Physician Pay Isn’t What You Think. New UVA Darden Research Reveals Why.

Each spring, thousands of medical school graduates are matched to residency programs in their chosen specialties. While many fields are highly sought after, others — especially primary care fields such as family medicine and pediatrics — struggle to attract enough trainees.

This year alone, 900 family medicine residency positions went unfilled, even as one in five Americans lives in a federally designated primary care shortage area. One explanation is physicians’ perception of the compensation gap between primary care and other specialties, which may cause fewer physicians to enter these high-need areas.

New research by Professor Christoph Herpfer at the University of Virginia Darden School of Business, however, shows that there is a lot more nuance to physician earnings. When doctors are considering what to specialize in, they often look at average salaries, which show that specialties such as surgery and dermatology pay more than general practice.

In creating a first-of-its-kind database to demystify physician salaries, Herpfer discovered much more variation in pay, with some higher-paid family doctors seemingly earning as much as lower-paid surgeons. The database, aggregated to the state level, is available to the public and searchable by both geography and specialization.

“The data show that there is a lot of variation in salaries based on which state you work in, and how you structure and build your practice,” says Herpfer, an assistant professor of business administration in the finance area at Darden. “If you take a close look at the data, it turns out that you can actually do pretty well for yourself as a pediatrician or family practitioner.”

This work is part of an ongoing research stream on healthcare and business driven by the Darden Healthcare Initiative, a two-year-old program co-chaired by Herpfer, including course development, student activities, practitioner outreach and thought leadership.

“Although healthcare is 20% of the economy, the largest industry by far, there are few top MBA programs focused on educating leaders for the healthcare space, particularly at the intersection of life sciences with capital markets, consulting and investment banking,” says Herpfer.

At the same time, the initiative is fostering an ecosystem of original research to inform practitioners on major trends.

“Darden focuses on producing research that is actionable and linked to practice,” he says. “This project is a great example of how we apply cutting-edge techniques in data science to generate valuable insights for businesses.”

The Model Behind the Data

Herpfer was partly inspired to investigate physician salaries when his wife, a doctor, was negotiating her own salary and they realized that data on the issue was scarce. The main source of information was self-reported surveys, which were themselves few and far between.

“Not everybody is comfortable reporting something as sensitive as their salary, so surveys are not super-reliable, and they tend to be coarse,” says Herpfer.

As an academic, he was intrigued by the lack of publicly available data and by recent research using confidential data on U.S. tax filings, which has shown that surveys indeed systematically underreport earnings.

“I was wondering if I might be able to produce a dataset from public sources that would be available to practitioners and help inform decision-making by doctors and employers,” says Herpfer.

He was able to realize his ambitious project by leveraging the fact that the federal government is a key provider of funds to physicians and publishes detailed data.

“Physician income is a mix of many ingredients, including the mix of medical procedures they perform; the payers who pay them; and whether they own their own practice or are employed,” he says. “I needed to build estimates for all of these components for each specialty and geography.”

Herpfer found the foundational data point for his model in Medicare data that covered not only the amounts doctors were paid by Medicare for procedures but also the number of procedures they performed.

Since Medicare is the largest payer for physicians, Herpfer realized he could use this data as a baseline to approximate the mix of procedures. He then extrapolated earnings using data on individual physician payer mix as well as local payer mix, estimating amounts from other payers, including Medicaid, private insurers and patients paying out of pocket.

Ultimately, the model incorporated hundreds of data points for each physician, including Medicare data, U.S. Census information, and national surveys, to produce estimates of total earnings.

“No statistical model can be 100% correct,” Herpfer cautions. “We are modeling more than 600,000 estimates, sourced from about 90 million datapoints, distilled down into roughly 2,500 state-specialty estimates. Naturally, any individual data point will be off to a certain degree. But on the aggregate, the model delivers results consistent with what we know from surveys and other publicly available data.”

Comparing Geographies and Specialties

The first thing Herpfer noticed in the data was how much it varied across regions. It’s well-known that doctors tend to gravitate towards areas characterized by high education and quality of life.

“Because of that, there’s a surplus of doctors in New York and California, and many fewer doctors in the Midwest and Southeast,” he says. That leads to a negative correlation in income, where doctors in less desirable areas tend to be paid more than those in more sought-after locales — despite those areas having a higher cost of living.

While Herpfer’s data bore out those distinctions across broader regions, he was surprised by just how much variation he found within regions.

“You get very different numbers for New York and New Jersey even though those are neighboring states with tightly interwoven economies,” he says. “It’s really worth it if you’re a doctor and want to live and practice in a particular place to have a closer look, because there are going to be big differences across them.”

He discovered a similar phenomenon for medical specialties. When looking at average or median incomes across specialties, the database shows predictable trends — for example, the estimated average income for a general surgeon across all states is $457,308, compared to an average income for a family practitioner of $341,959, a difference of more than 33%. The averages, however, hide a large degree of variation in salary levels within a specialty and location.

Those numbers paint a different picture. For example, the bottom quartile for general surgery is an estimated $382,067, while the top quartile for family practice is $395,496, meaning that, according to Herpfer’s estimates, higher-paid family practitioners are earning about the same as lower-paid surgeons.

“Some doctors are making much more than others,” Herpfer says. “It turns out that if you choose the location where you practice wisely and achieve a good case- and payer mix, you can actually do pretty well for yourself as a pediatrician or family practitioner.”

Herpfer hopes that the tool will provide a valuable resource not only to physicians but also to healthcare administrators and investors, offering a more nuanced look at the range of incomes that doctors can earn across the country. Young medical school graduates looking to go into family medicine might want to take another look and consider that the relative income they could potentially earn might not be as big a factor in the decision after all.

For a closer look at how physician earnings vary across specialties and states, explore the interactive Physician Earnings Tool.