Contrary to popular belief, rural physician incomes on par with urban physicians

Jan 27 2005

While lower incomes are an oft-cited obstacle to recruiting physicians to practice in rural America, average physician incomes in rural and urban areas do not differ significantly, according to a national study released today by the Center for Studying Health System Change (HSC).

Moreover, after adjusting for differences in the cost of living, physician work effort, specialty and other physician and practice characteristics, rural physicians on average have 13 percent more purchasing power than their urban counterparts, the study found.

"The study should dispel the myth that lower income potential is a major obstacle to recruiting physicians to most rural areas," said Paul B. Ginsburg, Ph.D., president of HSC, a nonpartisan policy research organization funded primarily by The Robert Wood Johnson Foundation.

"Nonetheless, the higher purchasing power of rural physician incomes may be needed to compensate physicians for other disadvantages of rural practice, including less control over work hours, professional isolation and a lack of amenities associated with urban areas," Ginsburg said.

Rural areas have fewer physicians per capita than urban areas, prompting persistent concerns about inadequate access to medical care in many rural areas. To illustrate, rural residents on average have 53 primary care physicians (PCPs)—internists, family/general practitioners and pediatricians—per 100,000 people compared with 78 PCPS per 100,000 urban residents. The gap is even wider for specialists—54 specialists in rural areas vs. 134 in urban areas per 100,000 people.

The disparity in physician supply, however, does not necessarily mean that rural areas overall lack enough physicians. Instead, it may reflect the use of urban physicians—particularly specialists—by rural residents or an oversupply of physicians in urban areas. Other research indicates that across the full population, access to care in rural areas is on par with and, perhaps, slightly better than in urban areas, except for access to mental health services.

"While some rural areas have an inadequate physician supply, in general rural America does not appear to lack enough physicians," said HSC Senior Health Researcher James D. Reschovsky, Ph.D., who co-authored the study with HSC Health Research Analyst Andrea B. Staiti.

The study's findings are detailed in an HSC Issue Brief—Physician Incomes in Rural and Urban America. The study is based on results from HSC's 2001 Community Tracking Study Physician Survey, a nationally representative survey involving about 12,000 practicing physicians. Information about physician incomes was adjusted to 2003 values.

Average annual physician incomes are somewhat lower in rural areas than in urban areas—$204,000 vs. $218,000—although the difference is not statistically significant, the study found. Because the cost of living is lower in rural areas, rural physicians have significantly more purchasing power—or higher "real" incomes—after accounting for the lower cost of living. The average income of rural physicians adjusted for the cost of living was significantly higher than urban physicians'—$225,000 vs. $199,000, translating into rural physician incomes providing about 13 percent more purchasing power than urban physician incomes.

The Medicare Modernization Act of 2003 (MMA) included two provisions to boost Medicare payment rates to physicians practicing in rural areas. The first enhanced the Medicare Incentive Program between 2005 and 2007, which provides bonus payments for physicians practicing in designated, mostly rural, physician-scarcity areas. The other, more expensive, legislative change established a floor for the geographic adjustment to the work component of the Medicare physician fee schedule between 2004 and 2006, which effectively increased payments to nearly all rural physicians. Although temporary, the estimated cost of both provisions is $1.7 billion.

"Since rural physicians already have significantly more purchasing power than urban physicians, the study questions the wisdom of increasing Medicare payments to virtually all rural physicians, instead of targeting higher payments at rural areas with documented physician shortages," Reschovsky said.