How Revenue is Spent at the American Medical Association (AMA)
The American Medical Association (AMA) is a non-profit 501 (c) (6) – a professional association and the largest association of physicians – whose primary purpose is to:
- publish the Journal of the American Medical Association (JAMA) – a peer reviewed medical journal that includes original research, reviews, and editorials of medicine;
- maintain a code of medical ethics,
- create and maintain physician data which is sometimes referred to as master files; and
- update and maintain medical classification codes (referred to as CPT codes) used by the government, medical practices, hospitals, and insurance companies in return for royalty fees.
Although the AMA is a professional association, membership dues are surprisingly not a large source of revenue for the organization. There are about 1 million physicians in the US, but only about 215,000 belong to the AMA. Members pay about $400 annually although medical students and residents do not pay the annual fee. As such, dues account for a very small portion (about 12%) of the revenue stream for the AMA.
The AMA reported total revenue of $317 million in 2017 of which only $38 million (12%) came from membership dues. By far, the biggest source of revenue was from “royalties” which totaled $148 million (47% of revenue) followed by subscriptions, reprints, and credentialing ($58 millions or 18% of revenue), inventory sales ($26 million or 8%), investment income and gain on the sale of assets ($23 million or 7%), advertising ($15 million or 5%), and other sources ($9 million or 3%). In essence, nearly 80% of revenue comes from 3 sources: royalties, subscriptions, reprints, and credentialing, and membership dues.
Royalties is a general term for the fees paid by any doctor, group, practice, hospital, or payers (i.e. insurance companies, Medicare, Medicaid, etc) who uses the CPT (Current Procedural Terminology) Codes/Booklets/Etc (a medical code set established and maintained by the AMA) that the AMA established to classify medical, surgical, and diagnostic services. This is by far the largest source of income to the AMA who holds the copyright for the CPT Coding system. Therefore, any person or organization that uses the codes must pay license fees (royalties) for the use of the codes.
Expenses totaled $291 million and were categorized as follows:
- $155 million (49% of revenue): Compensation (including $10 million to 14 employees)
- $ 32 million (10% of revenue): Office-related Expenses
- $ 23 million (7% of revenue): Fees for Services (i.e. consulting, accounting, investment, etc)
- $ 20 million (6% of revenue): Other Expenses (depreciation of $11 million; no detail provided on other expenses)
- $ 16 million (5% of revenue): Publications
- $ 15 million (5% of revenue): Advertising/Market Research
- $ 14 million (4% of revenue): Travel and Conferences
- $ 8 million (3% of revenue): Membership Solicitation/Telemarketing
- $ 8 million (3% of revenue): Grants
As illustrated above, compensation expenses for the 1,064 employees (average compensation of $145,700) used up almost half of the revenue collected in 2017, followed by office related expenses which used up 10% of income. Fees for services are fees paid to non-employees, most of which ($22 million) are not detailed on the 990 because the AMA is not required to if the fees are less than 10% of total expenses. In addition there were other fees of nearly $9 million of which no detail was provided (or required).
Grants totaled $8 million and were primarily to medical schools to develop programs to accelerate change in medical education. However, there were 2 large grants:
- $2.8 million to PCPI Foundation, which operates out of the same office address as the AMA in Chicago. The purpose of the grant was for general support. PCPI stands for physician Consortium for Performance Improvement and was established by the AMA to develop measurements in the medical field; and
- $1.0 million to Regenstriet Institut of Indianapolis, Indiana for sponsorship for development of teaching electronic medical records.
The AMA reported $33 million in net unrealizable gains on investments and also only spent $292 million out of the $317 million raised in 2017, which contributed to the increase in the net fund assets (also referred to as the endowment) from $489 million at the beginning of the year to $560 million at year-end.
Using the above information, $100 in revenue was spent as follows:
-$ 49: Compensation
-$ 10: Office-related Expenses
-$ 7: Fees for Services
-$ 6: Other Expenses
-$ 5: Publications
-$ 5: Advertising and Market Research
-$ 4: Travel and Conferences
-$ 3: Membership Solicitation and Telemarketing
-$ 3: Grants
-$ 92: Total Expenses
$ 8: Excess Revenue: To Fund Balance
As illustrated above, the AMA spent revenue on staff compensation, office-related expenses, fees to non-employees and other general expenses.
The Bottom Line:
The AMA raises about $300 million annually, primarily through royalties, subscriptions, reprints, credentialing, and membership dues. By far, the largest source of income is from royalties which are primarily the fees paid by doctors, groups, hospitals, insurance companies, and the government to use the CPT Coding System, a classification system established by the AMA for classifying medical, surgical, and diagnostic services.
Nearly half of all revenue is spent on staff compensation for the 1,064 employees (including $10 million to 14 employees), followed by office-related expenses, fees paid to non-employees, other expenses, travel, conferences, and more.
The AMA has $560 million in net fund assets (which is also referred to as the endowment) which is a significant sum.
To read the IRS Form 990 (2017) for the AMA, click here.