Inflation In Medicine and What Future Holds For Doctors

Inflation numbers are in, and they were worse than we all thought. Inflation based on consumer price index was 7.5% for the past 12 months as of January 2022. If you follow the consumer price index, CPI, then you can see that inflation has been on a tear lately.

This has potential to be huge implications for practicing physicians. Spoiler alert, things do not look good. However, there might be some silver lining in all of this bad news. I’ll give you my guesses on what the future might hold for doctor with or without inflation.

Inflation To The Moon

2021 CPI

You might be saying to yourself, well this graph above is year over year change, that can get quite skewed if the previous year the change was down significantly then bounced back to normal levels. So, here is 2020 CPI.

Or better yet, here is a year over year percentage change to show just how bad things have gotten.

You might be fooled into thinking that it is mainly just gas, vehicles, protein as the big inflation factors. However, looking at pretty much every column, it is over 2%, previous inflation values.

Employee Wages

Before the pandemic, we were able to hire for $14-16 for unskilled labor. This group includes employees that I hired to check patients in or answer phones. However, now we cannot get anyone interested in working for our group at less than $20 per hour with full benefits.

As inflation increases, so will the salary requests by employees. Employers that do not adjust are going to be subject to their employees to jumping from job to job for increased wages.

Staying competitive will be tough for staff intense jobs.

Medicare Refusing To Give Us A Raise

A committee called the Medicare Payment Advisory Commission (MedPAC) has a lot to do with your paycheck. They make recommendations about guidelines for payment and reimbursement from Medicare. In January of this committee met and unanimously voted to recommend no increase in payment for 2023. Take a look at the group members. The leadership at the top of the board are not physicians.

Half of the members of this board MedPAC are made up of doctors. This had me thinking. why the hell would a doctor vote for effectively lower payments….

Turns out the terms of these board members are supposed to be 3 years long on the committee. However, these positions are not voted upon. They are appointed by this guy. They also can be renewed indefinitely by Mr. Dodaro if he likes what they have been doing.

My opinion is that this seem like he likes people who do what he wants…such as keeping the current chair of that board a member of the board since 2008 since he keeps voting for not increasing pay. It turns out that the chair of the board is a big believer in Medicare advantage plans, alternative payment structures and low value care according to his own biography. It’s a rigged board.

Let that sink in. Despite inflation of over 7%, this group voted to recommend giving zero increase in pay for services rendered.

The AMA was quick to denounce this recommendation but has seemed to have been silent beyond that press release of denouncing this recommendation.

Unfortunately, things do not look good in terms of getting a raise for 2023 from Medicare payments. It seems that we will effectively be getting a pay cut with inflation for 2023.

Outsourcing Labor

With the increase in labor costs, we have had no choice but to outsource as much labor as we can.

We have remote workers who work in much smaller towns or even in another country that preform remote tasks for us. On average, this leads to about a 50% savings on pay per employee hired compared to in person employee at our primary location. Primary care does not make a lot of money and we need to find ways to keep a competitive advantage.

I know that I might catch some flak for this. Yes, it feels bad not hiring local. However, paying someone over $50,000 a year including full benefits to upload faxes into a computer is not financially feasible anymore at these salary levels with our insurance reimbursements that have not increased.

The Pandemic Effect With Locums Doctors

We are currently trying to hire for another physician to join our practice. However, we are having a bit more of a tough time than we thought.

During the pandemic, many doctors took advantage of locums rates. They got pain very well to cover hospitals. Now, coming back and looking for full time employment, the drop in pay from locums pandemic rate to outpatient medicine is shocking.

Many of the doctors that we interviewed gave us feedback that they would rather do locums shifts 9 or 10 days out of the month and make the same money in 20 clinic days per month.

I don’t blame them. Heck, I might have done the same if the roles were reversed.

Pay Cuts

As I’ve said in another post, inflation of 7% per year has the potential to have huge pay cuts for physicians.

You will spend more money on items you need to operate your practice and effectively make less money in medicine with inflation.

Let us take this past year inflation (2021) of 7% per year. Let us make one more assumption that inflation rate continues for 2 more years.

Since insurance contracts are often on a 3-year cycle, you are not able to re-negotiate your contract with the insurance company early. With 7% compound inflation over those 3 years that means that your effective income due to inflation is more than 22.5% less than when you signed the contract 3 years earlier.

If you think this means you will be taking a 22.5% pay cut, that is not the full story.

Keep in mind that as above, with inflation you are paying 22.5% more for your goods. You effectively have 22.5% less spending power due to inflation. This leads to even more financial losses for physician business owners.

Example

Let’s say that your medical practice makes $100,000 per month in gross income.

Overhead is often around 50% for most clinics in today’s market. So, $50,000 of that goes to overhead.

With our above example, the cost of goods going up 22.5% means that the $50,000 now costs you $61,250.

Your Net Profit is now: ($100,000 – $61,250) $38,750 per month. However, remember that your dollar is worth 22.5% less than it was 3 years ago. Making the effective net pay about $30,000 in 3 years ago money.

Your net effective drop in pay is about 40%!

Where I think Future Is Headed For Medicine Short Term 1-3 Years

The truth often lies in the middle. I do not think that the doom and gloom will occur in medicine.

I will give several predictions on what I think will occur in the next 1-3 years.

  • Subscription plans prevenance in doctors office will continue to rise for many clinics, not just concierge medicine
  • Telemedicine will continue to become more popular and accepted. The orthopedic group near me now does evaluations of joint pain via telemedicine ***insert surprised face***
  • Outsourcing of labor. Many call centers or billing groups are located in rural areas, often in “fly over” states. Expect these places to be outsourced overseas or less affluent countries.
  • The EMR that automates best will win. Billing and worried about MIPA is so 2020. The race will now be for automation in EMRs. Get a fax from another doctors office? The EMR that scans the document and puts it in the right chart and labels it correctly without any human intervention will become more prevalent. For example, maybe a patient calls in for refill of birth control but has not been seen in 1 year. Your EMR can automate that to give 90 days approval for refill and send the patient or pharmacy an automatic message that no more refills until they follow up.
  • The continued rise of midlevel independent and competition. From a business standpoint it just pays more to hire an APP and collect physician level income but pay APP level wages. With the rise in VC backed groups, there will be a big push for expansion of APP services.

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3 thoughts on “Inflation In Medicine and What Future Holds For Doctors

  • February 16, 2022 at 11:33 AM
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    With all that said, do you think it’s wise to start an IM private practice now or wait a year or two?

    Reply
    • February 16, 2022 at 2:11 PM
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      I would not be taking a huge loan to start a medical practice in this environment. I would only advocate for starting a practice with minimal loans or being able to cash flow completely so that they are no loans involved.

      Staying lean, avoiding debt you will be successful. Those who leverage will have a hard time if payment takes a drop in a worst case situation as I talked about above.

      Reply
  • February 17, 2022 at 3:51 PM
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    If you were to use tech for automation to reduce labor cost, which function(s) would you automate?

    Reply

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