farm (an aspirational investment of mine) which is mostly passive, or rental real estate or vacation homes, etc. There’s an ENT in my town who derives the majority of his income from passive investments in mixed-use commercial and residential buildings rather than his income as a surgeon solely because he had the capital and borrowing capacity to make it work.
For my part, I have a few rentals (which have done well given higher rents and fixed debt), write for this blog (by the way, how about a cost of living adjustment??), and have a couple more buckets under the sluice which I’m hoping will pan out. If those do work out, I’ll be sure to write about them.
More information here:
The List of Physician Side Hustles
From Medicine to Entrepreneurship: How Side Hustles Are Changing the Physician Landscape
The Bottom Line
Physicians have a real (income) problem with inflation. We are at the blackjack table, and Medicare is dealing. Outside of a permanent Medicare fix (debt? What debt?), our best option is to create one or more income streams that are free to rise as inflation does. If you’ve got a great inflation-hedging side hustle, I’d love to hear about it.
As a doc, you have valuable knowledge and information. Various companies want that knowledge and are willing to pay you for it. If you're interested in starting a side hustle as a paid survey-taker while also making a difference in the medical field, check out our favorite physician survey companies today!
Are you using a side hustle as an inflation hedge? What is it? How well is it working? Is all of this worth your time? Comment below!
I find it interesting to take a longer term look at physician incomes. I suspect most people’s incomes have lagged inflation the last few years as it spiked (? unexpectedly?). There’s a paper out there that looks at physician incomes over many decades and it showed real growth in physician incomes from something like 1960 to something like 2010. Let me see if I can find it.
Here it is:
https://www.whitecoatinvestor.com/wp-content/uploads/2023/09/Screenshot-2023-09-11-at-7.31.45-AM.png
https://marginalrevolution.com/marginalrevolution/2019/05/physician-and-nurse-incomes-have-increased-tremendously.html
Basically, the data is that in real terms, doctors were paid 3X as much in 2016 as in 1960. The highest slope of that growth was 1980-2000, but even from 2000 to 2016, it’s significantly up. This doesn’t surprise me because I’ve been looking at salary surveys every year for the last 20 years. And guess what? The average physician income has pretty much gone up each year. For example, here is the Medscape survey from 2011. It claims average incomes for the following specialties were:
Orthopedic surgery: $350,000
EM: $250,000
Peds: $150,000
The 2023 data is
Orthopedic surgery: $573K
EM: $352K
Peds: $251K
Those are obviously substantial increases. But are they real increases? Well, we can measure inflation using CPI-U and if we look at 2011 to 2023, we can see that inflation is up 36%. Well, these 3 specialties are up
Orthopedic surgery: 64%
EM: 41%
Peds: 67%
These are all real increases. So I don’t know what to make of people claiming that doctor incomes are decreasing on a nominal basis, much less a real basis. I know MY physician income has decreased over the last decade, but I’m not working the higher paying night shifts and I’m only at 0.4 FTEs. But if I were full time in my group, my income would be up on both a nominal and real basis.
Not sure it takes all that much away from the article (I think rent growth has still outpaced physician income growth in the last few years), but there’s a lot of fearmongering out there about doctor incomes and I think it’s important to counter it a bit.
WCI, I hate to disagree with the guy who signs my check, but let’s make this column more interactive. It’s great to say docs make more money, but how many more patients are they seeing to get there? How many more cases are surgeons doing? How much more call? I’d like to see a survey that controls for patient and procedure volumes before saying “incomes are higher this year.” Note that my graph cited medicare reimbursement updates; I just wrote shorthand “physician incomes” in the spirit of brevity…that and Josh said you don’t pay by the word but by the article.
I think we should compare apples to apples and just look at the medicare conversion factor. Yes, RVU values matter but they differ across geographic location, change when CMS adjusts the practice cost and malpractice parameter, and vary between specialties every time CMS shakes up the budget (and due to CMS budget neutrality rules have to keep the healthcare expenditure “pie” roughly the same size [aside within an aside, this also must factor in the huge increase in “administration” costs]). Here’s a link to an AMA compiled list of RVU conversion factors since the early 90s.
https://www.ama-assn.org/system/files/2021-01/cf-history.pdf
Conversion factor in 1992? $31.0010 (yes, there is a ten-thousandths place)
Conversion factor 2023? $33.8872
That’s a solid compound annualized growth of 0.30% whereas annualized inflation has been 2.54% over the same period.
Are you suggesting, by saying that physician’s real income has increased, that **everyone’s** RVU values for E&M and CPT codes have gone up by more than 2.2% (2.54% inflation minus 0.3% growth in conversion factor) year over year for the last 31 years? Or is it much more likely that physicans are simply seeing more patients, taking more call, and doing more procedures?
Maybe there’s a drastic increase in patients with commercial payors, but I doubt that. Here’s an interactive graph of medicare enrollment as a percentage of the U.S. population since 1990.
https://www.statista.com/statistics/200962/percentage-of-americans-covered-by-medicare/
From 13% to 18.5% over 30 years. Not surprising given the baby boomers aging into it.
Medicaid, very similar from ~10% in 1990 to ~19% in 2021.
https://www.statista.com/statistics/200960/percentage-of-americans-covered-by-medicaid/
So “higher” pay is probably not a better payor mix either. By any argument, I can’t fathom that an “increase” in physician pay is due to the government’s or insurors’ largesse but instead is built upon an increased volume of work performed by physicians.
Cheers
So your argument is that you have to do more work in order to achieve a higher income? I mean, isn’t that true for every industry?
The world has gotten more efficient over time in nearly all industries. Like home builders for example. Surely they have to build homes more quickly and with cheaper materials then they did back in the 80s in order to raise their incomes. I know this has been true for dentistry… and our industry hardly even touches Medicare.
I believe his point is that the inflation-adjusted valuation (by payors) of our time and efforts for performing the same services has gone down over time.
Yes sir, nailed it
I’m not sure we have the data to answer all of your questions, but there’s plenty of anecdote out there suggesting docs are working less than they used to as they’re more focused on lifestyle now than the prior generation.
And I don’t sign the checks. I outsourced that. 🙂
Touche!
Hi Jim great point, but I wonder how much of that average in specialty pay is not really representative and we should really focus on the median physican pay of each specialty. You always say that intraspecialty pay differences can be just as disparate as interspecialty pay differences. Well, if for every 10 newly minted pediatricians making $100k works for a peds practice where the head partner pediatrician makes $2million a year, that dominating $2mil partner salary is going to pull up the average peds salary up pretty quick!
I always question the accuracy of the medscape survey data as well. For a guy that does a lot of surveys, I don’t think I’ve ever filled out the Medscape survey . . . probably because they are not paying me 🙂
I’ve participated in the Medscape and Doximity surveys. Not sure if there’s a bias for higher earners to contribute or not. I don’t think so though because when I’ve looked their numbers have been below MGMA, which is provided by administrators who have no incentive to jack up reported pay.
Income for my specialty in my state has been on a steady slow decline for the last 6 years. I look at per hr earnings as a function of RVU mix/call requirements. Making 4% less now per hour than 6 years ago. The less I make the less I work in clinical medicine and the more I work outside of medicine/spend time with my kids. Last year I took two days off of work to replace my water heaters as the savings of not paying someone paid more than what I would have made at work.
Maybe there’s a career transition to appliance installation in your future.
“Inflation is simply the increase in costs for goods and services over time”.
This is simply not correct. Inflation is the expansion of the money supply, full stop. CPI, a measure of increases in the cost for “some goods” and “some services”, is commonly used as a proxy for inflation. Take a look at your pre and post pandemic gas or grocery bills and compare that to the government’s reported CPI and you’ll see why that’s a problem.
The pro-inflationary argument is just Keynesian economics redressed. Ask yourself if the national debt, whose foundation is Keynesian economics, is really the correct framing for how we ought to think about this topic. Thanking the Federal reserve for controlling inflation is akin to thanking your mugger for leaving the ten dollar note in your wallet while taking the hundred. Inflation is a hidden tax on all of us. Inflation is the confiscation of wealth at the expense of the population to fund various government ventures.
I really don’t take issue with some of the remedies, but everyone, especially those interested enough to be on this site, ought to be well informed as to what inflation is and who and what is causing it as well as the impact it has on everyone. The actual remedy is to stop the expansion of the money supply. Regardless of whether you want big government with high spending and taxes or limited government and low taxes, the endless printing of money needs to cease.
Classic inflation mongering. “But I can find a category or two where inflation has been higher than CPI so it must be inaccurate.” For every category of CPI where inflation is above average, there is one that is below average. It’s an average.
Now, is CPI the inflation measure that should matter most to you? Absolutely not. Your personal inflation rate is the only one that matters. But there’s no government agency out there calculating that for you. For example, rent is a big component of CPI-U. I don’t care one lick what rent is because I don’t pay it. I’m sitting here living in a paid for house. So I really don’t care that rent went up over 8% last year. But it counts toward CPI.
Sure, gas might be $4 a gallon. But guess what? It was $4 a gallon in 2008 and 2011 too.
I do agree that inflation is a hidden tax however and that expansion of the monetary supply can drive inflation. But expansion of the monetary supply isn’t inflation. You’re entitled to your own opinions, but not your own facts and definitions. The definition of inflation is:
a general increase in prices and fall in the purchasing value of money.
Andrew, while I appreciate your passion, arguing inflation is all about money supply is an odd economic hill to die on. Did you forget about supply side shortages after 2008 which helped fuel drastic housing price increases? Or the semiconductor shortage that left new residents shackled to their med school beaters for another couple of years while cars awaiting chips? Energy prices as the war between Russia and Ukraine hampered (non-Russian) supply? How about interest rates? Tax Cut and Jobs Act made borrowing ridiculously cheap. You saying that low interest rates don’t fuel high prices? I’m not saying that basting the economic turkey with loads of au jus doesn’t plump the bird but instead that it’s not the only way.
By the way, if you’re not one for fowl metaphors, then I’m afraid your goose is cooked.
Great article! Medicine is a field that makes it very difficult to leverage your time and decouple your ability to earn it from being physically present due to liability and reimbursement (with Medicare providing a majority of that reimbursement) among other factors. Practicing as a traditional W-2 physician puts your ability to earn in the hands of others. I can’t think of an easy way of scaling that doesn’t involve an entrepreneurial pursuit of some type. You make a great point about how being frugal has its limits as you cannot completely eliminate spending and cost of living continues to increase.
I don’t think most docs get the majority of their reimbursement from Medicare. Only 18% of Americans qualify for Medicare. I know some docs sign insurance contracts that tie their reimbursement to Medicare in some way but it’s beyond me why they do that.
Ophthalmology does. I make a good living using my degree so not whining but a little over 60% of our practice’s payer mix is Medicare/Advantage plans. I agree, no need to fear monger but we definitely see the effect of year after year of declining/flat Medicare reimbursements, we’ve just worked harder/tried to add services that aren’t tied to Medicare. This article is a good prompt to keep developing passive income outside of my day job that CAN keep up w inflation, thanks!
For the above statistic to be meaningful, we would have to assume that the average Medicare patient uses healthcare resources at the same rate as the average US healthcare consumer. I don’t think that’s a good assumption. My guess is that Medicare patients, on average, use healthcare resources at a higher rate than the average American.
https://www.pgpf.org/blog/2023/02/how-does-government-healthcare-spending-differ-from-private-insurance#:~:text=Government%20insurance%20programs%2C%20such%20as,percent%2C%20or%20about%20$1.2%20trillion.
According to this article, government insurance programs account for 42% of all US healthcare spending, while private insurance accounts for 28%. If we assume that private insurance pays more than Medicare on average (a good assumption, I think), then actual healthcare utilization is even more skewed than the above percentages.
So who’s paying for the other 30%? It surely isn’t self-pay. Self pay is like 18% of our population, but only like 2% of revenue received. Self pay = no pay.
“Out-of-pocket spending, such as premiums paid by individuals and other out-of-pocket costs, spending by third-party payers, investment in research and equipment, and public health activity accounted for the remaining 29 percent, or $1.2 trillion, of national health spending.”
Thanks Ryan. Some things that are possible within a practice are offloading non-productive parts of your day to someone else, freeing you up for things that make money. Unless there’s something unexpected or particularly bad (we work in healthcare, a lot of it is bad), I have my staff call back a lot of imaging results. If there’s a procedure or task that pays less well (for us, viscosupplementation just got cut viciously), see if you can hire a PA or NP to do that procedure, provided she or he is qualified and trained. If you’re going to only get 85% of billing for a procedure, make it 85% of a small dollar amount and keep the more well-paid parts of medicine. Maybe your practice can add ancillaries within itself or keep specialty DME. We keep braces and DME which don’t bill to insurance as “cash and carry” items: orthotics, ankle supports, knee braces, etc. See if you can farm out documentation for routine parts of a visit (CC and last visit’s HPI plus an update for today while you do exam and A&P or some variation).
I will say, however, that these kinds of things are how you trim your steak as opposed to the steak itself, which is just how much you’re paid per code. Concierge anyone?
Dan great article man! I’m not sure how much my side gig of medical survey goes up with inflation, but it is a nice little chunk of extra change 🙂
is there any data on how women entering medicine has changed the average pay dynamic? My wife is the bread winner of the family clocking in a nice $500k a year for a busy call position, but this wasn’t always the case and when the kids were born she was in a non call position taking in half as much pay a year, and that’s not taking out for lost pay from 3 months maternity leave. I’m sure compared to back in the day when medicine was more male dominated physician pay was much higher because of no compromise for maternity leave and other family responsibilities. Now I believe almost 40% of docs in this country are female.
Some argue that when women came into the workplace in great numbers that it doubled the labor force and halved the pay from what it would otherwise be. If that’s the case, it would be the major force keeping low to middle class incomes from rising in real terms over a few decades. It used to be a low to middle class income family could get by on one income. Now they need two to make it and those with only one income end up in poverty, especially with additional costs like child care.
None of this really apples to the WCIer audience though.