The Financial Cost Of Being An Academic Physician

Updated on June 12th, 2018
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[Today’s post is from Smart Money MD, who runs one of the longest-running physician finance blogs (he’s been blogging since 2015). In this article, he discusses the reasons for the pay gap between academics and private practice. This article previously ran on Smart Money MD’s blog in February 2017. -WSP]

After doctors finish their medical training, there is a spectrum of career options that range from full-time clinical medicine (which most people choose) to full-time academic medicine to full-time researcher. Whichever path one takes will surely benefit society, but can have a major impact in compensation. Over the course of one’s career, there is unfortunately a huge discrepancy in earnings.

Think millions of dollars.

Or for you gamblers, it’s like getting to the final table (guaranteed $1 million earnings) of the World Series of Poker every few years, but donating your earnings back to your hospital administrators. These administrators then make you work harder for less pay.

Sounds fair, right?

Let’s take a look, step-by-step, at how there can be such a discrepancy in earnings despite being the same type of doctor.

How doctors generate revenue in private practice.

As a doctor involved in direct patient care, you generate revenue directly from your services. The more services you provide, the greater revenue you bring into your practice (or your employer). For many doctors who participate in insurance plans, this is measured in revenue value units (RVUs) or something similar—anesthesiologist work is measured in ASAs, which are calculated on the difficulty of a type of surgery and modified by the duration of a surgery.

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Even doctors who don’t participate in direct patient care—that means you, pathologists and radiologists—have productivity that can be quantified.  Additionally, there may be other factors in physician productivity that aren’t directly quantifiable, such as the number of consults that are generated and procedures that other specialists perform on patients that you cared for who otherwise wouldn’t have received treatment. If you look into capitated care models, managed care models, and closed-system models, the revenue streams becomes even more obfuscated.

No matter how confusing this may seem, medicine in a private practice model is still service-driven. The more you work, the more money you bring into your practice or your employer. Hopefully this work translates into a higher income for us all.

How doctors generate revenue in academic medicine.

If you are a physician in an academic center or university setting, the revenue generating component is more opaque. I look at it like a black box:

No one knows what happens inside the black box, not even the administrators!

The service portion of being a doctor in academic medicine is diluted into many different roles. Some of these roles aren’t directly related to patient care, so any revenue that is generated doesn’t go through the typical insurance panels.

Take, for instance, research. This is a very valuable component to the healthcare industry, but there is no visible compensation in research unless there is a breakthrough discovery. Research funding in the U.S. comes mostly from the National Institutes of Health (NIH). Most researchers have to apply for funding through an arduous process every few years! The funding that one receives through a research grant is unlikely to even cover your salary!

Teaching medicine is another example where the income stream is not clear-cut. Insurance companies pay you for taking care of their insured clientele, not for educating future doctors.  It doesn’t matter if you’re taking full liability for a full inpatient service, presenting grand rounds, or writing a case report.

Let’s compare a specialist working in academic medicine with one in private practice.

Suppose that you are a vascular surgeon who decides to work at a teaching hospital. You have a faculty appointment at the medical school but you are primarily a clinician working 85 hours a week. The call schedule is only once every five weeks, but you get called in every time you are on call (hey, ruptured aneurysms wait for no one!). You also spend time teaching medical students, residents, fellows, and prepare grand rounds cases. Your hospital pays you about $500,000 a year, but your salary is essentially capped. That means that you’ll likely be earning the same take after five to ten years on staff. You’re making big money, but you’re also spending a lot of time at the hospital.

If you decided to leave the university setting, there are a number of options that could materialize. You could join a hospital group, get paid a much lower starting salary than what the university might actually offer you, but build up to that $500,000 a year. You’d still be working those 80 hours a week. The difference is that by not being involved with teaching or research, you might actually free up a few extra hours a week. No bad, eh?

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A third option might be to join an office-based vascular surgery group. You might be brought on board with a salary lower than what you might get at the university, but there is room for growth. After several years of servitude, you purchase into the group and build equity in the equipment. There is an angio-suite that you own along with the practice. You are still working those 80 hours a week (yeah, what a brutal subspecialty), but you bring in a cool $1.5 million each year.

Think about it. A vascular surgeon can have a $1 million income difference depending on where she decides to work. I’ve actually seen situations where the income differences are even greater. Now we’re talking serious money.

What’s the moral of this story? Vascular surgeons have tough jobs!

It’s not about the money! 

Look, life isn’t all about the money. Some of us don’t enjoy yachting on the weekends or having caviar every night.  Some of us who do may even be fortunate enough to have alternative sources of income.  Our happiness levels start to plateau after a certain amount of income and net worth. I like to think of it like this:

Your happiness actually increases if your income potential is hopeless, but happiness will also plateau with increasing income.

For some doctors, academic medicine is a means to pay the bills AND be happy. What is not to like about conducting research that could potentially revolutionize healthcare or simply educating future generations of physicians?  Some of us actually enjoy writing and editing scientific manuscripts.  Academic institutions are structured to allow doctors to do just that.  These roles may not necessarily maximize a doctor’s income potential, but they contribute to society and personal satisfaction. If you would like to put a price on that, state your argument in the comments section below. 😉

What should I do if I’m undecided?

There’s not going to be a magic ball that tells you what to do. I know plenty of doctors who left academic medicine after several years when they needed a change. I also know several doctors who decided to enter academia after many years of pure clinical practice. The doors remain open no matter what decision you make early in your career.

Remember why you entered medicine; I hope that it was to care for patients. At the end of the day, you still need to be happy. However, it doesn’t hurt to consider the financial implications of your decisions.

18 COMMENTS

  1. Really interesting article.

    I stayed in academics because I wanted to be good at all three things. Research, teaching, and clinical practice.

    I make additional money from the research I do, thought dollars to doughnuts it’s a lot less than from my clinical work.

    Like you said, I found I’d be happier in academics than PP because of benefiting society and working at the tip of the spear in advancing my field.

    Above a certain income, making more money simply doesn’t make you happy. And I’ll be able to achieve financial independence in ten to twelve years after finishing despite staying in academics as an anesthesiologists.

    Good points to ponder!

    TPP

    • I’m actually a PGY-1 anesthesia resident. I’m thinking about academics especially a fellowship in anesthesia that would hear me towards academics. I have no issues with teaching, research, etc. My only concern is the salary. I have a number in mind that would make me happy. I would like to hit that as a PP or academic anesthesiologist. Is the salary in academics really that much less? I totally get that you may be doing a lot more work outside of clinical work but I’m fine with that as long as I hit that number I’m hoping for. Thanks!

  2. I have worked in private practice, in academia, and as a salaried employee for a non-profit. They all have a lot of strong pros and cons. Overall I agree that there is less upside financial potential in academia. It isn’t the whole story though. Money is not absolute, but relative. I felt poor in my private practice since my partners owned mansions, planes, and hotels. In academia, I felt wealthy and successful since I spent most of my day around peers, students, patients, and residents all of whom would love to have what I have. Also, the “platform” of academia can open doors such as writing, speaking, early venture investing, etc.

  3. I would add that not all academic practices are alike. I’ve done solo fee-for-service, academics, group, and employee types of practice. The stint I had as an academic was profitable, largely because we were paid on a level similar to private practice (and the university tracked productivity), and had an excellent retirement/salary deferral program. That gave a huge boost to my NW. In addition, in that state the academic practice was shielded from malpractice liability (another huge benefit).

    There were other downsides….but the financial wasn’t one of them.

  4. I am an academic intensivist in Canada. Here, the models are a bit different with more limitations on how much you can make on the ancillary parts of a private practice. Most expensive equipment and procedures are housed within our public hospitals. There are some exceptions, but the biggest hospitals with the most potential for good volumes of high paying procedures are the academic centers. Whether that matters or not will vary by specialty. The payment models here vary. Most are still fee for service based with the University taking a cut of your billings to fund its admin infrastructure. That “tax to work” caused a mass exodus from academics here about 20 years ago. So, the tax is now essentially balanced against payments from Alternative Funding Plans on top of FFS.

    You still do extra work that is unpaid in a an academic center here. However, on the other side, there is a resident buffer against some of the less fun parts of clinical practice. I also agree with the comments that after a point, money isn’t the main driver anymore. A larger academic center also offers more opportunities to shift around into different roles when you get bored to keep your work fresh and fulfilling. Here, an academic position is generally considered a plum job by many for my specialty, but that varies.

  5. I originally did 2 years of academics (I stayed on after residency/fellowship because the director of the program agreed to let my now ex-wife enter as a radiology resident (she promptly got booted out in 2 months).
    Because of my work ethic I definitely felt taken advantage of. I was starting at the lowest salary and those that were there longer/tenured and having higher salaries found ways to stay in their office and let work pile up for the next shift radiologist (which often would be me).
    I loved teaching but I could not stand the above practice and pretty much left for a private practice where I “eat what I kill”

    If I ever get bored when I do finally retire early I may do some teaching to a local medical school or radiology residency program. But yeah the ivory tower was otherwise a bad experience for me.

  6. Lots to ponder. I happen to be an academic vascular surgeon, and while I agree that vascular surgery is a tough job, it’s nothing compared to the stress of raising children.

    Earlier in my career, I spent a few years with a single-specialty private practice group, and I was absolutely miserable. It was dog eat dog. Given the “eat what you kill” pay structure that was common amongst many private practice groups in my area, it was hard to discern which competition I should be more worried about, the group down the hall, or my very own partners.

    Fast forward several years, and I was recruited back to academic medicine, and I’ve been here ever since. The students, residents, and fellows keep me on my toes, and being in the academic setting allowed me more opportunities to take on leadership roles and return to school for a masters. I don’t work 80 hours a week, and my weekend call is 1 in 8. Not too shabby. Working in an academic setting has some other advantages as well. Besides the myriad number of maximized tax-deferred accounts for myself and my physician spouse (403, 457, 401, state-sponsored savings plan), we also have a generous defined benefit plan that will provide peace of mind long after retirement.

    Lastly, having had friends and colleagues who owned or leased their “angiography suites”, I have seen some of them face a moral dilemma, with self-admitted “soft” indications for an angiogram or stent placement pitted against the lease payment due for the portable C-arm equipment.

  7. In academia, you not only enjoy doing what you were trained to but also impart knowledge on others so that they can also make a difference in the society. The research will also help you extend your knowledge to be the best in your area of expertise.

  8. I was in academic for several years and definitely felt like I was taken advantage of. I ended up getting a job at a university ( not of my choice) because that’s where my husband matched. My main draw to academics was research. The politics in the division were geared towards only allowing their own trainees into research track. I was blocked at the departmental level for permission to apply for k08 or any grants that would protect my time. Our division was big on expanding to lots of community sites and working their junior faculty with a huge difference in service time for junior versus mid/senior faculty. That pretty much ended my ideals of academics. I was just used as a work horse and artificially blocked academically despite publishing and having strong lab mentorship.

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