Why it’s difficult to put doctors on a salary

One of the reasons why large, integrated health systems are able to hold down costs is because they put their doctors on a salary.

This divorces payment from volume of care, which is one of the major criticisms of a fee for service system. The pros and cons of such a system can certainly be debated, but the point is that it will be difficult to make such wholesale changes to how we pay doctors.

If you notice, many of the systems frequently lauded, such as the Mayo Clinic, Kaiser Permanente, or in this New York Times piece, the Cleveland Clinic, are large systems comprised of salaried doctors. However, they form a minority of care delivered in the country.

Most doctors in the United States practice in small group settings, which makes it difficult to impose a salary. Although that trend is changing, as “the share of doctors in one- or two-physician practices dropped to 33 percent in 2005, from 41 percent in 1997,” and, “just 10 percent of doctors in their early 40s work in one- or two-doctor practices, compared with 38 percent of those 60 and older,” it’s still going to be awhile before doctors are part of the larger systems that can impose a salaried payment structure on physicians.

Kevin Drum further articulates some of the difficulties of paying doctors by salary:

Paying doctors a straight salary seems like the best middle ground. But that just pushes the problem up a level: maybe individual doctors get a salary, but how do you set overall compensation for the medical group or hospital? And what about physicians in private practice? You can’t very well pay them a salary when they work for themselves, so does private practice go away? And what about bonuses? Should doctors be paid more based on some kind of formula for productivity and general wonderfulness? Would you care to propose such a formula so the rest of can all laugh at it?

So, I guess the bottom line is, easier said than done.

Update 2:
Doug Farrago, GruntDoc, and Shadowfax (who, it should be noted, goes against some of his progressive leaning-colleagues on this issue) all warn about the unintended consequences of placing doctors on a salary.

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  • http://www.MDWhistleblower.blogspot.com Michael Kirsch, M.D.

    I was a salaried physician for 10 years and am now in private practice. While this is a generalization, when individuals have an incentive to perform better, they often do. This is the reason why the ‘boss’ is more inclined to deliver superior personal service than is an employee. It’s his business and he cares about its success. Have you ever arrived at a store which has just closed and locked the door? If the boss is inside, you are likely to be let in. If it’s an employee, however…

  • A Radiologist View

    As a salaried employee I have spent many a meeting debating the inherent inequities in a group where everyone makes the amount of money. Any attempt to place volume-related incentives was met with fierce resistance by docs who felt their value went beyond volume. They had a point. How do you place a monetary value on one very useful CT read that changed management or offered the correct diagnosis and may have taken 10 minutes vs 10 useless, vague reads that each took one minute? Some low volume radiologists may be lazy, but some may also be smarter, better radiologists who clinicians rely heavily on. They may spend a large chunk of their day consulting with these clinicians or referring to a text to offer an exhaustive differential. They are not compensated for this useful work in an “eat what you kill” model. Salaries may incentivize laziness in some cases, but volume incentives can incentivize sloppiness (and of course over-utilization). And you in the primary care world know this. Time after after time on this blog I hear physicians lament the current payment model, complaining how they have to pack their schedule with twice the number of patients they can effectively see, and spend a fraction of the time with them that they need to for optimal medical care. You can’t have it both ways. Fair, quality-based incentives are possible – difficult – but possible. Just because you can’t think of a system that works doesn’t mean there isn’t one out there.

  • http://www.thehappyhospitalist.blogspot.com Happy Hospitalist

    Wouldn’t life be better if you could get paid a “fair price” for your quality care and you got to determine how you arranged your schedule to provide that quality care in a way that made you the most efficient. Wouldn’t this be better than the government and third parties telling you what you had to document in order to get paid for each and every encounter? If you could manage a patient with a yearly visit and frequent nursing calls both your efficiency goes up AND your patient satisfaction would improve and your fear of lawsuits would go down and you’d have WIN WIN.

    And if you want to make more money by seeing more patients you could. You have every incentive in the world to provide quality care that reduces complications and increases satisfaction.

    Welcome to a bundled care model. A model that decreases costs with time due to increased efficiencies, improved evidence based practices. A model that would allow higher patient volumes out of a desire to increase profit, not out of a desire to stay solvent.

    Fee for service will never control health care inflation.

    Salaried only, without a “fair price” and a culture of strong work ethic from everyone involved, will never encourage efficiency of scale.

    Bundled care can do both. Drive efficiency and improve costs. The question is not whether bundled care could work. It would. The question is whether the government or other third parties are willing to pay fairly for the bundling.

    Paying poorly in any model is doomed for failure. Paying well in bundled care offers the opportunity to have WIN WIN WIN for all parties.

  • http://drbrenner.blogspot.com @irb123

    There might be a middle ground. I understand your arguments against salaried docs, and a good analogy to that is the academic doc vs. private practice doc. Academics generally earn less, see less patients, but make up for it with publishing and teaching responsibilities. The tradeoff there is one of giving back, intellectual or ego satisfaction with being the leaders in the field.

    However, if there is no discernable tradeoff, many docs would (as you say) be unhappy and less productive on a salaried basis.

    On the other hand, the fee-for-service does have a lot of problems too: cost-control issues, does not value the time of the doc-just the diagnosis, and conflict-of-interest issues w/AMA owning the CPT codes.

    So I’ve come up with a solution: http://drbrenner.blogspot.com/2009/06/medicare-reform-part-3-new-model-for.html that is based on an hourly base that is adjusted up for more years of training,completion of CMEs, experience etc…and also complexity of patients (e.g. neonatal and elderly, HIV). This values the time of doctors, allows them to focus on complex/chronic disease patients, and has the added benefit of making patients happy and cost-wise is self-limiting (only so much time available) and on my blog you can see how I propose to prevent abuse of this system.

    While you and others make fine arguments against ideas, I’d like to see more people in medicine proposing possible solutions.

    • http://www.kevinmd.com Kevin

      I think a reasonable compromise would be a base salary, along with both performance and productivity incentives.


  • R Watkins

    Many countries in Eurpoe achieve public health ratings higher than the USA and rely on small private practices. I don’t know of any model where the entire health system depends on highly structured, controlled environmenents like Mayo.

    And don’t forget Mayo and Cleveland are subsidized by their highly lucrative “executive physicial” and “cash on the barrelhead for foreigners” practices. They admit that they loose money on Medicare patients like everyone else.

  • pcp

    If the goal is to lower cost of health insurance, then the question is are doctor salaries a large contributors to the cost? I don’t have the data but have doctors salaries increased by the same factor as health-care costs?

    What I would like to see in hospitals and clinics or somewhere is a list of what common major and minor procedures and tests costs? Most people never know these things until they get their bill.

  • ninguem

    The problem with a salaried arrangement is the employer often forces noncompetes on the employee-physician. So if the arrangement fails for any reason, the physician cannot go to work for a nearby competitor. The doctor has to leave the community, uproot family. Not as much the salary as all the other strings attached to the salary. Noncompetes, just one aspect.

  • Paul

    Pay me a fair price for my surgical services and running my office costs on a per patient basis and let me maintain the ability to say “no” to patients in order to stay solvent and productive. The trap currently for many of us is that we are mandated by slippery hospital bylaws that enslave subspecialists to the “Borg” that was once a facility that doctors went to treat patients. EMTALA mandates hospitals to cover patients and they have been granted everything from “not for profit” status…yeah….right to H-pass to facility fees to other 3rd party premiums for reimbursement. Like it or not, surgical specialists generate huge sums of money for hospitals and we are treated like cattle and are threatened when we don’t feel the love to assimilate.

    Pay me for what I do, stay out of my practice and this will work. Free thinkers will always try to find a better situation for themselves and their craft. It is an honest and nobel endeavor and again, nothing we need to appologize for.

  • family practitioner

    I agree with ninguem: non-competes across the board should be banned. The patient gets hurts the most while the employer takes advantage of the covenants to abuse their employees. The only winners are the employers. This is a good example of medicine “eating its young” as the restrictive covenants are put in place by more senior physicians who never had to sign one when they started out.

  • David

    Its interesting to note the approach of your original post and some subsequent comments. Its as if there is some large system in place and we are attempting to figure out if that system should be changed to pay doctors by salary or by productivity. But, truly, it should be an open market. There are those who are part of a large organization and who may like the stability of a salary. Others may wish to be part of a smaller group and get paid fby productivity. There are an infinite number of arrangements, and none of them is the ‘right’ one – there is simply better or worse fit for that person.

    In a free market (which, obviously, does not currently prevail but which exists only partially) it is no one’s requirement to pay you ‘what you’re worth’ or to ‘meet your costs’ or any other such nonsense. It is up to you to market your product or service, to charge what you can, and to make a go of it in your business. You may succeed wildly or your business may fail, but realize you are in a business.

  • Supremacy Claus

    In England, surgeons get a salary a third of the average here. Come hell or high water, they leave at 5 PM. You have an ice pick sticking from your skull? That sounds like it needs emergency surgery. The wait will be six days.

    For elective surgery? Months or years. For expensive surgery, such as a transplant? It’s Sayonara, baby. You can get your kidney in heaven.

    As a patient, no way.

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  • Progressive Voice

    Supremecy Clause -

    Do you believe everything that Sean Hannity tells you? Even you must realize that what you wrote is utter, right-wing-talking-point-misinformation, nonsense. I won’t even waste my time refuting each ridiculous statement. They’re just patently untrue.

    David – There is no “free market” solution to health care and the quicker you guys come around to this fact, the quicker we can get to the business of reform. Laissez-faire capitalism does not operate as usual in a third-party payer system (particularly when the largest of those third party payers is the government). Health care does not have to turn a profit. It has to keep people healthy. Operate from this simple fact and we’d be a lot further on the way towards a system that is actually sustainable.

  • http://thehappyhospitalist.blogspot.com Happy Hospitalist

    Health care doesn’t have to turn a profit? Really?

    Would you want to shop at a grocery store that didn’t turn a profit? How about a restaurant? Perhaps you’d like to buy shoes from a non profit shoe maker?

    You fear profit like it’s a bad thing. Without profit, you have North Korea.

  • Supremacy Claus

    Progressive: What kind of an argument is that? You call the other person a liar, and walk away.

    The British pound is around, $1.63.


    These are updated after a vicious fight and strikes.

    British studies show that reducing emergency waiting time to less than one week has not improved outcome. They not only have long waits for emergency surgery but justify them scientifically.

  • http://drgrumpyinthehouse.blogspot.com Dr. Grumpy

    When you salary docs you take away incentives to work.

    If I’m going to get paid the same for seeing 30 patients/day as I am to see 10/day, then I am going to see 10/day.

  • Paul

    Dr. Grumpy,
    I will outbid you…..and see 7 per day.

  • Happy patron of non-profits

    Happy Hospitalist says: “Health care doesn’t have to turn a profit? Really? Would you want to shop at a grocery store that didn’t turn a profit? How about a restaurant? Perhaps you’d like to buy shoes from a non profit shoe maker?”

    Hell, yes, I’d be fine with shopping at any of those (depending on circumstances and quality).

    Right now, I patronize credit unions not banks because credit unions are generally are better and cheaper (and yes the banks bellyache regularly that it’s not FAAAIIIR that they have to compete with non-profit making entities).

    I have my financial accounts at Vanguard which has really low overhead costs because it (gulp!) is not held by shareholders and does not make a profit.

    I don’t have access to any mutual insurance companies but some of those are good; and years ago when I lived in Berkeley the coop grocery store was quite good and had some helpful services that for-profit groceries do not.

    Now all of those institutions need to pay their employees and operate in the black and I have no problem with that. But no they do not need to make a profit and if they are good and DON’T make a profit, I’m more than delighted to patronize them — I prefer it.

    And I just wish I had that same option with healthcare.

  • ninguem

    Supremacy Claus – “….Progressive: What kind of an argument is that? You call the other person a liar, and walk away………”

    Well, it’s the traditional “progressive” argument. Formerly the “liberal” augument before they rebranded themselves.

    The consultants usually bring home an income comparable to the same USA consultant, becuase they offer services privately, in addition to their salaried job.

    Find the Web page of, say, a British surgeon, you often find something like “NHS hours Monday X to Y, Private hours Tuesday X to Y”, etc.

    Where the NHS hours have a long waiting time and the private hours you can get seen real fast.

    I met this British anesthesia resident once, he described sitting through long cases, no help from the attending. Turned out their attendings (consultants)……this is a teahing program no less……..were doing their private anesthetics at another hospital while on paper supervising the trainee in the NHS hospital.

    @ family practitioner – noncompetes in employment contracts for LAWYERS are prohibited by the ethics regulations in every single State Bar Assocation in the country.

    Only doctors treat their young so badly.

  • ninguem

    Not that we will have the option of private billing under anything being contemplated by Obama and his ilk. The UK, they retain the option of telling the NHS patient they can be seen now, privately, or next month, for free.

    We won’t have that freedom.

  • David

    Progressive Voice said “David – There is no “free market” solution to health care and the quicker you guys come around to this fact, the quicker we can get to the business of reform. Laissez-faire capitalism does not operate as usual in a third-party payer system (particularly when the largest of those third party payers is the government).

    I believe if you think about your statements as applied to the long run in medicine, you will actually learn to regret them. Medicine (or any field) is not simply a static set of facts and available treatments. Those with the motivation (i.e., the profit-seekers) are, when not overly regulated or price-controlled out of existence, continually attempting to push the bounds of what is possible. They are striving to make better drugs, better procedures, better devices. They are truly doing good for humanity, although, perhaps in your opinion (not mine) with that ‘horrible’ ulterior motive of making a profit. Some others (academics, for the most part) are sometimes simply trying to make a name for themselves. It is because of this motivation that medicine has progressed from your doctor holding your hand while you die to interventional cardiology, gamma-knife therapy, statin medications, new multiple sclerosis treatments, cancer treatments, etc.. Heart attacks used to have a 50% mortality rate. Now it is about 5%.

    Why do you think the old USSR wasn’t bringing to the fore these great achievements? Why not Cuba? I submit that the Communist antithesis to the profit motive, and the cultural hatred of the same, stood in their way.

    Now understand that it isn’t just the US that benefits from these achievements – it is the entire world. Have discoveries in the US helped treat AIDS in Africa? Of course. Has Canada benefited by drugs and treatments pioneered in this country? Of course. This ugly profit motive continues to improve the available treatments that the entire world uses. Rarely do you hear thanks, by the way, for such gifts. (I do not mean to denigrate the achievements of other western countries such as France, Germany, England, but the US is still the major influence in this area).

    So, “Progressive”, project yourself backward in time and imagine if you took the profit motive out of medicine 50 years ago. I submit to you that there would be very little progress over those years. I submit that we would today, under your plan, experience much more death and have fewer treatment options for patients. Would you want to have a heart attack in a hospital today or 50 years ago?

    Now imagine if you institute your elimination of profit in the world of medicine – project forward – what great innovations you will be squelching? Alzheimer’s disease, cancer, heart disease, strokes are all STILL a problem and solutions to these problems would help the world.

    Perhaps you could be convinced that in the long run, the profit motive, in a free (or semi-free) market, is a real benefit.

    You do point out problems with third-party payer systems and government as a purchaser of health care. If these are problems, then why not attack them at their source? If government distorts the free-market system, then maybe the government can be slowly eased out this position. Does it logically follow, in your mind, that because government is making the system worse by its influence, that it should then become MORE involved?

    I am also not a fan of third-party payer systems, but again, try to understand what leads to this. Tax structure, government inflation, over regulation of medicine and insurance companies at the local, state, and federal levels, make it difficult for insurance companies to offer other products. The FDA makes it very difficult for companies to be interested in anything but ‘block-buster’ drugs which have the chance of turning a huge profit. I would love a system of cash only for routine care and insurance use only for catastrophes (hospitalizations, broken bones, etc.). If that is what we (you and I) want, then try to move the system in that direction, not jump with both feet into a bucket of crap that has been strangely designed ‘reform’.

  • Supremacy Claus

    As in England, I would do little work, could not be fired because of draconian employment laws. What I could do with all that time not seeing patients, is better educate myself about making bombs. That way, I would not burn myself all over when setting one off. The English salary structute requires the importation of terror docs. They are so incompetent, they cannot even blow themselves up properly. They got burned, ended up on a burn unit, where other incompetent terror docs then dispatched them to heaven and all the rewards of suicide bombers.

  • steve H


    I have worked in both australia and the USA (a socialist system vs our own). anybody who thinks that kind of system will work here is crazy optimistic. I work in the er, here and there. i have sent patient home with subdurals (no ct available at night, return in the am for your scan, evidence states you are low risk, but then you turn out tobe the one in a million), seen people die with CVA (nope, cant give the thrombolytics, no CT available after hours to make the three hour deadline). MI allowed to die (too old and no quality of life, no money should be spent on them). if that is to happen here, and it will happen here, people would revolt, and worse, sue.

    I am not adverse to giving this quality of care if that is what the US system and consumer wants to demand, but I have not heard anybody telling people that universal coverage means these sacrifices.

  • ralph

    I wish you docs would reign it in a bit and address this point: Is there a way to keep the “profit motive” in the mix (sounds like doctors are as into it as lawyers) and get away from fee-for-service – which seems to provide financial incentives for doctors to order more tests whether they do any good or not? Docs gotta have their BMWs – and they deserve them: we need them, they work hard, they’ve sacrificed a lot to become docs, and they racked up a ton of debt to get through medical school. The question is: can we supply them their income through a different model; and if so, what is that model?

    Or, is the current system ok and we don’t need to do anything?

    Thank you.

  • pcp

    The strongest argument against “non-profit” medicine is the quality of care in poor countries. The poor, when sick cannot pay much to get services and thus don’t get much in the way of services. Same thing with diseases. Malaria effects and kills so many people in the third world but companies are not rushing to find cures for them b/c the profits potential is just not there.

    Getting something for your efforts, labor and time input, is a strong motivation for majority of people. These are the people who get things done. If you disincentivize(?) them, then they will either do less or do something else that offers them fair compensation for their input.

  • David

    Ralph and PCP,

    I thought I had addressed the profit issue already, but for a more philosophical answer to your questions of what is wrong with the current system read “Why we are moving towards socialized medicine?” – link below


  • Dave Harris

    I’m astounded by some of the comments here. Doctors need “incentives” to work in the career they’ve chosen?? That’s insane. Imagine a steelworker saying, “Well, yeah, I can weld 20 beams a day on my salary, but if you pay me more to weld 40, I’d prefer that.” Nevermind that the welds will be of less quality and the welder will spend less time being concerned about the quality of his work.

    Nothing doctors learn how to do is so special that they need some sort of special system used to employ them. It’s a *job*, not some mythical impossible work.

    Docs should be paid on salary like most other healthcare workers do and be happy that the personal economic incentive to provide more quantity of care to more patients (rather than better quality care) is removed for them.

    What an insightful set of comments here, and a perfect display of why doctors need to be reined in as one of the spiraling, out-of control costs of the U.S. healthcare system.

  • Anonymous

    >>> Nothing doctors learn how to do is so special that they need some sort of special system used to employ them. It’s a *job*, not some mythical impossible work. >>>

    At minimum 11 years of training and around $200,000 worth of education and you don’t think that’s special? Go do it, and then we’ll talk.

  • owen Linder

    Medicare Advantage with both a capitated base of about $60 per member per month and being at full risk for the bundled funding expense in Medicare Parts A,B&D gives the physician incentives to keep patients alive, happy, healthy and at equilibrium. Equitable funding is adjusted for the severity of illness by existing fomulae deterrmined with terabites of available CMS data.

  • Nuclear Fire

    @ Dave Harris: “Doctors need “incentives” to work in the career they’ve chosen?”

    Yep, it’s called a paycheck. I have a family to feed and I need an incentive to get up and go to work each day because I have a lot of other choices. Every hour I spend seeing patients is an hour I cannot be doing something else like spending time with my children or working at another job. Maybe for $100K a year, I’m willing to work 9-5 M-F. Plenty of time for my family and for other opportunities. But for $50K a year I’m only willing to work 20 hours a week, or maybe not at all in that job as I could earn more in my old construction job. On the other hand, for 200K a year, I might be willing to work 7-7 M-Sat. and for $300K a year, I might be willing to also take calls on my cellphone 24/7 from premium patients. The question becomes, will the market accept it? I personally would like to have a free market system so that I could find out. The doctors who want to churn patients through quickly making money off volume could be matched up with patients who like a cheap and quick office visit while other doctors who want to do hour long consultations could do so and be matched up (by the invisible hand of the market) with patients wanting that in depth care for a higher price. Just like any other good, some will want the cheap but less quality model and others will want the more expensive luxury model and they’ll vote with the pocketbook.

    I spend a small amount of time working in a VA hospital and have seen first hand what happens to physicians are nothing more than 9-5 salaried workers. My patients love me because they can actually still get a hold of me “after hours” since I treat them just like my private patients, while other doctors check out physically and mentally at 430pm. I was covering a shift in the VA ER and a clinic doctor wanted me to admit his patient for him because it was 445pm. He’d seen the patient in clinic, lab work had come back abnormal (renal failure) and he wanted the patient admitted. Because it was after 430, he wanted me to call the patient, explain the lab abnormalities, have him come to the ER and have me call an Internist to admit him.

    You’re right “It’s just a job,” which is why we need incentives to do it, just like EVERYONE ELSE. BTW, welders can unionize and go on strike. Doctors, for legal and professional reasons, can’t.

  • David

    Nuclear Fire,

    Excellent analysis. I have also seen what happens in the ‘efficient’ VA hospitals, to nurses and physicians, and it is ugly. Private systems actually do care about the patient (read, customer).

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