MD pay continues to slip, but MCO income heads up

Premiums on upswing again

The median income for the nation’s doctors declined for the fourth consecutive year in 1997, according to a report from the American Medical Association.

The median physician income in 1997 was $164,000, meaning half the physicians surveyed earned more than that and half earned less. The median income the year before was $166,000, the AMA said.

After adjusting for inflation, median net physician income has fallen 1.4% every year since 1993, says the medical association.

According to another AMA survey, physicians are also working less — a median of 48 hours a week in 1998, down from 56 in 1997.

Joel Shalowitz, MD, director of the health services management program at Northwestern University’s business school, credits managed care for most of the fall in physician income.

"For example, the allowable reimbursement for cataract surgery went from $1,500 to $1,600 down to $900 over the past decade,’’ says Shalowitz.

Salaries at teaching hospitals are also dropping, points out James Foody, MD, of the Uni versity of Chicago School of Medicine. "We haven’t increased starting salaries in internal medicine for the last four years,’’ he says.

The recent rise in managed care premium rates should continue at least through the rest of the year, analysts say. If so, this up-turn should provide more room for providers to negotiate a corresponding bump in their pay schedules.

"I think things are very much turning around,’’ says David Olson, vice president of investor relations for Woodland Hills, CA-based Foundation Health Systems. "I think that we are seeing pricing improving significantly. At the same time, that is a reflection of the fact that costs are going up, and I expect costs will continue to go up, largely as a consequence of pharmacy costs.’’

Many employers appear "more accepting of the underlying cost trends and the factors driving the price increases that they’re agreeing to, and that would be chiefly drug costs,’’ says David Erickson, director of investor relations for PacifiCare Health Systems in Santa Ana, CA.

Indeed, pay increases granted by the giant California Public Employees’ Retirement System (CalPERS) to its managed care providers last May served to set the tone for other employer groups, note industry insiders.

CalPERS is the nation’s second-largest public purchaser of employee health benefits behind the federal government. It buys health coverage for more than 1 million California public employees, retirees, and their families, paying some $1.7 billion in annual premiums.

Under its announced schedule, the 10 HMOs that service CalPERS will received an average 9.7% rate hike in the Year 2000. CalPERS officials say they expect the HMOs to pass along much of this increase to their physician groups.

This year’s negotiations also produced several multiyear contracts ensuring HMOs a stable premium stream in exchange for inserting two new patients’ rights provisions into their agreements.

Two of the most sought-after items on almost everyone’s proposed HMO "Bill of Rights" — independent, third-party review and assurance that legitimate emergency room fees will be covered — will now be available in all CalPERS plans.

Each CalPERS plan will have to offer a neutral, independent, third-party review whenever health care services are denied because the HMO felt the services were not medically appropriate. In addition, all HMOs will also be required to adopt the "prudent layperson" rule for emergency room coverage. This rule authorizes emergency room treatment for conditions that any prudent layperson would believe to be reasonable.

The individual premium rate increases for the year 2000 approved by CalPERS include: Maxicare — 3.9%; Cigna — 5.6%; PacifiCare — 6%; Aetna US Healthcare — 6.5%; Blue Shield HMO — 8.5%; Health Net — 9.9%; Health Plan of the Redwoods — 10.5%; Lifeguard — 10.9%; Kaiser — 11.7%.

While analysts are optimistic about this year, prospects beyond 1999 are hazier. Due to a robust economy, managed care companies can expect a steady stream of improved profits from a round of premium hikes throughout the rest of this year, predicts Patrick Finnegan, senior vice president at Moody’s Investors Service, New York. Beyond an 18-month horizon, however, Finnegan is uncertain whether employers will continue to accept a repeat of recent rate increases.

Notes Michael Barry, a director at the New York credit rating agency Fitch IBCA, "The rate increases that managed care companies are getting appear to be more than enough to offset medical cost inflation. Add in the efficiencies achieved from the continuing consolidation trend, and I have a positive outlook for the remainder of this year.’’

"We think the improvement in performance is largely a function of increased premium rates and a little less to do with cost containment,’’ says Arun N. Kumar of Standard & Poor’s in New York City.