How doctors make money

how doctors make moneyYou’ve just survived medical school, residency, and fellowship! Now you’re about to get your first job and are given a salary that you’ve only dreamed of for the past decade.

In actuality, you’ve been lowballed and are about to get churned and burned. How could you have prevented that?

Step one is to know how you are paid as a doctor. If you don’t know how you’re paid for your services, then you have no idea what you are worth.

In general, there are several fundamental categories of reimbursement for services. Know them:

  1. Fee-for-service. This has been the traditional reimbursement scheme. The doctor or her medical group makes an agreement with the insurance companies to accept a certain rate for each type of service rendered. This scale is often determined as a percentage of Medicare rates (i.e. 80% Medicare or 125% Medicare). Obviously this does create a market in which larger practices or lowest bidders may be awarded contracts.
  2. Capitated care. A medical group receives a lump sum payment for care of a sole patient population with the same insurance. Example: NaiveDoc Medical Group agrees to care for all individuals with RipOff insurance. The RipOff insurance company agrees to pay NaiveDoc $30 for each person who carries RipOff insurance. There are 100 individuals who have enrolled. NaiveDoc gets a lump sum of $3,000 from RipOff insurance. If no one with RipOff insurance sees any doctors, NaiveDoc has just gotten “free money” and gets to do whatever they wish with the payment (i.e. pay administration). Suppose one patient with RipOff insurance gets ill and is seen by a NaiveDoc provider every week for a year. NaiveDoc will have to decide how to distribute its reimbursement among the providers. In a captitated care model, you can run out of money quickly if you agree to care for a large group of very sick people.
  3. Pay for performance. Pay the doctor according to how great her patient reviews are. Does not seem promising.
  4. Cash pay. The patient pays the doctor a set fee schedule for services rendered. Definitely cuts out the middleman (insurance company and its administrators). In general, this is difficult to implement on a large scale. Your patient has to have a certain income level to be able to afford the doctor’s care.

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That’s it. Stay tuned for future tips to become a well-rounded doctor! Questions? Sound out below!

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