Hello again! We hope you found part one of our three-part series on compensation informative, in which we discussed how compensation is determined. In this, part two, we will examine how compensation is affected by supply vs. demand – the two most important variables being: geographic location and number of physicians available.
Geographic Location
While compensation is fairly predictable in large towns and metropolitan areas (populations over 50,000), physicians are finding that compensation may be considerably higher in rural areas. The following salaries were recently offered for positions in rural areas due to the extreme need for physicians in these specialties. The chart below demonstrates this variance:
| Specialty | Avg. Comp.: Metro Area | Possible Comp.: Rural Area |
| Internal Medicine | $90,000-110,000 | $150,000-200,000 |
| Orthopedic Surgery | $250,000 | $600,000-700,000 |
| General Surgery | $200,000 | $350,000-400,000 |
| Interventional Cardiology | $250,000-300,000 | $750,000-1,000,000 |
Even in family practice, where the total number of practicing physicians is abundant, there is still a low number of physicians who are willing to take a position in a small town or rural area. Approximately, only 7% of physician candidates will even consider working in a town of 50,000 or less. Although compensation tends to be higher, often considerably higher (see chart above), and there is a better payor mix/less managed care in comparison to that of metropolitan areas. To illustrate the seriousness of this problem, two rural counties in Missouri were completely without any physicians in 1999 and 2000! Sadly, this statistic is becoming more prevalent around the country as physician distribution tends to cluster in metropolitan areas.
According to the Office of Social and Economic Data Analysis, the relative lack of physicians in non-metropolitan/rural areas has been attributed to the professional and personal isolation experienced by physicians and their families, the lack of hospitals and medical technologies in the local area. Another factor impacting availability of physicians in less populated areas is increased physician specialization. As physicians become more specialized, they require larger patient population bases to support that specialty.
In a recent article in Unique Opportunities, writer Wendy Meyeroff reported that “schools, theaters, religious institutions, and other amenities (associated with metropolitan areas) are regularly mentioned as lures by both recruiters and those being recruited.” Myeroff’s article goes on to explain that physician’s are reluctant to give up metropolitan conveniences and that spouses’ personal and career needs are especially important in considering a move to a rural location.
Number of Physicians Available
There is little documentation to show that physicians in a specific specialty are in short supply, on the contrary, in a recent JAMA article, it was cited that today, in the U.S., we have a surplus of 200,000 physicians. The number of physicians within a specific specialty are regulated by the American Medical Association based on need. For example, physicians in specialties such as Urology, Gastroenterology, Cardiology (all types), Orthopedic Surgery, and Radiology have adjusted to fill the need created by our growing senior population. Geriatrics is a relatively new kid on the block, and other sub-specialties have been especially created to meet the increasing needs of the elderly.
To ensure that there are a sufficient number of physicians practicing a specific specialty to provide medical care to our nation, the American Medical Association is responsible to set limits on the number of graduate medical residency positions in a given year. The Council on Graduate Medical Education suggests preventive measures, such as limiting the number of graduate medical residency positions to 110% of the national graduating class size and eliminating up to 25% of US medical school programs in the next 5 to 10 years.The question of exactly how 200,000 surplus MDs will be employed remains to be determined.
So, while there are a sufficient number of physicians practicing within a given specialty, certain geographic areas are still in need of appropriate physician coverage. According to the Office of Social and Economic Data Analysis, in 1999 there were an average of 22.9 physicians per a population of 10,000. In comparison, the average number of physicians for rural areas is 11.2 per 10,000.
Rural, small-town, and less desirable communities are motivated to offer higher compensation packages to attract physicians to their area. Hospitals are playing a role in placing physicians in these areas. Hospitals are businesses, and they must look at physician placement strategically. For example, a hospital wants to reach out and potentially admit patients from a fringe community on their draw area, so they will place a physician even though few physicians may want to practice there. If a hospital cannot provide the right kind of physician services to their geographic area, they will lose patients to a competing entity. Therefore, hospitals may be willing to pay more, to accomplish their strategic plan.
Other Considerations
In addition to geographical misdistribution of physicians throughout the country, physicians are also choosing to retire early, or leave medicine altogether, due to their dissatisfaction with managed care. In a recently published article in AMNews, author Jay Greene looked at the somewhat sudden exodus of physicians from the Sacramento area. According to Jay Greene, “Loss of autonomy, low reimbursement, and high competition are causing more doctors to quit or move away from markets which are heavily dominated by managed care.”
From 1995 to 2000, 154 physicians retired in Sacramento and 116 moved out of the area, many because they didn’t like how managed care has changed the practice of medicine, said William Sandberg, executive director of the Sierra Sacramento Valley Medical Society. Sacramento is one of the nation’s top five HMO markets with a 70% market share in 1999.
Health Services Research published a study in 2000 that found doctors are more likely to retire early if they practice in markets dominated by HMOs. The study found that for generalist physicians, the likelihood is 13% greater that they will retire by age 55 if they practice in markets where HMO penetration is greater than 45%. For specialists, the chances of retirement were 17% greater than in markets with 5% or lower managed care penetration.
While many physicians who are dissatisfied with managed care choose early retirement, or choose to leave the field of medicine altogether, it is important to understand that the effect on the overall numbers of physicians available is expected to be tremendous. Large numbers of physicians retiring early or cutting back practices to build businesses directly effect the supply. Certainly, recruiters are watching these changes very closely in order to anticipate the needs of their clients.
Conclusion
Physicians should understand that when looking at an opportunity, the supply and demand factors will directly affect their compensation.
Obviously, when too many physicians saturate a given geographic area, this is sure to reduce one’s negotiating power. Positions in ideal locations tend to attract physicians from all specialties. Despite the fact that a physician may be a perfect match for a position in an urban practice, compensation may be reduced due to the sheer number of candidates available.
To summarize, current compensation trends show a significant increase in salaries offered to physicians in rural areas. Rural areas are greatly in need of physicians with various specialties, and have lower managed care/better payor mix. The AMA has reported that there are enough physicians now in the US to serve the population. Because physicians are so poorly distributed throughout the country, rural areas and small towns are likely offering much higher salaries to attract and retain physicians.
Compensation Review, Part 1 of 3
Compensation Review, Part 3 of 3 (Tips for Negotiating Salary)
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Heath Ponder is a recruiter for Pinnacle Health Group.
1 Office of Social and Economic Data Analysis, March 2002
2 Office of Social and Economic Data Analysis, March 2002
3 Ups and Downs of Physician Compensation, by Wendy Meyeroff, Unique Opportunities, May/June 2002
4 Weiner JP. Forecasting the effects of health reform on US physician workforce requirements. JAMA. 1994;272:222-230
5 Council on Graduate Medical Education. Improving Access to Health Care Through Physician Workforce Reform: Directions for the 21st Century: Third Report to Congress and the Health and Human Services Secretary. Rockville, MD: Health Resources and Service Administration; 1992
6 Weiner JP. Forecasting the effects of health reform on US physician workforce requirements. JAMA. 1994;272:222-230
7 Office of Social and Economic Data Analysis, March 2002
8 American Medical Association, AMNews, by Jay Green, April 23/30, 2001
9 American Medical Association, AMNews, by Jay Green, April 23/30, 2001
10 American Medical Association, AMNews, by Jay Green, April 23/30, 2001