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.