Fee-for-service vs. salaried positions: Coming decade will see transition for orthopedic surgeons

by Douglas W. Jackson, MD

For most of my career in orthopedics, more than 90% of orthopedic surgeons were or have been in private practice and/or had some fee-for-service incentives built into their contracts. I have recently become aware of a movement toward more salaried positions being considered by higher-paid surgical specialists. Primary care physicians started this movement, and prior to 2005 few orthopedic surgeons were interested in this transition.

A recent American Medical Association (AMA) survey projected that 60% of physicians would be salaried employees by next year. This high percentage is skewed by primary care, but as I speak with colleagues it is becoming apparent more orthopedic surgeons are accepting salaried positions or will be seeking them. This desire to change from private practice has been noticed by physician recruiting firms, which in some areas are offering as many salaried positions as private practice.

My brother-in-law and I entered practice in the 1970s. He took a salaried position partly because he felt fee-for-service (FFS) medicine might only last another 10 years. Neither of us regretted our disparate decisions, both had satisfying careers and talked frequently about it over the years. I have always been in private practice and it was not until the early 1990s that I noticed changes taking place that may eventually impact the independence I have in FFS medicine and enjoy so much. This was a foreshadowing of some of the emerging health care delivery systems to come.

During that time, Paul Ellwood Jr., MD, whom some consider to be the father of modern managed care, was a panelist for a symposium at an American Academy of Orthopaedic Surgeons (AAOS) meeting. He coined the term HMO for the Nixon administration as a way to describe “an organization that would compete on the bases of price and quality and that would combine insurance and health care in a single organization.” He had been talking, writing and assisting in implementing the capitation concept for HMOs for some time.

Incentives and rewards

During the panel discussion, I said that I would never work as an orthopedic surgeon in a system in which my remuneration for subspecialty care was based on services I did not deliver. Ellwood told me I had better start looking for some other type of work. That day reinforced my feelings and I never signed a capitated HMO contract. While I understood his criticisms that FFS incentives rewarded the physician for doing more, I preferred it to what I understood at that time to be the other extreme of profiting from what I did not provide.

Douglas W. Jackson

On December 8, 1995, as part of an AAOS workgroup, we presented a report to the board of directors on the “Changing Delivery Systems for Musculoskeletal Care.” We stated, “Orthopedic surgeons will be confronted with discounted fees and general loss of autonomy; less control over patient care decisions; and experience reduced incomes and increased administrative hassles.” There were skeptics in that room that day who did not feel the changes we outlined would occur nor be as deep as we were suggesting.

Since then we have seen a continued downturn in physician reimbursement methodologies by insurers following Medicare’s lead. Embedded within the new health care reform legislation is the potential to standardize a more universal payment system. Future involvement by politicians and the government is a large variable that needs to be considered when planning a future in the FFS model. The method of reimbursement is a powerful tool in providing incentives; however, government incentives can have consequences that take time for the public to see and understand.

Cost cutting and health care reform

The health care reform supporters concluded that one-third of medical costs do not benefit patients and are not based on scientific outcomes studies. Contemporaneously, some policy makers had the perception that a number of health care providers were placing “profits before patient care.” They felt more regulation of physician and other providers’ behavior by government agencies and officials would be necessary to control the costs of medical care, especially through limiting the profit incentive to perform tests, procedures, and treatments. Some feel the best way to do this is by placing physicians on salaries or on a flat-fee scale for the total care of populations of patients.

Many of these systematic changes, if they occur, will take longer than some predict. However, as health care reform has passed, in 2014 a new federal agency is scheduled to standardize insurance benefits while implementing more mandates for services. As is occurring currently in Massachusetts, insurers will most likely be blocked from raising premiums. As the insurers try to control costs and maintain profits, they may attempt to exert more control over doctors — by buying doctor practices and /or forming restrictive physician networks. Hospitals will also want to control physician costs and are currently employing the same methods. This will result in lower fees for practitioners and pressure to reduce their use of costly services, testing and imaging.

What should a physician earn?

I have found that many orthopedic surgeons earn more than 50% of their take home pay through ancillary services. This profit stream is being targeted by the government, insurance companies and hospitals. Personally, like many of you I have taken continued reductions in my take home practice income. Today, I earn less than 50% of what I did in 1993 for what I estimate to be the same work effort. This is primarily due to decreased reimbursement and upward-creeping overhead.

Physicians think they should earn more than the public, insurance executives and politicians believe they should earn. I have discussed this — What should a physician earn? — with the staffs of congressional leaders involved in the reform effort, some politicians and patients. I was surprised by the consistency of the responses.

The following are some generalizations I have unscientifically gathered from those talks:

• Primary care physicians should make $100,000 to $150,000 per year and an orthopedic surgeon $150,000 to $250,000 per year;
• Because of extra training, hours worked and professional liability in becoming and being a physician, they feel a physician should make 20% to 30% more than a lawyer, architect, college professor, etc.; and
• Some felt society helps physicians financially more than other professions by subsidizing medical schools and paying a living wage after medical school during specialization.

The trend to make more orthopedists want to become employees will accelerate with further price controls, new mandates and decreasing reimbursements. By continuing to ratchet reimbursement down while overhead costs increase, more physicians will seek alternatives to their current office practice models.

When I first started private practice, my overhead was less than 40%. I felt it would not be worth the responsibilities, hassle factors, increased regulation and liability exposure as a FFS caregiver if my overhead exceeded 70% of reimbursements. We are nearing that point. According to the Medical Group Management Association (MGMA) in 2007, the current average overhead of a medical group was 60%.

Generational differences

We are seeing the characteristics of the “typical orthopedic surgeon” change. There is greater diversity in ethnicity and gender in our profession than ever before, which is good for us as a profession and for our patients. However, we are currently seeing greater diversity in our professional incentives and motivations. There are “generational gaps” in the willingness to accept salaried positions and the loss of autonomy.

I have been interviewing residents coming out of training for more than 30 years and the most recent physicians entering our profession have different motivations: Security, guaranteed income and lifestyle seem to be more important to them. Their preference is to not work extremely long hours, take risks with their incomes or have the demands and complexities of running a small business. This differs from the current mid-generation orthopedist with 10 to 20 years in practice, who is currently busy trying to maintain his or her financial objectives and deal with the complexities of practice and personal life. The older generation surgeons, with 25 to 35 years or more in practice, are pessimistic that these pending changes can be influenced and are just holding on until they meet their frustration and exasperation levels and then will retire from active practice.

What lies ahead?

We will most likely not see any rapid or unexpected changes in the second half of 2010. However, as a result of the slow recovery from the recession and implementation of the health care reform legislation, the next decade appears to be a real challenge to business-as-usual for the FFS model. Physicians, as a rule, are not and many do not want to be businessmen and women. The future will tell how many will find it easier to become employees. However, remember that when the majority of physicians are salaried, the need to pay the current higher wages to attract physicians to these positions will be gone. There will be less bargaining power for starting salaries.

• Douglas W. Jackson, MD, is Chief Medical Editor of Orthopedics Today. He can be reached at Orthopedics Today, 6900 Grove Road, Thorofare, NJ 08086; e-mail: OT@slackinc.com.