The Economics of General Practice
Medicare was hailed as one of the most important social reforms in Australian political history. The aim was equitable access to medical treatment for all Australians: a worthy goal. Medibank, as it was first called, allowed the doctor to bill the government for services rendered to people on concession cards or those deemed by the doctor to be in financial difficulties. The inital scheduled fee for a standard consultation was $8.20, of which the doctor recieved 85% (ie $6.97). Whilst this seems little to us today, the equivalent today, taking into effect inflation, is $48.851 or at 85% is $41.52. At the time doctors did not think that this constituted an adequate remuneration for their work. The promise was that the schedule fee would be indexed to inflation rates. Had that been so, the current schedule fee would be $48.85 rather than the current $37.05. If the initial fee of $8.20 was inadequate remuneration then the current fee, which has fallen in relative terms, is less so.
The graph below shows how Medicare rebates have risen over time.
So Medicare rebates have risen consistently over time. The question which then needs to be asked is "How have these scheduled fees risen compared with inflation?"
The graph below illustrates the schedule fee for a standard consultation (in blue) compared to what it should have been if the promised indexation had been granted (in red/brown).
These differences do not look great when viewed this way. A better way of understanding this is to say "What am I losing because the governments have failed to fulfill their promise?" In order to answer this, let's, for the purpose of illustration, assume a GP has 5,000 patient encounters per year billed to Medicare.
You have been short-changed by $59,000 in the last year
[5,000 x ($48.85-$37.05)]
That is $59,000 that the average GP is missing out each year because the promises were not fulfilled. So this then begs the question of how much money has been ripped off GPs since Medicare began (as Medibank) in 1976. To calculate this, the following data have been used:
The total amount that the government has short-changed GPs over 29 years is $1,464,939.59.
- Initial rebate of $8.20 was indexed each year as per the yearly inflation
- Subtraced from this was what the government actually paid
- This difference was multiplied by 5,000 for each year.
- Each yearly amount was converted into an equivalent amount as per inflation to current (2015) values.
- These amounts were added up
(from 1976 to 2015, for an average GP seeing 100 patient encounters per week for 50 weeks of the year, bulk-billing)
Now you might say that no-one charges only a level B consultation. Probably few anyway. Let's look at different billings to see how they would affect these results. The average GP consultaion is 15 minutes.
|4 x level Bs
|2 x level Bs
plus 1 x C
|1 x level Bs
plus 1 x D
|2 x level Cs
plus 1 x B*
* Note that it is technically possible to do this but in reality it is unlikely that most levels C's will be short enough to fit another consultation in that hour as level Cs have to be more than 20 minutes in duration.
The point here is that only using level B consultations in my calculations will not differ greatly from the fees obtained by other mixes of consultations. The use of EPC item numbers, does, however change these equations, but as these were not available in 1976, they are currently not considered in the calculations. The point was to demonstrate how much we have lost out.
To most GPs, it wll appear that they are earning good money (at least until they see their taxable income at the end of the financial year). A good question is "How has a GP's income compared with the average wage?" The graph below illustrates this. This graph was generated using the Medicare rebate and multiplying it by 100 (patient encounters per week) to give an estimate for a GP's weekly income. This is shown in blue. The average weekly earnings for a full-time female worker is shown in brown.
The first thing noted is that the blue line is well above the average weekly earnings. The astute will quickly point out that gross income is not final income. There are lots of costs in running a practice. One of the largest costs for a practice is the cost of wages. In a solo general practice, a GP will employ:
So by way of estimating costs I have taken away two average wages out of each weekly gross. This is shown by the green line. The graph shows that from about 1990 the real income of a GP has hardly changed. If not for other sources of income, the average bulk-billing GP would now be earning less than the average wage. These other sources are PIP and the EPC items. Not every practice uses the EPC items. Without the use of EPC items, a purely bulk-billing practice will need to increase its income by seeing more patients in order to survive financially. Economically this is best done by seeing more patients per hour rather than working longer hours (as practice costs increase more with the latter). Going from seeing four patients per hour to five, increases gross income by 25%. Seeing 6 patients per hour increases income by 50%. The theoretical limit in the past was 10 patients per hour, because shorter consultations in the past could not be billed as a level B (item 23). Ten patients per hour would generate $37.05 x 10 = $370.50 per hour, which for 40 hours per week would amont to $14,820 per week or $741,000 per year. Very few doctors could see 80 patients per eight hour day (as it is physically and mentally taxing) and even fewer would want to, but the concept gave way to the idea of "6 minute medicine": a disparaging term used in the past to describe a GP who was seeing too many patients per day (the implication being that concerns for money outweighed the concerns for the patient's welfare). Nowadays a doctor claiming this would be flagged by Medicare and asked to explain.
- A full-time receptionist (usually female hence the wages quoted are for women, remembering that for most of this time a woman's wage was well below that of a man's)
- A part-time cleaner
- A part-time book-keeper
- An accountant
- Perhaps a part-time gardiner and/or handyman
The graph below shows the theoretical maxima a bulk-billing GP can claim from Medicare using the different item numbers for non-procedural consulations.
From this it can be seen that Medicare is set up in such a way to financially reward a doctor who sees lots of patients. On a production line, this sort of mentality would make sense. The worker gets paid for greater productivity. However, this is not the case in medicine, where time and care is required to make a correct diagnosis. For certain, there are times when short consultations are appropriate and there are other limited scenarios where quick consultations have been a necessity fro example in areas with an inadequate supply of doctors, some GPs have coped with the excessive workload by employing nurses to do all the patient observations and organise the patient to enable the doctor to come in, read the information and make any required decisions, write the scripts and move on. Note that financial gains are offset by higher staffing costs. These scenarios are exceptions and less needed now that doctor patient ratios are improving.
Note that there are a number of studies that show an inverse correlation between consultation length and clinical outcome5, 6, 7, 8,
So How Much Does a GP Earn?
On the whole, however, GPs earn a good wage. Apparently better than most GPs in first world countries around the world. McMasters2 gives the following figures for GP earnings in Australia:
||Adjusted to 40hrs/wk
|Metropolitan GP, non-owner
||$A180,000 to $A360,000
|Metropolitan GP, owner
||$A220,000 to $A500,000
|Rural GP, non-owner
||$A270,000 to $A450,000
|Rural GP, owner
||$A350,000 to $A700,000
These figures are based on a 50 year old male GP working 50 hours per week, so I have adjusted the last column to 4/5ths of the average to approximate the income for a 40 hour week, which is the national average. Note that this is an approximation only, as fixed and variable costs do not necessarily change proportionately.
However, it is not clear from the McMaster's website, how these figures are obtained. You would think, that being accountants, they have extracted this information from their clients. If this is true then this represents a strong bias to those GPs who use McMasters. If McMasters are up-market and expensive then only the richer GPs would be using them. The website does not explain if these earnings are purely from the GP's medical work or whether it includes income from other sources.
GPs earn less than the other specialist doctors working in Australia2.
Arguably a better source of information comes from the MABEL study3. This study, based on data collected in 2008, from 3,906 GPs (and registrars) in Australia. Their results show the annual gross (ie pre-tax) personal earnings from medical work, for GPs to be $177,883 with a standard deviation of $103,6333.
Note that to earn this, GPs worked on average 40 hours per week and 51.6 weeks in a year!
The standard working week is considerd to be 38 hours per week and most non-medical people get 4 weeks holiday per year. The above wage would be the equivalent to about a standard salary of $157,205 (the extra being overtime at time and a half). This income is double the average Australian annual salary.
What Factors Positively Influence a GP's Earnings?
- Greater hours worked per year
- Being male
- Working in a state other than Tasmania
- Having children (if the doctor is male, not if female)4
- Working in a high demand area
- Working in a group practice
- Working in a rural environment > non-metropolitan > metroplitan area
- Being a proceedural GP
- Working in a hospital
- Working after hours
1. The Reserve Bank of Australia's inflation calculator
Australian Bureau of Statistics: Average Weekly Earnings, Australia
The Reserve Bank of Australia's Australian Economic Statistics 1949-1950 to 1996-1997
Bytes from BEACH No: 2014;2 Debunking the myth that general practice is
'6 minute medicine'
Bytes from BEACH . No: 2012;4 Follow up: clinical hours worked by age-sex of GP
2. McMasters How Much Do Doctors Earn?
3. Cheng, t. C., What Factors Influence the Earnings of GPs and Medical Specialists in Australia? Evidence from the MABEL Survey, Melbourne Institute Working Paper No. 12/10, University of Melbourne, July, 2010
4. Schurer, S., et al., One Man’s Blessing, Another Woman’s Curse? Family Factors and the Gender-Earnings Gap of Doctors, Working Paper No. 24/12, Nov. 2012, Melbourne Institute Working Paper Series, University of Melbourne
Scott, A., Getting Doctors into the Bush: General Practitioners’ Preferences for Rural Location,
Working Paper No. 13/12, July 2012, Melbourne Institute Working Paper Series, University of Melbourne
Sivey, P., et al., Why Junior Doctors Don’t Want to Become General Practitioners: A Discrete Choice Experiment from the MABEL Longitudinal Study of Doctors, Melbourne Institute Working Paper No. 17/10, Oct. 2010, University of Melbourne
5. Goedhuys J, Rethans JJ., On the relationship between the efficiency and the quality of the consultation. A validity study, Fam Pract. 2001 Dec;18(6):592-6. Online.
6. Campbell SM, et al., Identifying predictors of high quality care in English general practice: observational study, BMJ. 2001 Oct 6;323(7316):784-7, Online.
7. Howie JG, Porter AM, Heaney DJ, Hopton JL., Long to short consultation ratio: a proxy measure of quality of care for general practice, Br J Gen Pract. 1991 Feb;41(343):48-54, Online
8.Wilson, A., Consultation length in general practice: a review, Br J Gen Pract. 1991 Mar;41(344):119-22, Online