WHY DO DOCTORS MAKE SO MUCH MONEY?
Considering that an Orthopedic surgeon makes $483 000 a year and the President of the United States makes $400 000 for steering an entire country, it can seem like doctors' salaries are astronomical. But as I'll show you, this is a deceptive illusion because gross and net income are not even close to equal. Because net incomes are so variable (as each doctors practise expenses vary) it's much easier for media to report our gross incomes - which are grossly inflated as you'll see as we go.
Bearing this caveat in mind, here are our gross doctor incomes by specialty:
Family Doctor $185 000
Pediatrics $179 000
Internal Medicine $208 000
Psychiatry $218 000
Orthopedics $483 000
Emergency Medicine $288 000
Geriatrics $240 000
Pulmonology $351 000
Obs/Gyn $286 000
Neurology $300 000
Hematology $382 000
Oncology $382 000
General Surgery $336 000
Uroloogy $424 000
Cardiology $461 000
Dermatology $371 000
Gastroenterology $441 000
ENT $398 000
Source: Merritt Hawkins "2013 Review of Physician and Advanced Practitioner Recruiting Incentives"
There are two titanic distortions that create the gross income fantasy of how much doctors make and that we are rich. The first and simplest exaggeration is simply that income per annum never includes hours worked. Doctors notoriously work long hours, on weekends, through holidays, on their birthdays, after hours e.t.c. Obviously, the more hours anyone works, the more their income will swell, and docs work an average of 60 hours a week.
The next category of misrepresentation is more difficult to analyze in one sentence but boils down to erroneously assuming that doctors' gross income is equivalent to their take home income. For most employees this is the case, but with doctors, we have additional expenses that have to be subtracted before you arrive at our real effective pay. A doctor's income resembles a Russian doll. You have to strip away overhead costs, education loans, taxes, insurance, continuing medical education, and professional fees to see the effective income. That diminutive doll at the end is what the doctor has left to spend, not the big doll reported in the news and Bureau of Labor Statistics (with alarm), as their salary.
Office overhead typically runs at 30-40% of gross billings for family doctors. At my present practice of five doctors and two nurses, this base rate pays salaries to five support staff, rent for a building in a high traffic location, all of our clinical supplies, office equipment, leases, purchases, and servicing costs.
Doctor education is also very expensive - perhaps the most expensive course of study you can take at a University. We step out of our graduation ceremony holding in one hand our degree, and a bill from our university for an average $150 000 debt in the other. But what you cannot see is the even greater loss of unrealized income we missed for the period of study. The decade or more that we devote to study is time away from paying jobs - medicine is not offered part-time. We are thereby double charged for the privilege of our training.
Orbiting around each doctor is also not one insurance policy but typically several. There is mandatory malpractice insurance and disability insurance (in the event of your demise the clinic collects on your misery), and then personal life, home, and vehicle insurance for our families.
Continuing medical education (CME) is a new expense category. In the golden days, or shall we say the olden days of medicine, once a doctor graduated, formal training was over. It was up to them to stay apprised of advances in the field. Consequently some doctors nearing retirement were still prescribing derelict drugs or defunct treatments or neglecting new treatments. This led to a more recent reformation. Governing bodies mandated that physicians would be required to conduct self-paced lifelong learning. This amounts to a set amount of hours of study per year through correspondence courses or live lectures. At the end of each five year cycle a doctor, to maintain their licence must submit these hours. CME is costly, e.g. I spent about $1000 last year on this activity.
Then there are mandatory professional fees garnered by our medical associations and colleges. Mine runs at over $3000 a year. Ouch.
Finally, we come to retirement. In my area, doctors are considered as self-employed agents. That means we are not eligible for social security at retirement and we are responsible for making our own nest egg. Some doctors do not prepare adequately, and others have been wiped out of their savings during perturbations in the stock market. I spoke with one guy who's father was a well known family doctor in the area. His father thought he could make up a nest egg by working harder near the finish line. But it cost him a heart attack putting his family in financial distress. His son that I was talking to, not surprisingly, sells insurance. The point I am making here is that our retirement savings are built into our pay unlike other jobs where it is subtracted from your quoted income and stashed away for you. That further inflates what it appears like we are being paid.
Of my gross income per year, 30% escapes out of my expense column to cover office overhead, followed by another 35% in income tax on the remnant, and a further Goods and Services tax of 15% on everything I purchase using the remnant of the remnant, of that remnant. The way I look at my income is that I work from January to May 1st each year for my office, then from May 1st to September 1st to cover taxes, four and half days for my professional union dues, three and a half days for malpractice insurance coverage, three and a half days for my accountant, two and a half days for my college, and a quarter day to maintain my corporate registration (tax by another name). So two thirds of my working year is for someone else, and one third is working for myself.
With all the above subtractions, a Gulliver sized income on paper is melted down to a Lilliputian size in practice. That's not to say you need to sob for us. We arrive at a comfortable income but are by no means "rich". We may be richer than those reporting on our activities but in the vast firmament of financial compensation, we are vastly eclipsed by CEOs, hedge fund managers, performing artists, sports personalities, and doctors who switch from lab coats to suits and pursue commercial interests like the billionaire-doctors profiled in another article I've provided in the index.
Consider that on the other side of town, minor celebrities like Kate Gosselin of TLC's Kate Plus Eight was scoffing down $250 000 per episode; CEOs like Elon Musk of Tesla Motors, was paid $78.2 million for services rendered in 2013 (enough to pay 422 family doctors for an entire year of treating the sick and suffering), and Larry Ellison of Oracle took home $77 million in the same year (enough to pay 229 general surgeons to take your exploding appendix out). But most fascinating yet, consider that actors who play doctors, like Hugh Laurie of the show House M.D., can make far more than the doctors they portray - Hugh makes a cool $700 000 per episode without actually stitching anyone up. (My favorite quote from House by the way is: "patients always want proof. We're not making cars here, we don't give guarantees").