Medicolegal Issues

A Taxing Future for HM?


When Congress returns for a likely lame-duck session after the midterm elections, the biggest battle might be fought over whether to extend the 2001 and 2003 tax cuts to everyone or only to those earning less than $200,000 annually ($250,000 for families). And depending on the makeup of the 112th Congress, which will be seated in January, Republicans might try to make good on a campaign pledge to repeal all or most of the healthcare reform legislation.

The expected flashpoints are being teased endlessly with media sound bites featuring phrases that most of us love to hate: higher taxes, spiraling medical bills, soaring insurance premiums. Insurance companies already are blaming a spike in premiums on the healthcare legislation, claiming that new provisions and mandates are forcing them to further hike their rates.

Closer to home, the high-profile frays could put hospitalists in the awkward position of supporting political positions that sock them in the wallet. After all, doctors are workers and healthcare consumers, too. So what impact could higher taxes and higher insurance premiums really have? Let’s start with health insurance.

Even if higher-earning hospitalists are subjected to a higher tax rate next year—as currently proposed, a climb of 4.6 percentage points, to 39.6% from 35%—not all of them are necessarily opposed to it.

Insurance Cost Increases

Signed into law in March, the Affordable Care Act includes tax credits for small businesses to help defray the costs of health insurance coverage. But in 2013, it also raises the threshold for medical expense deductions for most taxpayers, to 10% from 7.5% of adjusted gross income. In other words, families can claim tax deductions only after having spent 10% or more of their adjusted gross income on medical bills. For families with hefty medical bills, that 2.5% difference could translate into a significant shortfall.

CMS was able to negotiate with insurers to achieve a slight drop in Medicare Advantage premiums, but many individual states have had less luck in preventing rate increases from private insurers who blame their higher premiums on new mandates. The Wall Street Journal has documented rate increases of 18% in states like Wisconsin and North Carolina—about 9% of which insurance company officials pinned on the new law.1 Such increases are hardly inevitable, however. The Obama administration’s White House blog, for instance, has cited the example of North Carolina Blue Cross and Blue Shield, which announced Sept. 20 that it will provide $156 million in refunds to more than 215,000 customers after state regulators found an overcharge that should be reversed due to new rules in the reform law.2 WellPoint will similarly refund $20 million to its health insurance customers in Colorado.2

The requested premium increases and identified overcharges have contributed to plenty of finger-pointing among insurers, state regulators, and the Obama administration, which has assailed insurers for using the law as a convenient excuse to raise rates. Highlighting the unease of many consumers, however, is the verdict that the proposed increases—if approved—would hit small businesses and individuals hardest.

According to the State of Hospital Medicine: 2010 Report Based on 2009 Data, released in September by SHM and the Medical Group Management Association, participating hospitalist groups have a median of 10 physician full-time equivalents. Roughly 25% of respondents are in physician-owned groups, while 14% are in a management services organization (MSO) or physician practice management company (PPMC). Smaller HM groups wouldn’t be alone in feeling the pinch, but they might need to consider some serious comparison-shopping to avoid costly premium increases.

Cherilyn Murer, president and CEO of Joliet, Ill.-based Murer Consultants Inc., has worked with healthcare systems and providers in 42 states, but even her company has not been immune to having to contend with rising premiums. “Our managing partner just renegotiated our health benefits [premiums] that were supposed to have gone up 30% by our previous carrier,” Murer says. “Through protracted negotiations and diligence, he was able to find a plan that did not increase our costs, and retained pretty much the same benefits.”

For at least the next three to five years, Murer says, niche firms will need to be diligent about shopping around and managing their expenses in a volatile insurance marketplace. Healthcare reform, she says, is certainly not a panacea for reining in costs, but “just the beginning.”

Concerns over healthcare costs, in fact, could be among the factors driving what Robert Zipper, MD, FHM, regional chief medical officer for Tacoma, Wash.-based Sound Physicians, sees as continuing consolidation among hospitalist groups. “By that, I mean that either groups are swallowed up by the hospital in which they work or they become part of a regional or national company,” he says. Sound Physicians, with about 400 hospitalists in seven states, offers health insurance policies that don’t vary by state, easing its negotiations.

Eyes on the Bottom Line

What about the dreaded “T” word? Dr. Zipper says he hasn’t heard that many concerns about the potential tax increase just yet. “I think it’s not an issue to hospitalists in a broad sense yet,” he says, “but if you look at the salary trajectory and where things have been over the past 10 years, it’s pretty easy to predict that it will be an issue for single-income [households] where the hospitalist is the sole breadwinner.”

The 2010 State of Hospital Medicine report, which surveyed 4,211 nonacademic hospitalists from 443 groups, found a median annual income of $215,000. Calculating trends from past income surveys is difficult due to very different respondent populations, but many hospitalists are clearly near or above the $200,000 threshold for individuals and near the $250,000 threshold for families already, even before considering spousal income. The survey, for example, found median salaries of about $235,700 in the 13 states that make up the Southern region.

Even if higher-earning hospitalists are subjected to a higher tax rate next year—if the current rates expire, a climb of 4.6 percentage points, to 39.6% from 35%—not all of them are necessarily opposed to it. Political polling on the issue isn’t broken down by specific professions, but a number of blogs have pointed to a Quinnipiac University poll conducted back in March that suggested nearly two-thirds of upper-income Americans were prepared to sacrifice some of their take-home pay to help reduce the deficit. In that poll (, some 64% of respondents earning more than $250,000 agreed that raising income taxes on themselves and other households making more than $250,000 should be a main part of any government approach to the deficit.

If taxes and insurance premiums are more immediate concerns, some HM observers are eyeing longer trends that could impact the pre-tax pay of the profession. Most hospitalists still earn far less than their specialist counterparts, of course, but increasing demand for hospitalist services has helped fuel a rise in median salaries. Last year, some observers predicted that after an impressive run, annual pay would plateau or even fall, given the current economic uncertainty, tightening profit margins, and assessment that many hospitals run HM programs at a loss.3 And in the current RVU-driven system, the “What have you done for me lately?” mentality can indeed make it difficult for hospitalists to demonstrate a solid return on the investment.

The State of Hospital Medicine report suggests that respondent HM groups have been subsidized by an average of $111,486 per physician FTE (median is $98,253), with the highest numbers in hospital-owned practices. But many experts see a window of a few years in which new healthcare delivery and payment experiments will be trotted out, whether modeled on a bundled system, accountable-care organization (ACO), or other vehicle. Under these models, payment incentives to physicians—and to hospitalists especially—could be fundamentally restructured to better reflect their true contributions as the emphasis on quality and efficiency increases.

Within the next three years, Murer says, hospitalists need to continue to infiltrate inpatient medical services, demonstrate their worth, and show the cost efficiencies that arise from their profession. “I think they’ve got a window of three years to really decide how much of that [inpatient physician] market they will retain,” she says.

Despite the current volatility, both Murer and Dr. Zipper agree that hospitalists are well positioned to take advantage of the coming changes in the healthcare delivery system. But to seize the opportunity, hospitalists must clearly demonstrate the necessity of their services in the emerging models of care and claim an early seat at the table where decisions will be made about how the pot of money is dispersed. Doing so could help resolve one of the most important financial considerations of all: job security. TH

Bryn Nelson is a freelance medical writer based in Seattle.


  1. Adamy J. Health insurers plan hikes. Wall Street Journal website. Available at: Accessed Sept. 21, 2010.
  2. Cutter S. Look you in the eye. The White House website. Available at: Accessed Sept. 27, 2010.
  3. How will the economy affect hospitalist salaries? MedPage Today website. Available at: www.kevinmd .com/blog/2009/03/how-will-economy-affect-hospitalist-2.html. Accessed Sept. 27, 2010.

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