NCPA - National Center for Policy Analysis

Physicians Boost Services to Counter Declining Income

April 6, 2004

Physicians and medical groups have long sought revenue beyond that gained from providing traditional professional services. For decades they have participated in pharmaceutical trials and invested in specialty care facilities as established means of generating extra income. But these activities have intensified as a result of recent financial pressures on physicians' practices.

According to a national survey of health system changes and their effects on people:

  • Physician income was stable or declining in 11 of 12 markets reported on from 1995 to 1999.
  • Adjusted for cost of living and inflation, real-dollar income for physicians in clinical practice fell nationally by approximately 5 percent from 1995 to 1999.
  • Income increased only slightly in 2000.

Declining physician incomes can be primarily attributed to reimbursement pressures resulting from growth in managed care. At the same time, practice costs, including increases in liability insurance and labor costs, rose for physicians.

In the face of diminishing incomes, physicians could respond by increasing revenue or otherwise attempt to gain market share by competing on price or quality. They tended to increase volume of services rather than competing on efficiency or quality, say researchers. They also attempted to increase prices for services, and retreated from less lucrative services.

Source: Hoangmai H. Pham, Kelly J. Devers, Jessica H. May and Robert Berenson, "Financial Pressures Spur Physician Entrepreneurialism" Health Affairs, Vol. 23, No. 2, March/April 2004; based upon: "Community Tracking Study, Physician Survey 2000-2001," Robert Wood Johnson Foundation, December 19, 2003.

For text


Browse more articles on Health Issues