Every other year the American Orthotic and Prosthetic Association (AOPA) collects data on O&P companies and O&P wages. This allows for tracking of patterns and comparing compensation across the industry. As the data grows, trends emerge regarding wages. I have been observing that paychecks in the United States are not keeping up with the rising cost of goods. According to Fox Business News, the “average American family lost $6,000 in annual wages” in 2022 due to the rise in the cost of everyday expenses.1 Reading articles like this made me wonder how O&P wages have fared as compared to inflation and the overall buying power of the money we earn. Maintaining livable wages for O&P staff is critical to keeping qualified and knowledgeable experts in the profession while promoting industry growth.
When investigating inflation, our first question must be, “How is inflation measured?” The government measures inflation through a standard called the Consumer Price Index (CPI). The CPI is defined as “the cost of living required to maintain a constant standard of living.” Historical context is required to really understand what the CPI is. From 1913 through 1990, the CPI counted housing, food, fuel, goods, and services as a general picture of the economy. In 1990, the government changed the definition of inflation from “the cost of living” to “the cost of living needed to maintain a constant standard of living.” This allowed the government to change the way food, energy, and housing are considered in the equation, leaving primarily consumer goods and services.
Wages
Many of us have gotten raises over the last few years, but the feeling that they are not enough never goes away. The data tells us that the average ABC-certified O&P clinician earned $20,233 in 1977, and in 2021, 44 years later, earned $96,137, which is 475 percent more. According to the Bureau of Labor Statistics CPI calculator, ABC-certified clinicians should be making $95,190.44. This indicates wages increased remarkably close to the government reported CPI numbers.
How about technicians and administrative staff? The average ABC-certified technician earned $45,583 in 2008 and in 2021 earned $48,477, a 6 percent increase over 13 years. The average administrative employee wage, including all positions, was $36,720 in 2008 and in 2021 was $49,906.69, a 26 percent increase. During the same period, the CPI increased 19.31 percent indicating that technician wages did not keep up with the reported CPI during that time, according to AOPA’s compensation and benefits reports from 2008-2017. It is interesting to note that the administrative wages were much closer to the CPI than the technical wages. This might have been due to market forces, since technical and clinical employees cannot find work in other fields as easily, whereas a receptionist or office manager could more easily transfer skills to another industry. This would necessitate higher pay to keep them employed at an O&P company.
If clinicians are earning wages close to the CPI, why does it feel like their paychecks are not going as far as they used to? How do wages line up against crucial areas of life such as housing, energy, and food, which are not equally reported in the CPI? To keep things simple, we will compare just the ABC-certified clinician salary, but you can extrapolate for other positions.
Housing
In 1977, the average home cost was $54,300; in 2022 it was $525,000.2 A clinician in 1977 could buy a house with 2.68 years of work, in 2022 it takes 5.46 years. Said differently, the clinician must work twice as long to buy an average home.
Energy
Energy costs increased 17.6 percent in 2022.3 In 1977, the average price of a gallon of gas was $0.62.4 In November 2022, it was $3.87.5 This means that the cost of fuel is up 624 percent. In 1977 a clinician earned enough to buy a gallon of gas in 3.75 minutes. Today it takes 4.93 minutes for them to earn enough to buy a gallon of gas. They must work 24 percent more for that gallon of gas.
Food
Food costs have risen 252.8 percent since 1977. In the last year alone, food costs increased 10.9 percent.3 The CPI in that period rose 239.5 percent. So, the average person is spending 13.3 percent more on food than in 1977 as compared to other expenses. He or she has 13.3 percent less expendable income than in 1977. For some perspective on this, 13.3 percent of a work year is 276.6 hours or almost seven more weeks of work in 2022 versus 1977.
If we are spending more on housing, energy, and food, and O&P clinical wages are at CPI levels, then expendable income has shrunk dramatically. Our nonessential spending is significantly less than it was several decades ago. We see that our dollars just do not go as far on essential expenses. Another way to say this is that the buying power of the dollar has shrunk. What is more, because of inflation, the purchasing capacity of our time has shrunk drastically, as time equals money. To earn the same buying power as the previous generation of O&P staff, we must work significantly harder. Time is not moving any slower, meaning we must be more productive in the same amount of time to earn the same purchasing ability. From the employee’s perspective, the easy answer is to “pay us more.” However, since most prices in O&P are based on Medicare and insurance contracts, businesses cannot just raise prices to meet the needs of their employees.
We see we have to work harder, but how much harder? How does that translate to work? Companies need revenue to pay employees. Employee productivity generates revenue, but not all the revenue returns to the employee. Some goes to the cost of the items dispensed or components used, some goes to overhead, such as rent, utilities, taxes, and maintaining contracts and credentialing, and then some goes to payroll. Payroll in the recent past is 30-35 percent of the total expenses of the average O&P company. Therefore, assuming expense ratios stay the same, a third of the revenue generated comes back as wages. For example, a 7 percent pay raise requires a 21 percent increase in productivity to generate the revenue to make that raise possible.
Continuing this line of thought, let us say you want to earn the same buying power as a clinician in 1977. Real buying power is close to half of what it was in 1977; using the assumption that only one-third of revenue comes back to staff in salaries, you would need to produce six times as much as a clinician in 1977 to earn the same buying power (2022 buying power/1977 buying power x 3 = 6). If a clinician in 1977 saw six patients a day, you would need to see 36 patients a day to earn the same amount of buying power, one every fifteen minutes in a nine-hour workday without breaks.
This helps explain the constant complaining about the weight of audits, and the time it takes to write letters, chart, and perform outcome measures. It is because we must see more patients just to generate the same purchasing ability. If you look back at older clinicians seeing how they lived a life you can only dream of, inflation might be why.
In a review of O&P business expenditures since 1977, we find that in the 1970s-1980s, clinics earned a 15-17 percent profit margin, which is normal for small businesses and allows for growth and reinvestment. In 2021, this number had shrunk to 6-8 percent. One consistent data point is the percentage of clinical wages to top-line revenue. Since 1977, 14-18 percent of top-line revenue has gone to clinical wages. I would expect this ratio to start changing in the next couple of years as clinics must pay employees more so that employees can maintain a reasonable standard of living. As documented in the article “The Big Squeeze” in the December 2022 The O&P EDGE, Medicare payments are lagging severely behind the CPI. Profits and wages are on a collision course. As profits continue to shrink due to the shrinking reimbursement from Medicare, Medicaid, and commercial payers, and the rise of wages continues, these will collide in ten to 15 years unless there are changes in our payment system. This collision will reduce wage increases to be equal to the Medicare price increases, which historically have been half of the CPI increases. Keeping qualified, inventive clinicians and technical staff at this point will be difficult.
What can be done about this? As wages are intrinsically linked to top-line revenue, the only way to provide reasonable wages and purchasing power is to generate more revenue. There are two ways to do this within the current payment model. The obvious one is to see more patients, and this can be done with the use of care extenders. Orthotic and prosthetic assistants can allow clinicians to see more patients in the same amount of time without paying two or three clinicians. For administrative staff, additional levels of automation, such as automated receptionists, may soon be used. The second is increased reimbursement for each service we provide. The most effective way to do this is to increase Medicare reimbursement. This will eventually translate to wages. Making drastically increased reimbursement a priority to our lobbying bodies and political arms of O&P is critical for us to support our wages, allowing all of us to supply care and change lives in the current payment model.
The reason I am framing the answer “within the current payment model” is that there is truly little hope for O&P to get the massive raises needed to bring our reimbursement back to financially healthy levels. Coaxing Congress into doubling our pay while they are being told by the Social Security and Medicare trustees that the trust funds will be exhausted in 2035, 13 years away, seems like an impossible task. When the Social Security and Medicare Trust becomes insolvent, a mandatory 20 percent cut in Social Security benefits and a 10 percent cut in Medicare payments will occur by law.6
Within 13 years, our profession will have to produce a business model built on direct payment from patients. If we are going to pay the people who will move this profession forward, we must pay them what they perceive their worth to be or they will move to other industries, which will be to our demise as a profession.
Creativity is a cornerstone trait of the O&P industry. Let us put that creativity to work and build an industry which will stand the test of time, allowing us to keep the world moving.
Nathanael Feehan, LPO, is a business consultant and CEO of Master’s Orthotics and Prosthetics, Washington. He can be contacted at nathanael.[email protected].
References
- https://www.foxbusiness.com/politics/average-american-family-lost-6000-annual-wages-biden-inflation
- https://fred.stlouisfed.org/series/ASPUS
- https://www.bls.gov/news.release/cpi.nr0.htm (accessed 11/11/2022)
- https://www.dollartimes.com/inflation/items/price-of-a-gallon-of-gas-in-1977
- https://gasprices.aaa.com/state-gas-price-averages/
- https://www.crfb.org/press-releases/social-security-and-medicare-are-approaching-insolvency
