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Where Is The Healthcare Money Going?

Stanley Feld M.D.,FACP, MACE

In reviewing Ezekiel Emanuel’s New York Times article I thought of an interesting question. In Dr. Emanuel’s view it is not worth having tort reform or healthcare care insurance reform. He claims these reforms are an insignificant burden to the cost of the healthcare system.

I have demonstrated that the evidence for tort reform and reform of the healthcare insurance industry proves him wrong.

The question then is where is the $2.5 trillion dollars the U.S. healthcare system spends going?

President Obama and Dr. Emanuel think it is going to physicians. President Obama’s idea to control healthcare costs is to reduce physician reimbursement.

Physicians have the weakest expression of its vested interests among all the stakeholders because of lack of effective leadership. 

Simple arithmetic reveals that reducing physician reimbursement will yield an insignificant reduction in healthcare costs.

Never the less on January 1st Medicare is going to decrease physicians’ reimbursement by 27%. This decrease is the result of the application of the government’s Sustainable Growth Rate (SGR).

The Sustainable Growth Rate (SGR) is a complicated and defective formula intended to contain the overall growth of Medicare spending for physicians’ services.  The intent was to keep physicians’ reimbursement in line with the nation’s ability to pay for that medical care.  The SGR formula uses the gross domestic product per capita in a complicated and inaccurate way. 

In 2008 the Bureau of Labor statistics published a report that there were 661,400 physicians in the United States.

 The report’s findings are summarized in the table below.


Projections data from the National Employment Matrix


Occupational Title

SOC Code

Employment, 2008

Employment, 2018


Detailed Statistics





Physicians and surgeons









    NOTE: Data in this table are rounded. See the discussion of the employment projections table in the Handbook introductory chapter onOccupational Information Included in the Handbook.


Let us assume that 161,400 of the 661,400 physicians in the U.S. work in private medical related industries such as the healthcare insurance industry, the pharmaceutical industry, the physician executive industry and government services.  These physicians are not involved in direct patient care and do not generate direct patient costs to the healthcare system.

 The number of non direct patient care physicians is probably higher (185,192 in other non practice positions and 476,208 in direct patient care). My assumption uses 500,000 physicians involved in direct patient care for all types of insurance to inflate physicians’ reimbursement. 

The Bureau of Labor report states,

 Physicians and surgeons held about 661,400 jobs in 2008; approximately 12 percent were self-employed. About 53 percent of wage–and-salary physicians and surgeons worked in offices of physicians, and 19 percent were employed by hospitals.  .


Let us also assume that physicians’ overhead is 50% of total collections. Therefore physicians’ take home salary is 50% of collections. Fifty percent is a fairly accurate assessment whether the physicians are self employed or hospital system employed.  

 “According to the Medical Group Management Association's Physician Compensation and Production Survey, median total compensation for physicians varied by their type of practice. In 2008, physicians practicing primary care had total median annual compensation of $186,044, and physicians practicing in specialties earned total median annual compensation of $339,738.”

 If we round off the salaries to $190,000 for Primary Care Physicians and $340,000 for Specialists and round off the number of Primary Care Physicians to 300,000 (actually 375,000) and 200,000 in Specialties (actually 125,000) and do the math, physicians’ salary comprise only 5% of the total $2.5 trillion dollars spent in the healthcare system.

The Math:

 $190,000 per year per primary care physician x 300,000 physicians= $57,000,000,000 ($57 billion dollars for primary care physicians).

 340,000 per year per specialists x 200,000 specialists= $68,000,000,000 ( $68 billions dollars a year for specialists).

 $57 billion + $68 billion= $125 billion per year for the costs of physicians salary for direct patient care.

 $125 billion (125,000,000,000)/ $2.5 ($2,500,000,000,000) trillion per year = 5%

 If you double the physicians’ collections to include physicians’ overhead costs ,  physicians receive 10% of total dollars spent on healthcare system.

Improvements can be achieved in decreasing physicians’ overhead by having more integrated healthcare systems. Presently, most communities do a fair job.

Integrated electronic medical records could achieve a further decrease in the 5% of the total healthcare cost spend by physicians for overhead.

The government is spending billions of dollars on building bureaucracies, creating regulations, developing a IRS physicians fraud squad and creating committees trying to reduce 5% of the healthcare costs.

President Obama is approaching the problem of escalating healthcare system costs using the wrong premises. It will result in increasing healthcare system costs. Obamacare already has increased the costs of the healthcare system even though it is not fully implemented.

 "IF REALITY DOESN'T match your expectations, perhaps it's time to re-examine your premises."


Where is the other 90% of the healthcare system costs going?

The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone.

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