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Thoughts on the Sunshine Act, ophthalmologist compensation and their effect on patients, physicians, industry and society
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In this commentary, I will try to shine a little light on the federal Sunshine Act and the whole area of ophthalmologist compensation, including practice, consulting, teaching and royalty revenue. I may ramble a little, but this is an important area and deserves some thought, constructive debate and discussion.
I have always been and remain a strong advocate of transparency; I would therefore like to disclose that I have been involved in ophthalmology for 42 years. I practice ophthalmology and am paid fees to do so. This includes more than a decade working in full-time academic practice and more than 25 years in private practice. During this time, I have also generated income consulting for industry, invested in and owned equity in companies, received royalties for licensed patents, and been paid honoraria for teaching my colleagues. I serve and have served as a board director for public companies, private companies and not-for-profit entities and been compensated in cash and/or equity for this work. I have also done some medicolegal consulting, primarily in defense of ophthalmologists. So, I have pretty good insight into this whole area and will share some personal thoughts.
I believe the primary duty of a physician is to care for patients, one at a time and always in their best interest, as per the centuries old covenant of the doctor-patient relationship. But I believe that the duty of a physician also includes identifying the unmet needs of his patients, practices, community and even society as a whole. Only the physician who is in the arena, toiling to prevent disease, treat it and, when untreatable, reduce the suffering of patients, can effectively delineate this critical step in the innovation cycle.
In addition, it is impossible for innovation to translate from the research bench to the bedside without physician involvement at every step from clinical trial through regulatory approval and commercial launch. It is for me a critical duty to openly share knowledge and educate my colleagues in the proper use of new drugs and devices as they become available when I have expertise.
Finally, it is a critical but very neglected duty to serve organized ophthalmology and engage in the political process, as our elected representatives are in general very poorly educated about the needs of our patients and our profession.
Thus, as I was told in my first year of medical school, the practice of medicine is a very demanding mistress, and arguably getting more demanding every year. It is always a little awkward to talk about money, but even the most altruistic physician has bills to pay and needs to make a living. There are several references on physician income, and any interested party can look them up. On physician income, I especially like Medscape, and for the general public, Wikipedia has some useful information.
So, here we go. I am going to take a little license and do a little rounding from several sources, but it will make the following easier to understand. The median income of an individual in the U.S. older than the age of 25 years with a high school education who works 40 hours per week is approximately $32,000 per year. That translates roughly to $16 per hour. A bachelor’s degree raises this to $52,000 ($26 per hour), a master’s degree to $67,000 ($33.50 per hour), a PhD to $76,000 ($38 per hour), and a professional degree such as MD, DDS, OD or JD to $100,000 ($50 per hour). So, despite all the naysaying about the value of education, it still pays in both cash and quality of life to get more education.
A couple of other numbers worth sharing. Our federal congressional representatives in the House and Senate are paid $174,000 per year, and our president is paid $400,000 per year.
Now, on to physicians. “Average” ophthalmologists make about $300,000 per year. Roughly, they see 100 to 120 patient visits a week (4,000 to 5,000 per year) and do about 500 surgical procedures, including laser, every 12 months. Doing this, they generate about $1 million in revenue with on average six to eight employees per doctor and a 70% overhead. Again, for perspective, we ophthalmologists are at the lower end of surgeon compensation, below our orthopedic and neurosurgeon colleagues who average closer to $450,000 per year, but well ahead of our primary care pediatrician, family practice and internist colleagues who average $180,000 per year.
As I have stated before, the ophthalmologist who is unhappy with his or her practice income is not likely to find much sympathy from the general public, primary care colleagues or elected representatives. In addition, our incomes have been growing at a faster rate than most of our colleagues’, about 6% last year. Thus, the ophthalmologist’s average take-home income pay is approximately $150 per hour. But more important, the average revenue generated per hour of work for an ophthalmologist is approximately $500 per hour. Thus, it comes as no surprise that the “market value” of consulting has settled in at an average of $500 per hour, with a range of $250 to $750. I am aware of some ophthalmologists who charge more than this for medicolegal consulting, but this is what one can expect to earn consulting for industry in the U.S. today.
Of course, there is a little more to the story. The typical ophthalmologist in demand as a consultant is likely doing far more surgery than 500 surgical procedures per year and may be generating much more revenue per hour than the averages noted above. In addition, to help put it in perspective, I will describe my typical half-day of consulting, for which I am usually paid $2,500.
On the day before a consultancy is scheduled, I reduce or cancel my clinic/surgery schedule. Travel time is not compensated, and only discount coach airfare is reimbursed. I usually arrive by 5 p.m. the day before the medical advisory board meeting. I typically spend the evening in a business dinner, for which I am not compensated. I then sleep restlessly and alone in an unfamiliar hotel before starting early the next day with a 1-hour uncompensated breakfast followed by a 4-hour intense medical advisory board meeting and a 1-hour uncompensated lunch. I then rush to take a taxi to the airport and endure another long uncompensated flight home. So, I am typically out of the clinic/OR at least 1 half-day and in some cases 2 days for $2,500 in compensation.
The fact is, for the busy surgeon who is primarily economically driven, these compensation numbers simply do not work. So why do I (we) do it? I (we) do it because we consider it part of our duty as a physician, because it is intellectually stimulating, and because we learn a lot that helps our patients and practices from the extremely bright and talented company scientists and colleagues with whom we share the experience. Over time, we gain satisfaction seeing new drugs and devices come to market, resolving unmet needs and helping patients. Finally, we make friends and have some fun with special people through the shared experiences.
What about teaching? Many of the same ophthalmologists in demand to consult are also in demand to teach, and many spend countless hours doing so with minimal compensation. Still, what might be an appropriate compensation for medical teaching if there were a willing payer? After all, there are many paid teachers in the world at every level of education. The general guideline that is used in public education is that a single lecture/class requires 4 hours of preparation time. Thus, to give a high-quality 1-hour lecture, the time commitment in preparation and participation is 5 hours. Using the $500 per hour rule would result in a $2,500 honorarium per lecture. This level of compensation is, in my experience, extremely rare.
It seems in the modern world that no one wants to pay for education, and the typical honorarium for taking a day or two off to give one to four lectures is often $0 to perhaps $1,000 at most. Teaching is a very undercompensated area, but fortunately most who teach in ophthalmology do not do so for the money. They do it for the personal satisfaction and joy of it, giving back as they were given to for the benefit of patients, their colleagues and their beloved profession. So, the practice of ophthalmology is much more lucrative than consulting with industry or teaching one’s colleagues, and that is true even before considering the negative impact of travel on family and home life.
Potentially more lucrative is to own patents on commercialized products and/or to found companies, but along with the potential benefits come significant risks. Successes are rare for the entrepreneurial doctor, as only 8% of product ideas that advance far enough to initiate an FDA clinical trial ever commercialize, and many ideas never even advance to the clinical trial stage. The investment in time and money to bring a medical device to market is approaching $50 million to $150 million and 10-plus years, and for a drug, much more. Even well-capitalized multinational companies are finding the barriers to bring a truly new innovation to the bedside daunting.
So, what can be learned from the first official reports of the federal Sunshine Act? The database is public, but admittedly incomplete with some data still being tabulated.
Industry has been reporting payments as small as $10 made to physicians or teaching hospitals since Aug. 1, 2013. There are just more than 800,000 physicians in America, and according to the database, 506,000 received something of value from industry, or about 63%.
In ophthalmology, using a nice summary provided by David Harmon in the Dec. 17, 2014, Market Scope, 9,851 of the estimated slightly more than 18,000 ophthalmologists, or 60%, received some payment. Ophthalmology is not an outlier in regard to the number of physicians receiving payments from industry. The median payment per doctor was $112.15, so most ophthalmologists are not receiving much cash from industry.
I proposed earlier in this commentary that the average ophthalmologist can generate about $500 per hour in practice. Since there are 2,080 hours in a work year, 1 hour represents 0.05% of an ophthalmologist’s work. Fully 88% of ophthalmologists paid received compensation less than or equal to $500, equivalent to 1 hour of work in their practice. It is pretty hard for me to imagine this amount of money being relevant or influencing the behavior of any ophthalmologist.
So, what might represent a meaningful level of compensation capable of influencing practice patterns? In truth, no one knows, and the number would be different for each doctor.
Here is a possible guideline. In the conflict of interest disclosures required when serving on a public company board of directors, $120,000 or more in compensation from the company, earned for example serving as a chief medical officer or consulting on a medical advisory board, means you cannot be designated as an “independent director.” The Securities and Exchange Commission thus considers that payments of more than $120,000 might influence a board member’s “independent judgment” when protecting the best interest of shareholders. There were only nine ophthalmologists out of 18,000, or 0.05% who received payments of more than $100,000 from industry, according to this first Sunshine Act report, a payment level that another more mature federal agency considers material.
Most of the industry payments to ophthalmologists were for food and beverage associated with educational events. In dollars, 42% was paid for consulting and 7.1% for teaching honoraria. Royalty and license payments were rare and amounted to only $964,046.20 in total for a handful of doctors. In the modern day and age, it is the rare ophthalmologist who generates significant revenue from royalties.
Which companies are most active in compensating ophthalmologists, and which products generate the greatest payments? As one might expect, our market leader, Alcon, invested the heaviest and was roughly twice its closest competitor. Because the majority of payments are made to support education, research and development, I personally consider this a positive and congratulate Alcon for its investment in our profession. The top five in order of investment were Alcon, Allergan, Valeant, Regeneron and Genentech.
For another perspective, Alcon and Allergan together generate annual U.S. revenues of just more than $17 billion and invest more than $2 billion in R&D. Together, they reported making payments to doctors of only $7 million in total, arguably a pretty miniscule amount considering the size of their footprint in ophthalmology.
Payments related to retina led the spending with 35% of the dollars spent, which is no surprise with the recent launch of many blockbuster products in this field. Second was glaucoma at 25%, third was cataract at 15% and fourth was dry eye disease at 10%. All other products comprised the rest.
In closing, I have a few general observations.
First, the amount of money being paid to ophthalmologists by industry is very small in the grand scheme of things. As we pass $2.2 trillion in total health care spending in the U.S. with more than $60 billion directed to eye care, about $10.9 million paid to 9,851 ophthalmologists seems pretty insignificant, especially when the median payment was only about $100.
Second, the number of ophthalmologists who generated more than $100,000 working with industry was only nine, whereas the average ophthalmologist generated $1 million in revenues practicing ophthalmology. It is clear to me that unless one has a passion for innovation or teaching, it is much better financially to stay home and see patients.
Third, despite the perception of many, it is extremely rare for an ophthalmologist to generate a significant amount of money through consulting or even royalty and license fees, with only two of 18,000 ophthalmologists earning more than $250,000.
For me, patient interest has been minimal, as it has been with the Minnesota Sunshine Act, which has existed for 5 years. Those few patients who mention the findings are generally positively impressed that their doctor has invented something or is talented enough to be in demand as an industry consultant. Colleagues are, of course, interested, but many are surprised to learn how little most of us who invest time and money in innovation, consulting and teaching are compensated.
The costs to comply with the ever-increasing regulations that surround industry-physician collaboration, including generating this data under the federal Sunshine Act, are enormous, far exceeding the payments made to the physicians. It is also possible, if not probable, that physician participation in educational events, teaching, consulting and even innovation itself will diminish secondary to fear of public disclosure and the potential negative consequences associated with loss of privacy.
We are definitely entering a new era of transparency for physicians. In this past year, we experienced detailed disclosure of our individual and total profession Medicare compensation and now the Sunshine Act detailing industry payments to physicians down to $10. Coming next, our “comparative” ratings with large private insurers for quality of care and cost-effectiveness will be available to all despite obvious flawed methodology.
As transparency increases, we can only hope that the information that is disclosed will be accurate and accurately portrayed and interpreted. Both seem highly unlikely based on the press we have received to date on Medicare reimbursement and industry payments to physicians.
We doctors and the professional organizations that represent us will need to be vigilant and proactive in protecting physicians and industry from biased and inappropriate criticism. If not, I fear the law of unintended consequences will again rear its ugly head to stifle medical innovation and education, much to the detriment of patients, physicians, industry and society.