Compensation Levels Hold Steady, but Future Uncertain

When it comes to compensation, psychiatrists have not had a lot to celebrate over the last few years. Managed care and discounted rates have held down revenues, as have Medicare reimbursements cuts. Meanwhile, fixed costs have continued to rise, and the prospect of ever-higher premiums for malpractice insurance has sent shudders through the entire physician community.

But things could be worse. In February, the U.S. Congress voted to replace a 4.4% cut in Medicare reimbursements that had been scheduled to take place on March 1 with a 1.6% increase. The rate change resulted from a move to correct the faulty estimations that had served as the basis for calculating Medicare rate cuts.

And compared to other physicians, psychiatrists enjoy a higher level of flexibility that could serve them well in weathering financially trying times, primarily through lower overhead costs.

However, while there has not been a lot of attention paid to compensation for psychiatrists, especially compared to surveys of overall physicians' compensation, enough data exist to create a picture of where most psychiatrists stand today.

The MGMA Survey

The Medical Group Management Association's (MGMA) latest physician compensation survey found a slight increase in compensation in 2001, the last year for which data were available, but those increases came at a price--longer work and more cost-cutting.

The 2002 "Physician Compensation and Production Survey" noted that its findings did not reflect the 5.4% cut to Medicare payments that took effect on Jan. 1, 2002.

When the findings were disclosed, MGMA's president and CEO, William F. Jessee, M.D., said in a press release that the Medicare cuts, coupled with industry-wide increases in medical liability premiums, would lead to a far different compensation picture for 2002. Those data are being analyzed now and will be issued in MGMA's survey later this year.

According to the MGMA, psychiatrists in 2001 earned a median salary of $154,239.

With the exception of capitation effects, there appears to be little variance in compensation levels received by psychiatrists in different practice settings and with different levels of experience, David N. Gans, director of practice management resources at MGMA, told Psychiatric Times. That does not occur in many other specialties. Often, economies of scale allow physicians in large practice settings to achieve higher compensation.

But psychiatrists traditionally do not have a lot of ancillary services or specialized equipment, Gans reminded PT. Consequently, more similarity than dissimilarity exists in compensation levels between behavioral medicine single-specialty practices and multi-specialty groups. And that gives psychiatrists more flexibility in choosing how to practice.

The ratio of collections to compensation is very high for psychiatry, a reflection of lower overhead, Gans said. "You don't have the equipment costs and some of the facility costs that other specialties will incur."

Because psychiatry is a cognitive specialty, limited by the number of patients any one doctor can see on a given day, compensation levels show a great deal of consistency, he explained to PT. The difference between the median compensation and the 90th percentile is less than $60,000. And starting salaries, which look at the first two years in practice, are nearly at the same level as salaries for established psychiatrists (Table 1).

Gross charges are a good measure for determining relative workload compared to compensation since they do not reflect discounted rates, Gans explained. In both single-specialty and multi-specialty practices, psychiatrists have basically the same amount of charge. But as capitation increases, workload increases in order to make up for declining collections.

Those declines are not only the result of capitation, however. Heavily capitated markets have a higher level of competition, and even non-capitated patients will have major discounts, according to Gans. In a city where 50% of patients are covered under capitated plans, a large portion of the remaining 50% of patients receive discounted care through Medicare, Medicaid and fee-for-service managed care.

In the past five years, compensation to psychiatrists has increased 13.3%, Gans said. However, on a per year basis, the increase is just over 2.6%, which has failed to keep pace with the cost of living (Table 2).

Other Compensation Findings

The American Medical Group Association, whose members generally belong to larger group practices than those who join the MGMA, listed the following median salaries for 2001:

• Psychiatrists $158,275

• Child psychiatrists $172,017

• Psychologists $80,406

According to a 2000 survey conducted by the publication Psychotherapy Finances, psychiatrists in private practice on average received income from the following sources: Self-pay (46.2%), managed care (23.1%), indemnity insurance (15.3%) and other third parties (9.2%). Other sources accounted for 6.2% of income.

The Psychotherapy Finances survey also found that between 1997 and 2000, psychiatrists reported an income increase of 13.7%. Psychologists, on the other hand, reported a 0.7% decrease over the same period. Social workers saw their income rise 6.2%.

The survey also tracked the percentage of psychiatrists offering particular services:

• Individual therapy 100%

• Group therapy 50%

• Chronic illness 34%

• Substance abuse 34%

• Psychological testing 32%

The survey found little difference in expenses for clinicians in different practice settings. Solo-practice clinicians spent 35.8% of their gross revenue on expenses, while group practices spent 34.7%.

A 2000 survey by the National Council for Community Behavioral Healthcare offers the most recent look at how community mental health care centers are compensating their psychiatrists (Table 3).

Psychiatrists working at community mental health care centers in New England had the lowest median salary, at $106,090. The Middle Atlantic and Mountain states also had median salaries below the overall median, at $115,000 and $113,000, respectively. The Pacific states had the highest median salary at $130,000.

• Liability and Medicare

An MGMA survey conducted earlier this year on medical liability found that group practices experienced an average premium increase of 53.2% between 2002 and 2003. The survey of 700 group practices employing 16,000 physicians, which was released in February, found that 26.1% of practices indicated that their physicians would retire, relocate or restrict their services over the next three years.

Even though the malpractice crisis has focused on the impact to surgeons, it will trickle down to psychiatrists and primary care providers, said Peg Stone, senior vice president at Cejka Consulting, a health care consulting firm.

"One of the things I would predict," Stone told PT, "is that in order to make it more economical for the surgeons to have malpractice [insurance], the cost is going to have to be borne by other physicians and specialties."

If costs rise due to increased malpractice premiums, it is sure to make a dent on psychiatrists' earnings. "They can only have so many appointments per day," she said.

Medicare will also be an ongoing concern.

The recent furor over Medicare rate cuts resulted from a 1997 law that used inaccurate estimates of gross domestic product and fee-for-service enrollment to formulate spending targets. The resulting estimates would have meant rate cuts every year until 2009.

According to the American Medical Association, the Centers for Medicare & Medicaid Services acknowledged the errors but said that the law did not allow the agency to correct the estimates itself. In February, Congress passed a provision that protects the Bush administration from lawsuits if it corrects errors found in the formula.

Physicians will still face a rate cut in 2004, but it will be smaller than initially projected. (As this issue went to press, the preliminary estimate of the 2004 rate cut was pegged at 4.2%. The final update is expected to be announced in November--Ed.)

Trade associations had said that without intervention by Congress, the original schedule of reimbursement cuts would result in a disaster for the Medicare program. The California Medical Association found in November that 78% of responding physicians said they would have to limit or drop their Medicare patients if the original Medicare cuts were to remain in place.

Concerns over reimbursement in California had gotten so bad that more than half of physicians polled by the California Medical Association in 2001 said they had problems attracting new doctors to their practices and that half planned to quit, retire or move out of state within three years.

According to the report "And Then There Were None: The Coming Physician Supply Problem," psychiatry was one of eight specialties that showed a net loss of more than two physicians (2.3) per 100,000 people between 1995 and 2000. The report noted particular concerns over the shortage of child psychiatrists.

• California's Work Force

In February, the California Workforce Initiative released a report called "The Mental Health Workforce: Who's Meeting California's Needs?"

According to the report, California psychiatrists reported an average annual income of about $130,000, a figure it found comparable to other states. About 58% of California psychiatrists practice in private offices, and 53% of patient reimbursement came through private insurance (33%) or self-pay (20%).

About 85% of California psychiatrists in 2000 were generalists without sub-specialty certifications, and about 12% specialized in child and adolescent psychiatry. Three percent specialized in psychoanalysis.

The report found that 75% of California psychiatrists were male; 56% were white; more than half were over age 55; and nearly 88% worked primarily in an office-based setting.

About 21% of the state's psychiatrists practiced in public settings, the report found, and about 36% of payments for psychiatrists came through public insurance programs. Less than 4% of care was uncompensated.

Most of the literature reviewed for the report focused on the pressures of working in community mental health care centers and the effects of managed care on psychiatric practice. The report said that demographic trends will result in psychiatrists working fewer hours as the profession becomes older and more female.

However, it also noted research that found psychiatrists saw 17% more patients in 1998 than they did 10 years earlier. That increase included a 44% increase in the number of patients over age 65.