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 Then on Apr. 16, 2015 this law was
revoked and replaced with one that protected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.
