2009 MMS Physician Practice Environment Index Report

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In 2008, the Massachusetts Physician Practice Environment Index declined 1.5 percent.  This decline represents a return to the longer term deterioration in the physician practice environment.  In 2007, the Index increased slightly.  This brief turnaround notwithstanding, the Index has declined in 15 of the past 17 years.

The Massachusetts Medical Society (MMS) Physician Practice Environment Index is a statistical indicator of nine selected factors that impact the delivery of patient care in Massachusetts and in the United States. 

The indicators are: 1) applications to medical schools, 2) percent of physicians over 55 years of age, 3) median physician income levels, 4) ratio of median housing prices to median physician income, 5) physician cost of doing business, 6) mean number of hours spent on patient care activities, 7) number of visits per emergency department, 8) change in average malpractice rates, and 9) number of advertisements for physician employment in the New England Journal of Medicine.

The deterioration in the Massachusetts Index in 2008 resulted primarily from three key variables; they are:

• Physicians’ costs associated with maintaining a practice
• Physicians’ professional liability costs
• New England Journal of Medicine (NEJM) physician employment advertisements

In the commentary that follows, the relevant details that provide a statistical basis for these conclusions will be analyzed.  But first it will be helpful to establish the relative performance of the MMS Index to the US.  Annual changes in a US Practice Environment Index have always been an integral component of this analysis.  The US Index provides a meaningful statistical reference point against which to judge the relative changes in the Massachusetts Index.  Shown in Table 1 below are the average annual rates of change in these two important Indexes for the most recent five-year period.

Average Weighted Percent Rates of Change in the Massachusetts and US Indexes

Annual variations in the behavior of the two Indexes over the past three years is readily apparent and is discussed in detail below, but before doing so it will be helpful to set out the dominant factors affecting the two Indexes in 2008.

The Dominant Factors Affecting the Index in 2008

Shown in Table 2 are the factors that dominated the 2008 behavior of the two Indices.

The Comparative Details for the Dominant Factors Affecting the Massachusetts and U.S. Physician Practice Indexes from 2007 to 2008

Over the years these three variables, especially increases in the cost of maintaining a practice and in professional liability fees, have had the most significant adverse impact on the MMS Massachusetts Index.  Once again in 2008 this was the case.  Further, it is particularly noteworthy that professional liability fees actually rose in Massachusetts, in sharp contrast to a modest decline in the country.  The strong advances in physician employment ads most likely reflect the surge in physician demands growing out of shortages including the impact of the implementation of Chapter 58.

To take a broader view, the relative rates of increase in these three variables were sufficiently strong to offset the more positive developments in the ratio of housing prices to physician income.  This variable was introduced into the Index in 1996 because of the significance of owner-occupied housing costs on keeping and attracting physicians in Massachusetts.

Until 2006, annual changes in this variable adversely impacted physician living standards both in Massachusetts and nationally.  In 2007 and 2008, housing prices declined, but physician income continued to rise, thus providing a partial, real income effect.  The actual data are displayed in the table below.

Massachusetts and US Housing Prices and Physician Incomes, 2006-2008 (in thousands)

In interpreting these data, one must keep in mind that housing values and income levels represent the statistical medians; that is, the midpoint in the distribution of prices and income with one-half of the distribution of housing values and income falling on either side.  While this caveat should be noted, the much more important issue is whether this real income effect may be expected to continue.  Certainly, income levels will advance, but it is highly unlikely that housing values will continue to soften much longer.  Consensus estimates suggest that housing prices will bottom out in 2009 and will most likely move upward in 2010.  At that time, this important variable may once again exert its negative influence on the Massachusetts Practice Index.

Factors Underlying the Total Cost of Maintaining a Practice in Massachusetts and the United States: 2001-2007 and 2007-2008

In earlier Index reports the physicians’ office operating expenses have been singled out as a significant contributor to higher differential costs in Massachusetts vis-à-vis the country.  In this year’s Index report, professional liability costs have been combined with operating expenses to create a more accurate estimate of the total cost of operating a practice.  The specific details are shown in Table 4 below; note that there are six separate variables that are aggregated to this total operating cost figure.

Factors Affecting the Overall Cost of Maintaining a Practice Including Professional Liability Fees

* Average Weighted Increase was created by weighting Wages, Office Space Cost, and Medical Supplies and Professional Liability Fees based on findings from the MMS Workforce 2009 Study.

These details provide considerable insight into the areas where differential operating costs are having an adverse impact on the Massachusetts physician practice environment; two of the most important are clearly evident in the 2008 figures.

• First, there has been a dramatic advance in wage rates in Massachusetts.  The wage differential had begun to widen over the past several years.  Specifically, as recently as 2006 the Massachusetts wage differential for registered nurses relative to the US was 17 percent; by 2008 this differential increased to 22 percent.  Similar adjustments have taken place in the other occupations. 
• Second, there was a rather dramatic deceleration in the rate of increase in overall operating cost in the U.S. over the past year relative to the average rate of increase over the preceding six years. This slowing in the rate of increase is solely attributable to the sharp decline nationally in professional liability fees.
• Furthermore, because insurers depend heavily on investment income, the difficult financial markets could mean sharper professional liability rate increases in future years throughout the country.   While Massachusetts lagged behind the country as a whole during the period 2001-2007, this situation changed dramatically in 2008. 

Taken together, these data provide support to the conclusion that operating a physician practice in Massachusetts is an expensive proposition.

Concluding Comments on the Aging Physician Workforce in Massachusetts: An Under-Appreciated Problem

The proportion of actively practicing Massachusetts physicians is aging. This is shown clearly in the following two data sources: 1) American Medical Association (AMA) Physician Characteristics and Distribution and; 2) Massachusetts Board of Registration data file.

A review of the AMA Physician Characteristics Data, which are displayed in the accompanying appendix and used in the Index shows that in 1992, 30.5 percent of physicians with a Massachusetts registration were 55 years of age or older.  In 2008 this ratio increased to 41.1 percent.  Without doubt, this increase is most disturbing and must be accorded greater attention, especially in light of the rapidly emerging shortage of physicians.  This is also an emerging issue for the U.S. as a whole as the percentage of physicians age 55 and over has increased from 34 percent in 1992 to 44 percent in 2008.

This conclusion is supported from an analysis of the more disaggregated data from the December 2008 Massachusetts Board of Registration file which identified those physicians with a full and active license and a Massachusetts business address. Indeed, there is a disturbingly high proportion of physicians over 55 years of age here as well.  The data is shown in the table below.

Currently Practicing Massachusetts Physicians with a Full and Active License and a Massachusetts Business Address Massachusetts:
December 2008 Board of Registration Data

Two important points may be made about these data:

• The dominant quartile is the over 55 age category.  The sheer magnitude of this proportionality indicates that within the next 5 to 10 years the state may be losing large numbers of currently practicing physicians.
• The smallest quartile is the under 35 age group.  This indicates that the early phase of the physician pipeline may not be as strong as it needs to be to fill in the emerging gap as the over 55 year olds exit their practices.

Unquestionably, these two factors present a most unenviable picture of the medium-term physician supply situation in Massachusetts.  And note well that this will occur in the face of rising patient demands.

These conclusions are exacerbated by two other well established facts.

• Inasmuch as Massachusetts is recognized as a world leader in medical practice and research, it has consistently attracted many students to its medical schools.  Indeed, there are currently over 4,500 medical school residents and fellows receiving their training in Massachusetts.  Yet MMS studies show that over the past nine academic years, 54 percent will leave Massachusetts to pursue their careers elsewhere.  An improvement in the Massachusetts practice environment could likely tilt the career plans of these young physicians toward Massachusetts; thus make a positive difference in future workforce trends.
• The MMS Workforce Study also revealed that in 2008, 29 percent of practicing physician respondents reported that they are planning a career change because of the adverse practice environment.  If extrapolated to all practicing physicians (see Table 5), this percentage would represent approximately 7,500 physicians, meaning among practicing physicians, one-third would consider early retirement.

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