Several years ago, we were holding a marketing event at a major physician's conference.  Over dinner, we conducted an educational session about improving the financial performance of the practice.  I was at the door, greeting our guests when a woman approached.  She was not a physician, but the wife of one, and she ran her husband's practice.  Could she attend, she asked.  Of course, I replied.

In the course of the conversation, I asked her about the biggest business challenges they were facing in their practice.

'Oh, these declining reimbursements,' she immediately replied. Of course, I again answered.

But since we work with all specialties and have clients all over the country, I needed to get some context for her comment.

'It is unbelievable how far they have dropped.  These nasty payers as expecting us to take only 200% of Medicare.  How crazy is that?  You can't make a living on 200% of Medicare.'

I pointed to a guy across the room from Southern California and quietly told her that unless she wanted to get beat up, she should keep her troubles to herself.  For that guy, I told her, Medicare was one of his best payers and that his commercial contracts were generally below Medicare.

She almost fainted.

Granted, it was a few years ago, and granted, her husband was the only physician of his specialty in a small town in the south that didn't know real managed care from a hole in the ground, so they were something of an anomaly.

That conversation came to mind this week when I was reading one of the seemingly endless news stories about the sausage making process in Washington that we are all watching with great anticipation.

At first, it seemed kind of quaint, a relic from a distant past (though not that long ago).  How many physicians would gladly take an average of two times Medicare on their commercial contracts?

But the memory, in light of the policy discussions, lead me to a bigger question.

Can  a physician make a fair living wage if every claim were paid at Medicare rates?

I'm not even going touch Medicaid.

Let's work some numbers on the back of a napkin. And I want to look at this a little differently.  I want to figure out what physicians make per hour.  After all, they deliver a professional service and most other professionals charge by the hour.

An imaginary internist will serve as our case study.  According to the current MGMA Cost Survey, the average internist collects about $400,000 a year from about 4,250 encounters.  That means the practice gets $94 of top line revenue, not personal physician income, per encounter.  Let's assume the internist has a 100% outpatient practice and sees an average of 3 patients per hour.  That produces $282 an hour of revenue.

Let me put that into context using just hourly rates that our company has paid in the past year.  A staff accountant doing an audit will run $150 per hour and the partner is $200-250.  A graphic designer to develop a brochure is $75 an hour.  A staff attorney with five years experience is $250 an hour and the partner he works for is $300 and up.  Ironically, the current market rates for the EMR trainer who will train this very physician on their new technology runs from  $100-175 per hour.

Our internist looks OK, right?

We'll get to overhead in a minute.

So, what would be the impact if 100% of our physician's reimbursement was at the current Medicare rate?  This scenario does not seem farfetched when you combine the declines in commercial rates on their own with the policy changes floating out of Washington.

Let's assume that 30% of the current encounters for our internist are Medicare, which would mean about 1,275 Medicare encounters and 2,975 non-Medicare encounters.

And let's assume that all of the non-Medicare encounters pay an average of 120% of Medicare, a rate that would be pretty common in many markets.  If yours is higher, be grateful.  If yours is lower, look out the window to make sure the scenery is worth the pay cut.

That means that our $94 average reimbursement from above is made up of about $83 for a Medicare encounter and about $100 for a non-Medicare encounter.  Be clear that non-Medicare patients are subsidizing the Medicare patients.

Let's pay them all at the Medicare rate.  4,250 encounters paid at $83 per encounter.  That would result in total revenue coming into  the practice of $352,750 for the year, a $47,000 cut.  The hourly revenue falls from $282 to $249.

Now it's time to bring the overhead in so we get from revenue to physician income.  All of the professions cited above also have their overhead costs that have to get paid before the owner of the business gets her or his take.  But few, in any, of them have overhead cost as a percent of revenue anywhere close to the average office-based physician.

Let's assume our internist has a decent overhead ratio of 60%, which means they currently spend $240,000 running their practice and they get $160,000 of personal income, pre-tax, of course.

Unfortunately, in our 100% Medicare scenario, the overhead doesn't change a lick, so it still costs our internist $240,000 to run the practice.  That leaves W2 income of $112,750.

Said another way, that is a 30% pay cut.

On top of income that has already been flat or worse for the past decade.

Sure, there are a lot of people that would gladly take a six figure job, but we're not talking about the entire population.  We're talking about years of school, loads of debt, and years of legal liability.  So no bogus arguments here, please.

Remember, we have 4,250 encounters at an average of 3 encounters per hour.  That means our physician spent 1,416 hours seeing these patients.

If that was all that was involved, that equates to just a smidgeon shy of $80 per hour.

But we all know those 1,416 hours are not all that are required to take care of those 4,250 patients.  Charting, billing, handling the resulting calls and prescription refills, and all else that goes with delivering those encounters are above and beyond the 20 minutes per encounter that we assumed for this exercise.  How much extra time does it take?  Another 30%?  Another 50%?  Let's be conservative and assume it takes an extra 20%, or an additional 283 hours.

That is a total of about 1,700 hours to earn $112,750.

That is $66 per hour.

Have you had your car in shop at the dealer lately?  What was hourly rate for the mechanic?  Yes, it was more than $66.

It is easy to get lost in numbers being thrown around that are measured in millions, billions and even trillions.  And it is clear that at a societal level, something needs to be fixed or this industry will collapse under its own weight.

However, sometimes it helps to trade your telescope for a microscope; to get down to a little lower level and get a different perspective.

If you can make more by buying a Mac, getting a two year technical degree in graphic arts and working from your house than you can from taking care of a 72 year old with diabetes and hypertension, there better be a whole lot of non-financial rewards in being a doctor.