mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
The Promise of Technology
Skyrocketing Doctor Salaries Point to Structural Problems

One of the drivers of growth in health care costs is rising doctor income. The New York Times has an excellent piece on this phenomenon as it pertains to specialist doctors and the procedures they do. Some specialists have seen their salaries increase by more than half after inflation since 1995. More:

“The high earning in many fields relates mostly to how well they’ve managed to monetize treatment — if you freeze off 18 lesions and bill separately for surgery for each, it can be very lucrative,” said Dr. Steven Schroeder, a professor at the University of California and the chairman of the National Commission on Physician Payment Reform, an initiative funded in part by the Robert Wood Johnson Foundation.

Doctors’ charges — and the incentives they reflect — are a major factor in the nation’s $2.7 trillion medical bill. Payments to doctors in the United States, who make far more than their counterparts in other developed countries, account for 20 percent of American health care expenses, second only to hospital costs.

In the face of rising health care costs a popular approach to reform has been to shift costs around by means of subsidies and mandates. This is essentially what Obamacare is. But what stories like this show us is that subsidies isolated from reform are just serving to prop up a status quo that is deeply unsustainable. Helping people to get access to a system that is more expensive than it should be, and that is getting more expensive as time goes on, is not good policy. If we just keep raising subsidies to keep pace with increasing costs, we will eventually go broke.

This is one of the reason America’s health care policy problem is much more dire than its budget deficit problem: With cheaper health care, our long term fiscal prospects look strong. Without it, all of our entitlement and budget challenges become much worse.

Features Icon
show comments
  • Boritz

    Doctors should earn In the low six-figures. That’s all they need to make. Of course if Tom Cruise makes $20 million in four months by pretending to be a doctor there’s nothing wrong with that.

    • Andrew Allison

      From each according to to his ability, to each according to his need???

    • TommyTwo

      Whaddaya mean pretending to be a doctor?!

  • Bill Bond

    I do not believe that the NYT piece notes the percentage of health care costs absorbed by insurance companies. As these companies decrease payments to providers, their own profits are static and protected.

    • Jane the Actuary

      insurance companies, in virtually all cases (except where there is effectively a single provider in a region) do need to compete, for the individual purchaser’s business, or that of the employer contracting for his employees.

      • Andrew Allison

        Jane, that’s not quite accurate. The requirement that an insurance company be registered in, and regulated by, every state in which it does business limits competition (which, BTW, brings up the question of where Congress gets off mandating the terms of coverage). ACA makes it even worse: on the Covered California exchange, for example, there are just two companies offering quotes, and they differ by less than 1%. One might argue that they are offering exactly the same product, but so are your friendly local Ford dealers, and their prices vary by a lot more than 1%.

        • TommyTwo

          This brings to mind the argument made by free market evangelists that monopolies or cartels generally can only maintain their positions through government action.

  • qet

    First, consider this statement from the article: “Many specialists have become particularly adept at the business of medicine by becoming more entrepreneurial, protecting their turf through aggressive lobbying by their medical societies, and most of all, increasing revenues by offering new procedures — or doing more of lucrative ones.” Except for the lobbying part, this is EXACLTY what Via Meadia continually not only praises, but insists must needs occur, if we are all to cope with the new knowledge-based service economy. Entrepreneurship and increasing revenues: these are positives in every economic sector but health care. What about the MOOC-educated workers who got jobs at the local ultrasound or MRI plant? High medical prices support their jobs, which in another context Via Meadia would eulogize to high heaven.
    Second, I had the procedure described in the article. The cancer form is basal cell carcinoma. I had the Mohs procedure but wasn’t sent to a plastic surgeon for stitching. I have no idea what it cost but I’m sure it was plenty. The Mohs is good because, as described, it removes only the tissue afflicted. Failure to use it would mean one of two things: (i) a statistically significant recurrence of the carcinoma, requiring another procedure ($$$), or (ii) removal of a much greater amount of tissue in the first procedure, increasing its cost ($$$). If I had to guess, I’d say that it is just as probable that the reason the Arkansas dermatologist sent the woman to a plastic surgeon was to make it rain on some fellow doctors as that it was to protect against future liability. These carcinomas afflict the face and some people are very sensitive about their appearance. If a dermatologist diid the stitching and left a permanent scar on someone’s face, I can easily imagine a statiistically significant number of malpractice suits. My impression is that insurance companies have gotten pretty good at figuring out when a procedure is “excessive” relative to the expected value of the total costs.
    Third, everything gets more expensive, not just medicine. I know it’s a cliche by now but that doesn’t make it less true: people willingly shell out $$$ for the newest iPhone (now in bolder colors!!) or sneakers or barbecue grill. Not hearing complaints about that. If someone can’t or won’t and goes without, it is not considered a public policy crisis. Via Meadia is going to have to face The issue squarely in the face: is Via Meadia willing to live in a society that suffers anyone–ANYONE–to go without health care because they can’t or won’t pay for it themselves? That is the bedrock question on which the entire public policy debate is founded. Consider that Steve Jobs went without medical procedures willingly and died as a result. So we have at least one case where we can estimate that Via Meadia would answer “yes.” Now consider that it has just been reported that many people are refusing to sign up for Obamacare because it would place them into a state Medicaid program and state laws allow the states to seize the assets of Medicaid recipiients after they die to recoup some of the costs of their care. Such people not only are refusing to spend their assets (however modest they might be), on their own care while alive but are even refusing to enroll in Obamacare and have health insurance at all owing to the risk of having their assets seized and applied after their deaths (and I am certain that a great many of these same people would say they support a confiscatory estate tax). So are rising medical costs really the principle public policy crisis? I think not.

  • Andrew Allison

    Just to be clear, the article states, “Specialists earn an average of two and often four times as much as primary care physicians in the United States, a differential that far surpasses that in all other developed countries, according to Miriam Laugesen, a professor at Columbia University’s Mailman School of Public Health.” Let’s not tar primary care physicians with the specialist brush. As an aside, the former are starting to offer $50 office visits without insurance from coast-to-coast.
    Specialist make a lot of money for the same reason banksters and CEOs do: because they can. The solution, as TAI has been consistently pointing out, is more transparency (and greater, rather than less patient co-payment), starting with up-front disclosure of costs.

    • TommyTwo

      For example, if I have a direct financial stake and my physician informs
      me that he will “freeze off 18 lesions and bill separately for surgery
      for each,” I am likely to strenuously object. If this is all
      mysteriously taken care of by my insurance company, meh.

      • Andrew Allison

        Yup. As suggested previously, the first step is (as in any other commercial transaction) to require full disclosure of the cost BEFORE (non-emergency) procedures are performed. Implementation would be trivial: no disclosure, no payment.

    • Jim__L

      For those in love with government solutions, one that would actually be helpful is for state universities to double the size of their medical programs. Supply and demand…

      • Andrew Allison

        I beg to differ. Aas I pointed out above, the problem being discussed is the exorbitant charges made by specialists and hospitals. As Fat_Man suggests below, we are not far below OECD in terms of, presumably, primary care physicians. Doubling their supply would make it even harder for them to make a decent living.

        • Jim__L

          So what would stop the new medical graduates from becoming specialists?

          • Andrew Allison

            About ten years and $250K or more in debt, by which time the existing ones, and the hospitals which are just as much a part of the problem will, unchecked, have bankrupted us all.

  • free_agent

    Given that basically no other country has this problem, it seems like we could solve it by copying the system used in one or another other advanced country. There’s no evidence that we *need* any innovation to solve the problem.

  • Fat_Man

    The US has 2.5 doctors per 1000 pop. Other OECD countries run over 3. Clearly we need to have more seats in Medical Schools.

    In the US it is common to have medical students accumulate more than $200,000 in student loans. They cannot pay that debt with GP salaries. The problems go on.

    In order to break the supply side bottleneck for doctors, we need to restructure physician education.

  • free_agent

    So while “managed care” has controlled what has been paid to primary care doctors, specialists have avoided the problem by shifting patients to more expensive procedures (or combinations thereof).

    Of course, insurance companies could stop this by simply striking such specialists from their networks, but workers with enough leverage, the ones with “good insurance”, don’t like that. But the new, affordable Obamacare policies seem to be doing that. And yes, patients are complaining about narrow networks. But if enough patients are in networks that exclude entrepreneurial specialists, it should start putting serious downward pressure on specialists’ incomes.

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service