U.S. Doctors: Good PR on Their Pay and Plight

U.S. doctor groups have ensured that prices of their services remain multiples above elsewhere in the world. At their behest every year Congress overrode a 1997 law provision that cut Medicare rates to keep expenses per beneficiary at par with growth of GDP.  Then on Apr. 16, 2015 this law was revoked and replaced with one that protected or raised rates in coming years.

Now doctor and other healthcare players are pushing to kill the Independent Payment Advisory Board (IPAB) set up under Obamacare to control costs if prices rise too much. This 15 member board has never been constituted because Senate Republicans have vowed to block any members nominated by President Obama. But hey, why risk a future Democrat dominated Senate seating this Board and spoiling the party?

In Sep. 2010 I wrote about the need and the path to overcome artificial doctor shortages that complement powerful lobbying as a root cause of high prices. Others too have written about the medical cartel boosting MD salaries and ostensibly pro-competition Republicans supporting such a cartel. (Remember, it was Republicans who through their 1997 law capped doctor residencies, worsening and permanently entrenching doctor shortages and a sellers' market for their services.)

But these voices have largely been lost in mainstream media that buys the narrative of doctors being squeezed by current health trends. It has fooled even the foremost journalists who have exposed healthcare overpricing in the past couple of years.

Steven Brill whose Mar. 2013 Time cover article "Bitter Pill" first created waves earnestly agrees (including at 3min. 45 secs of this Jon Stewart interview) that "doctors don't make the money". He says that most of the excess payments go to hospital CEOs, citing some who make over $4 million a year. But CEO compensation is typically under 1 percent of hospital revenues. So where does the rest of the bounty go? Answer (that Brill would also have discovered if he had truly "followed the money" per his claim): lots of it in one form or another goes to doctors.

Elizabeth Rosenthal augmented Brill's Time expose with a series of "Paying Till It Hurts" articles in the New York Times about abusive pricing of medical services. Amazingly, she too in a May 17, 2014 article asserts that doctors "are on average right in the middle of the compensation pack." Her logic is that typical physician earnings are less than those of health insurance and hospital CEOs. She is comparing average wages in one profession with those of the top functionaries in others. She may as well say that doctors earn much less than those in the fast food line because, you see, the CEOs of McDonald's and Starbucks make nearly $10 million a year.

While doctor groups typically operate behind scenes, they also need to counter public perceptions about excessive earnings. Otherwise popular outrage can pressure political leaders to ease up on support. Key factors help doctors' PR efforts: flawed data understating their true earnings, and healthcare academics and even public agencies like the HHS shying away from exposing them. This causes the media to accept justifications by doctors that are buttressed by obliging health experts and economists. These last are mistaken for objective arbiters of facts when they are often paid shills who conceal or downplay their incentives and financial ties to the industry.  

An example is David Cutler of Harvard whose one-sided 2011 study justifying high doctor salaries is widely quoted by their groups.  I'd also include the "liberal" Uwe Reinhardt of Princeton who highlights high costs of US healthcare but helps absolve the industry with fuzzy conclusions when he ought to know better. Of lesser eminence is Duke University Researcher Christopher Conover who does more obvious hack jobs, like rebutting Steven Brill's expose of exorbitant hospital pricing.

These three are all quoted in medical doctor Kevin Pho's July 2, '14 Op-Ed "Doctors Are Not Overpaid" in USA Today. Dr. Pho's piece contains all the points typically made by U.S. doctors to defend the extent of their earnings, and the system that makes this possible. All four of Dr. Pho's defenses are flawed. Yet in the past year they haven't been rebutted in any major publications. So it is worthwhile to comment on them:

Defense 1: We shouldn't compare the compensation of U.S. doctors' with doctors in other countries.  Instead, we should compare it with the top earners (1% or 5%) in each country. By that measure David Cutler found (Table 2 at p. 12) U.S. physicians (with average salary of $230,000) were less well paid relative to their peers.

I agree an average salary of $230,000 for U.S. doctors is reasonable and justified. The problem is that this figure is bogus - something Cutler should well know - and vastly understates true doctor earnings. When you peel away the onion layers of quoted sources, this number comes from the AMA, the doctors' own trade group, which is acutely aware that understating it helps protect and justify doctors' current fee structure.

How much do doctors really earn? Sadly, per my March 2010 post HHS doesn't bother to find out, or even identify unbiased sources. A Jan. 27, '15 report in The Atlantic shows much higher (though still underestimated) earnings. Taken together with pay data from physician recruiters like Merritt Hawkins, actual average doctor earnings are likely twice as high as in Cutler's quoted surveys. And why should the average U.S. doctor feel entitled to being well within the top 1% of earners when their peers are not quite in this stratified bracket elsewhere in the world?

Defense 2: It takes more financial capital to become an independently practicing doctor.  Christopher Conover calculates that the rate of return for doctors on their cost of education "paled in comparison with those pursued degrees with shorter and less expensive training, such as business or law."

How can you justify the extra 1 - 2 years of education costing $60K - $120K to get an MD as paying you an additional $100K - $200K every year for the rest of your career? Doctors enter residency after eight years of post-high school education, when they become financially independent (though earning just a fraction of what they'll make when fully trained in 2 - 5 years.) Compared to this, MBAs spend six years, law graduates seven years and doctoral students seven to nine years after high school. So the difference isn't that much. Moreover, why do our medical schools not simply admit applicants after high school as is done in the rest of the world? Then getting an MD prior to residency will incur the same time and expense as getting through (undergraduate) college.    

Defense 3: Doctor salaries are modest compared to administrators like insurer CEOs and hospital administrators with an average base pay of $583,700 and $236,800 respectively. 

First, as explained earlier, actual doctor earnings are much higher than those salary surveys indicate. But more importantly, like Elizabeth Rosenthal above, you are comparing the average doctor salary with that of the top executives in hospitals and insurance companies, which makes no sense.   

Defense 4: Slashing physician salaries won't save much. Uwe Reinhardt says doctor salaries are about 10% of total health costs, so halving them will save only 5%.

According to CDC's Health, United States, 2014 (Table 103) Doctor fees for services separately billed by them is 20% of total health expenses while hospital charges are 32%. Of these latter a substantial though undisclosed chunk also goes to doctors on staff, and so does a certain proportion of expenses on drugs (9.3% of total) and medical devices and products (3.4%), and so on. So (surprise, surprise) though no precise data of this exists, doctors' earnings from all sources can account for over a third of all medical expenses. Aligning pricing and consequently these earnings closer to those in other countries will save a lot more than doctors and their experts claim.

As I wrote in March 2011 there are administratively easy ways to massively lower our health expenses. These can face stiff opposition from entrenched interests including doctor groups benefiting from the present system. Their efforts to shape public opinion should be appropriately weighed against the facts.