How Physicians Actually Make Money These Days

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Primary-care physicians, the first line of defense in our battered health-care system, get notoriously small reimbursements from insurers, a problem that has gotten worse in recent years. For many, the solution has been to join a group practice under the umbrella of one of the city’s academic medical centers, where the doctors get better reimbursement rates from health insurers, thanks to the leverage of the hospitals, and the hospitals ensure a steady supply of primary-care patients, who can be funneled to their own well-reimbursed specialists for big-ticket procedures like cardiac stents and hip replacements. 

How hard is it to stay in business as a private-practice primary-care doc? “We’re dropping like flies,” says Eric Kenworthy, a 63-year-old internist, who for the past 24 years has been a solo practitioner in Brooklyn’s Cobble Hill area. The “safety in numbers” approach didn’t suit Kenworthy’s temperament. “I didn’t want to be in one of those group practices where you have to have a meeting every time you want to change the colors of the drapes,” he says. Instead, to stay afloat, he’s had to get creative. Here, he walks through his expenses and revenues. “It’s a wonderful profession,” he says. “It’s just a horrible business.”

HERE’S WHAT ONE DOCTOR MAKES 

His Office’s Best Year: 2000

Income From Basic Doctor Visits

Income From Diagnostic Tests

Number of patients: 4,500
Basic visits: $260,000
In-office procedures: $390,000
Total revenue: $650,000
Net income: $300,000

Kenworthy set up shop in 1991. By 2000, his practice had grown to about 4,500 patients. All those visits translated to roughly $650,000 in revenue from insurance reimbursements — both private HMOs and Medicare — including for diagnostic tests. Office overhead ate up about half of that, leaving an income of $300,000 to support his wife and three kids.

Back in 2000, billing patients for doing tests using in-office equipment, like an ECG or a sonogram machine, amounted to about 60 percent of his income, making it the highest-grossing part of the business.

His Worst Year: 2009

Income From Basic Doctor Visits

Income From Diagnostic Tests

Number of patients: 4,000
Basic visits: $210,000
In-office procedures: $90,000
Total revenue: $300,000
Net income: $150,000

According to Kenworthy, since around 2000, HMOs have been aggressively cutting back what they pay primary-care doctors. By 2009, Kenworthy’s net annual income had shrunk by half, and he sometimes had to work ten hours a day to see enough patients just to make that. Medicare continues to pay internists for diagnostic tests, but Kenworthy says private HMOs have dramatically cut what they’ll pay for testing.

By 2009, diagnostic tests were just 30 percent of his income. Of course, doctors’ overtesting to generate revenue was what fueled the HMO cost-cutting movement in the first place. But Kenworthy argues that the testing he does is medically justified, and that if low or nonexistent reimbursements deter him from testing, most patients will simply get them done by specialists, which ultimately costs the system more. 

After Going Concierge: 2014

Income From Basic Doctor Visits

Income From Diagnostic Tests

Income From Concierge Patients

Number of patients: 940
Concierge fees: $245,000
In-office procedures: $145,000
Total revenue: $390,000
Net income: $190,000

In 2010, Kenworthy switched to what he calls a “hybrid concierge” model. He now charges patients between the ages of 36 and 64 an annual concierge fee priced on a sliding scale starting at $1,000. In return, he’s at their service 24 hours a day, house calls included, an availability he tries to extend to his non-concierge patients as well. (Younger patients don’t get sick enough to justify the money; older ones have Medicare.) Even though Kenworthy’s practice skews upper-middle class, most of his middle-age patients bolted. But enough stayed and paid­ — he’s got about 235 concierge patients, which represents about one-quarter of his practice and about two-thirds of his income — that his net annual income has inched back up. A more palpable difference: His waiting room is no longer overflowing, and the average length of time he spends with a patient has increased from roughly 15 minutes (the national average) to 30.

AND HERE’S WHAT HE SHELLS OUT.


Kenworthy’s expenses haven’t gone up dramatically since the good years in the late ’90s and early 2000s, roughly hewing to the rate of inflation. The biggest change: He’s in the office only about 60 percent of the workday. The rest of the time he does phone consultations and house calls, so he goes through fewer supplies, has reduced his staff, and pays less for malpractice insurance.

Payroll: $100,000
Kenworthy has four part-time employees, who work the front desk and as medical assistants. Salaries range from $12 to $18 an hour. Pre-concierge, he was tied to the office all day and had six employees, costing him about $120,000 a year.

Rent: $40,000
He was lucky to find spacious digs on the corner of Clinton and Degraw in 2000. The rent has gone up by about 15 percent since then.

Malpractice insurance: $15,000
He was paying $25,000 in 2009, but now his reduced office hours qualify him as a part-time practitioner.

Office supplies: $22,000
Syringes, latex gloves, bandages, suture material, hydrogen peroxide, paper towels, toilet paper. Vaccines kept in-house cost about $800 a month to maintain, down from about $1,200 in 2009.

Diagnostic equipment: $12,000
The ECG machine is a relative bargain, $3,000 to buy; the sonogram is expensive, a $20,000 hit when Kenworthy bought a new one in 2008. He has to buy new breathing tubes for the pulmonary-function machine after every use, $2 each, which adds up to about $2,000 a year. The ECG tabs, used to attach the leads to the patient’s chest, also have to be replaced after every use, adding another $3,000 a year.

Billing service: $7,200
Kenworthy outsources his paperwork to a service that drops by the office once a week to collect.

Professional services: $12,000
He pays a cardiologist to interpret the echocardiogram and a sonogram technician who comes to the office twice a week to perform the tests. In 2000, he spent about $40,000 on these services.

Computers: $1,000
He’s resisted buying into the electronic-medical-records system, so his computing needs are modest.

Phones + utilities: $7,000

Coffee: $2,400
He invested in a Keurig coffee machine, $130, to give his now-less-frantic waiting room a more luxurious atmosphere. Monthly supplies run to about $200.

Marketing: $0
Before he embarked on the concierge experiment, a patient of his who worked on Wall Street gave him a printout of the families in the area who made over $250,000. Kenworthy mailed them a thoughtfully worded pitch and got zero response, which signaled the end of his direct-marketing efforts. He gets generally good Yelp reviews, but he turned down an offer from an online-reputation company. “They said, ‘For $2,000 a month, we can get rid of that bad review that said you were mean to his mother,’ and I said, ‘No, thanks.’ 

Bicycle: $0
He uses his wife’s old Cannondale hybrid to make house calls.

HOW DOCTORS GET PAID


Doctors are paid based on how long they spend with a patient, how complicated the health problems are — which insurers classify by levels — and what they actually do, including diagnostic tests administered with their own equipment.

Level 1: 10 minutes

Blood-pressure check: The most basic visits, like blood-pressure or blood-sugar checks, take only a few minutes. Insurers classify these as Level 1 visits. Kenworthy might bill for $30 or $40 and expect to get back $20, figures that haven’t changed much over the past 15 years.

*****

Level 2: 15 minutes

Cold: For a cold, the most common Level 2 visit, he bills from $60 to $75 and expects to get about $35, down from about $40 in 2000. Other Level 2’s include rashes and nonroutine blood-pressure and blood checks.

*****

Level 3: 30 minutes plus

Physical checkup: About 95 percent of his concierge patients (see above) come in for an annual checkup. Kenworthy used to bill between $400 and $500 for a full physical — a Level 4 visit — and collect about half that, but now that insurers have switched to electronic medical records, Level 4’s require extensive documentation. To avoid the hassle, he bills physicals at Level 3, checking a few boxes on a single-page billing sheet for each patient. “I’m still pen on paper, and my notes suck,” he says. “But I spend time with people, and I know what’s wrong with them.” He’ll bill at $100 for a standard Level 3 and expect to get back $60, down from about $75 in 2000.

Knee pain: A knee exam can distinguish a serious  injury from a sore knee in need of Advil and rest. But many primary-care docs don’t have the time or expertise to screen for these cases, so patients flock to orthopedists, who may recommend expensive testing and surgical procedures. 

Multiple chronic problems: Kenworthy still sees very sick patients who require testing. He just doesn’t expect to get paid much, especially by HMOs. An asthmatic patient he saw in 2009 came in with chest pain. He spent an hour with him, giving him an ECG and a pulmonary-function test. He billed $525 and received $23.69.

Foreign-travel vaccines: Most vaccines he gives are for foreign travel. Sometimes the insurer will reimburse him at less than the cost of the injection. A vaccine may cost him $50 to $60, and the insurer will pay him $35. Some HMOs forbid him from billing the patient for the balance, in which case “you send the patient somewhere else or you take the loss.” 

*This article appears in the June 8, 2015 issue of New York Magazine.