No one really knows how much Ontario’s medical professionals pay in work-related expenses — save for the taxman and individual physicians.
Yet overhead costs — such as office space, staff salaries and equipment — are a major factor in determining how much doctors are paid. And how much they are paid may influence what areas of medicine they choose to specialize in, which could be leading to shortages in some fields.
The overhead issue was fiercely debated during arbitration hearings that led to a new contract between the Ontario Medical Association and the provincial government earlier this year.
The province argued that taxpayers are paying doctors $1.2 billion too much to cover costs. The OMA, which essentially acts as the doctors’ union, insisted otherwise.
The overhead issue was also raised by the OMA in court battles aimed at trying to prevent the Star from publishing physician-identified OHIP billings. The organization expressed fear the public would not understand that doctors pay for work expenses and might confuse gross billings with net income.
Throughout the Operation Transparency series, the Star has emphasized that doctors have overhead expenses, sometimes very large ones.
The Star has created a searchable database that reveals, among other things, how much each of Ontario’s top-billing doctors receives in gross payments from OHIP, what services pay the most, how many days they work and how many patients they see.
What it doesn’t show is how much of their billings is income and how much goes to overhead expenses.
That’s because this data is not publicly available; the province does not collect it.
But demands for more transparency on overhead are increasing.
“These are tax dollars so transparency should be the rule,” said Dr. Rick Glazier, a senior scientist at the independent Ontario research organization ICES, a professor at the University of Toronto and a family doctor at St. Michael’s Hospital.
“It’s a huge missing link. It’s not possible to have an informed discussion about physician compensation without the overhead part,” he said.
During arbitration hearings, both the government and OMA presented a three-member arbitration board with reams of evidence — complete with charts, tables, studies and audits — to argue their positions on overhead.
The OMA maintained, as it long has, that 30 per cent of total billings, on average, goes to covering overhead. Some medical specialties pay more, others less. In arguing for fee hikes, OMA negotiators said overhead costs are rising faster than the rate of inflation, but doctors are prohibited from passing those extra costs on to patients in a single-tier health system.
In recent history, the government has not challenged the 30 per cent overhead figure — that is, not until the most recent contract dispute went to arbitration last year. The government’s negotiating team did its own math and concluded overhead is actually 10 per cent lower, amounting to 20 per cent of billings, on average.
The difference between the two positions — $1.2 billion — amounts to 10 per cent of the entire $12-billion annual physician services budget.
Government negotiators charged the OMA overhead number was wrong because it came from inflated, self-reported data from surveys with low response rates. A 2011 study of one such survey found that responders overestimated overhead and underestimated gross billings, government negotiators said.
The government team also argued that doctors benefit from the province paying 80 per cent of the premiums for their medical liability insurance and also from the tax advantages they gain because they are allowed to incorporate.
But OMA lawyer Steven Barrett pointed out the 30 per cent overhead figure is accepted across the country.
“If it is a mistake in Ontario, it would have to be in the rest of the country, too,” he charged, arguing that would be highly unlikely.
The arbitration board was not persuaded by either side of the overhead debate and urged them to reach a consensus before they go back to the bargaining table for their next contract. The current contract expires in March 2021.
“The matter of overhead costs is of concern given the delta between the ministry and the OMA estimates,” the board wrote in its February decision.
“On the one hand the ministry’s methodology raises concerns, but there are also flaws in the results relied on by the OMA (they are largely self-reported and some of the underlaying assumptions raise more questions than answers among other issues),” the decision continues.
The amount doctors pay in work-related expenses varies between and within specialties, as well as by type of practice, practice setting and geographic location. Rent for office space in Toronto is higher than elsewhere in the province. Some specialties require use of sophisticated, pricey technology while others require no such investment. Specialists who work only in hospitals typically have lower overhead costs than counterparts who work in their own clinics in community settings.
An oft-cited source of information on the province’s overhead is a 2012 study that appeared in the journal Health Policy. It notes that mean overhead ranges from 12.5 per cent of billings in emergency medicine to 42.5 per cent in ophthalmology. The provincial average is 28 per cent.
The paper explains that when overhead is taken into account, it substantially affects the amount of physician incomes, as well as the income ranking of medical specialties.
For example, ophthalmologists rank as the second-highest billing specialty (behind radiologists). But when their high overhead is taken into account, they drop to eighth in the income ranking.
Conversely, hospital-based specialists such as anesthesiologists, radiation oncologists and emergency medicine specialists tend to have low overhead costs, the study notes. And when their billings are adjusted for overhead, they jump in the ranking for net income.
The paper shows how overhead can vary substantially within specialties. For example, 41 per cent of diagnostic radiologists spend 10 per cent or less of their billings on overhead; 27 per cent spend 11 to 29 per cent on overhead; and 31 per cent spend 30 per cent or more.
The Ontario Association of Radiologists told the Star that overhead is even higher, accounting for more than 70 per cent of billings.
The Health Policy study was based, in part, on self-reported data from the 2010 National Physician Survey, which had a response rate of only 18.5 per cent.
“Self-reported overhead … has a substantial effect on physician income. … Given the lack of complete data, it is difficult to construct a complete account of physician income in Ontario,” the paper states.
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“Our study highlights the difficulties in gathering reliable data on physician income and overhead. Given the public interest in ensuring that physicians earn an appropriate income, the large amount of public funds paid to physicians and the fact that many physicians operate as independent contractors, more complete data should be collected about physician earnings, both before and after the inclusion of overhead,” it continues.
Provincial auditor general Bonnie Lysyk added her voice to the growing chorus of demands for reliable overhead data in her 2016 annual report. In calling on the Health Ministry to obtain accurate numbers, she wrote that it is difficult to assess the fairness of large disparities in gross OHIP payments, both within and between specialties.
“Not all physicians think these differences in fee-for-service billing rates are justified. Some physicians who responded to our survey commented that non-procedural specialists, such as pediatricians and psychiatrists, have been underpaid compared to procedural specialists such as ophthalmologists, because the former spend significantly more time with patients and their family members,” the auditor’s report said.
Procedural specialists do procedures such as surgeries and diagnostic testing. They can have higher-volume practices than non-procedural specialists who devote much of their time to patient visits and consultations.
“To get a better understanding of the significant variations in physician compensation within and between specialties, the Ministry of Health and Long-Term Care should obtain accurate information on physicians’ practices, including their operating costs and profit margin in providing OHIP services,” the report said.
Glazier, one of the authors of the Health Policy paper, warned that underpaid specialties suffer from shortages. Medical students, many of whom are saddled with large debts, tend to prefer to specialize in higher-paid specialties, he noted.
“We have a great shortage of doctors in needed areas like geriatrics, rehabilitation medicine and family medicine, at least in part because those doctors are underpaid relative to other specialties,” Glazier said. “Having the right mix of specialties to serve the population matters to everyone who cares about our health system and population health.”
Net income needs to be accurately calculated to determine if different specialties are paid fairly relative to one another, Glazier explained, adding that it can be established by subtracting overhead from gross billings.
“Gross billings alone can be misleading,” he said.
“Relativity is best judged by take-home pay,” he continued, referring to the term used to describe disparities between what different specialties make.
“Doctors care about fairness, and being underpaid relative to other doctors for work of similar complexity, risk and training undermines morale and feelings of value,” he added.
The arbitration board, which was chaired by well-respected arbitrator William Kaplan, urged the government and OMA to “collaboratively and comprehensively” resolve the overhead matter before the current contract expires. It advised commissioning an objective, professional study to determine actual overhead costs in different practice models and specialties.
Sources on both sides say the issue has yet to be tackled.
But Glazier has some ideas on how this could be done.
The most accurate source of overhead data is contained in physicians’ tax returns and held by the Canada Revenue Agency, he noted.
“Tax files are the way to go. A third party could conduct de-identified research on earnings and overhead by specialty, urban-rural location and hospital-based versus community-based status,” Glazier said.
Such a research project would first have to go through an approval process and get the nod from a research ethics board, he said. The findings could then be used in future negotiations between the province and OMA.
“That would give us the best chance of having an informed discussion about relativity between specialties in take-home pay. At the end of the day, this is taxpayers’ money. The only way the public can understand the value of the services that doctors provide is to know what their take-home pay is,” Glazier said.
The government cited a challenge posed by such a study in a written brief filed during arbitration: Physicians often report their businesses to the CRA under their spouses’ names or other business entities.
Observers also point out that voluntary participation in this kind of research would result in a response bias.
Theresa Boyle is a Toronto-based reporter covering health. Follow her on Twitter: @theresaboyle