Greedy Doctors/Physician Compensation not the driver behind high healthcare costs

(Have you hugged your doctor lately? (Er, it’s flu season, please don’t, but feel free to direct health care questions and e-hugs to Daft in the comments thread here.) – promoted by ProgressiveCowgirl)

Some poorly informed individuals like to maintain that “greedy doctors” constantly raising their rates are part of why health care costs so much.  While this may appeal to a stereotypical emotional notion of doctors being rich beyond what they deserve, the facts say otherwise.  Physicians are paid according to Medicare and Medicaid formulas, and by Insurance companies under contract as a set percentage of Medicare rates.  

I could start charging $20,000 for a hysterectomy tomorrow, but United Health Care is still only going to pony up $1500 (Medicaid $1000.)  Physicians are prohibited by law from bargaining collectively, and our supposed national lobby, the AMA, is more interested in preserving the income stream they make from their CPT codes than representing physicians.  Most lobbying is therefore done by specialty associations who have their own parochial and occasionally conflicting interests.

For a long time, physician compensation has not kept up with inflation, and of course, the biggest expense driver of any medical practice/small business, particularly those that care to retain quality employees, is healthcare benefits, which any dolt knows have been increasing faster than inflation.  Of course, since medical care is so expensive, the potential liability awards in malpractice cases also become more expensive, and those rates have outstripped inflation as well.Does that sound like a sustainable business model?

Physician compensation must be measured against the opportunity cost invested in the years of medical training as well as the financial expense.  Becoming a doctor is expensive and time consuming, more so than any other profession. Your prejudices may support the notion that doctors are greedy, but  no honest commentator would say they are dumb and lazy.

The question is would paying these smart hard-working people less solve our health care cost crisis?  Consider that physician compensation represents 8% of all US healthcare spending, you could zero out all pay to “greedy doctors”, and you’d cut health care costs from 15% of GDP to 13.8%.

While doctors’ pay represents a small percentage, 100% of remaining costs are produced by the most expensive piece of medical technology that exists, the doctor’s pen.  How we order tests and procedures, and how we do them effects costs greatly.  Some docs can achieve the same quality of result at a lower cost than others, and there ought to be a way to reward them better than their  peers who get worse results or spend more money.  This would be geared toward the “more procedures=more money” mindset that the fee for service model engenders.

Of course if you want to enlist doctors in spending less on health care and making rational decisions in the patient’s best interest, demonizing them as greedy bloodsuckers more interested in their own financial well-being is a surefire way to incentivise those same smart hard-working people to go into business or law.

35 Community Comments, Facebook Comments

  1. Middle of the Road says:

    Most, if not all of it, is new to me so appreciate your effort to clarify what seems to be a pervasive myth.

  2. MADCO says:

    new pens?  A pencil?

    I know I know –

    single payer, universally accessible basic health care.  (Either publicly funded or regulated like the utilities.)  

    • DaftPunk says:

      But not the whole solution.

      You’ve described Medicare, but nothing stops doctors from over-prescribing expensive solutions.  Somebody has to say no, and that means rationing of some sort.  No one has the balls to say it, but spending less requires some restraint.

      • The realist says:

        conservative in the sense that he doesn’t overdiagnose, overprescribe, overexamine, overtest, overtreat, etc, etc.  I appreciate that approach — and I’m fine with being my own advocate when I need to convince him that I need/want to explore something further.  Too bad more patients don’t find and appreciate that approach in medicine.

        The best kind of “rationing” — by mutual agreement between patient and physician.

        • DaftPunk says:

          And it’s the ideal model for the doctor patient relationship.

          Some of my patients walk in knowing they want a hysterectomy, and some want to do everything medically possible for the same condition to avoid surgery.  Unfortunately, there is no apples to apples hard data as to which is more effective in terms of desired treatment effect, or long term cost, both in medical dollars and productivity dollars (days lost from work.)  

          I tell both patients all the options, and we work out a treatment plan based on her wishes and how I feel each treatment best fits her circumstances.  Besides co-pays and deductibles, and soft incentives like the star system I describe below, neither of us has a whole lot of stake in minimizing costs.

  3. In a different breakdown I read recently, though, “provider compensation” has grown at a rate vastly outpacing inflation, accounting for much of the above-inflation rate of health care cost growth.

    So if “provider” compensation keeps growing at such a large rate, and physician compensation doesn’t, where is all the money going?

    • DaftPunk says:

      Obviously you’d have to put the two reports side by side to tease out why they say different things.

      There are lots more “physician extenders” (Nurse Practitioner, Physician Assistant, etc) than there used to be, so presuming your claim to be true that would mean that Americans are having lots more health care visits and treatments than they ever did.  I’m skeptical of that.  I think the explosion is in expensive pharmaceuticals and technology.

      Regardless, this diary was meant to combat the notion that greedy doctors jack up their rates every year, when that is impossible.

  4. DavidThi808 says:

    Is to come up with best practices free of political pressure and lobbying and then enforce those practices.

    • DaftPunk says:

      Thanks for the Lullz!

      Is there any endeavor in life (let alone one in which 1/6 of the economy is at stake) that can be made free of factions and counter-interests?  

      Let’s say a hysterectomy should only be performed vaginally or laparoscopically, and you get a $1500 budget for instruments and hemostatic agents, and 2 hours of anesthesia time.  I think those are reasonable guidelines by which I could perform 98% of cases. Then again I may be entirely deluded because I’m 100% insulated from the bills for the care I provide in the OR.  I have a very limited idea of what my choices cost.  Regardless, the numbers are irrelevant, just a for instance.

      What about the surgeon who can’t meet those criteria?  Do you set up a system where they’re given a $5K budget, and they keep whatever they don’t spend?  How do you punish expensive care without placing the interests of the doctor and patient against one another?  Do doctors start refusing to operate on highly complex (expensive) patients?  Do you tell surgeons they can no longer do those procedures?

      Not to sound like a Republican, but the more you start to micromanage individual healthcare decisions the more you advocate centralized planning, and we all now how well that works for economies, let alone complex medical decisions.  It really is true that everyone is an individual, and while there are generalities in medicine, everyone is unique.

      The patient whose life I saved this afternoon had a particular set of conditions which conspired against her, and until I see her pathology report, I’m not sure why she almost bled to death.  You can’t write an algorithm which will account for everyone’s history, let alone their preference for how they’d like to be treated.  “Evidence based medicine” is a very new concept (<20 years), and Comparative Effectiveness Research is in its nascency (or about to be aborted if you’re a Republican.)

      Medicine is not a cookie recipe, patients aren’t dough, and everyone has an opinion on whether there ought to be nuts.

      • DavidThi808 says:

        But there are clear differences in costs for identical outcomes between similar communities. And clear differences in outcomes in many cases also. I’m not saying we need a one size fits all straight-jacket.

        But I do think there is value in coming up with best practices both of what should be done and how it should be done. And when you vary from that, it should be for a good reason, not because someone is still stuck in old practices or an obsolete approach pays better.

      • DavidThi808 says:

        One thing I have always pushed for at work (in all parts, not just programming). When someone wants to try something very different from what we have found to work best, then try it and measure the snot out of it. But try 1 or 2 things different at most. Don’t throw out everything that works all at once. And measure the difference because most often the new idea won’t be as good.

  5. harrydoby says:

    Daft, I’d really like to learn more about any economic studies about where the current cost hotspots are.

    Obviously, in this hyper-partisan political landscape, unbiased discussion is hard to come by.

    One thing I have noticed is that both insurance companies and the medical industry seem to be about 10 or 20 years behind in simple automation.  My wonderful doctor of several years only traded his sheaf of papers for a laptop in the past year (and he’s about 15 years my junior).  I had to fill out yet another blank piece of paper with my medical history for a specialist that he referred me to last year.

    The IT department of a large insurance brokerage here in Denver spent most of their time plastering bandaids over ancient applications that forced PC users to use funky emulators to access.  Why? Because efficiency and portability of information isn’t rewarded by the current systems.

    And does every hospital need all the latest multimillion dollar gizmos?  Couldn’t more general care be parceled out to neighborhood non-critical-care family practice clinics?

    • DaftPunk says:

      As being a doctor is, believe it or not, a rather time consuming profession, and most Docs are completely ignorant of both the politics and the economics of the medical industry.

      My impression is that a lot of the excessive costs are in pharmaceuticals and technology.  The medicine of 20 years ago was pretty damn good, and if we could endeavor to spread that technology around more equitably instead of minute improvements in already pretty good treatments, the aggregate health of the nation would improve.  Of course, that would be socialist not free market.  Then again, there is no free market in medicine, as no one knows what they’re buying or selling or how much it costs, or even how much it’s worth.  Some of that is because of the bizarre economic model that third party payer health insurance is, and some of it is because we just don’t know what some healthcare actually does.  Just see the recent controversy over prostate cancer screening.

      As for health care IT, you do have a good point.  We are very far behind, but electronic records are no panacea and do represent a major privacy issue.  Remember the Seinfeld episode when Elaine is trying to get the “difficult patient” comment out of her chart?  Every time I get EHR from another practice I cringe, as Kaiser will kill a forest to get you the information that could be printed on one sheet.  If we communicated electronically it might be better, but whose EHR should be the chosen one?  Again you get in to centralized planning with the government picking winners.  How’s that working for CBMS?

      • harrydoby says:

        Especially the one about determining the cost (or economic value)of any particular treatment.

        That big Pharma spends more on advertising than R&D is feeding the problem.

        With cloud computing arriving, I can foresee the day when we all can store our  personal medical records in an iTunes-like repository.  Then when requested, we can grant access to our providers as needed.

      • DavidThi808 says:

        But only so much. Because IT can make a system more efficient, but it can’t change a system. You’ll have a good win when you can quickly get all the info you need. But the bigger win will come when they then shift that system to have it help you find the best response for each patient. (Note I said help, not decide.)

  6. nancycronk says:

    Interesting post. Thanks for writing it.

    I don’t recall anyone singling out doctors specifically for being greedy (CEOs, gas and oil companies, big Pharma — yes). But then again, I don’t read all of the diaries. There is clearly a huge difference between being a family practitioner in Boise, and a  plastic surgeon in Hollywood. I think most people understand that.

    • DaftPunk says:

      Every single time, and then runs away.

      I don’t expect her to show up here and defend her accusations either, but then again I never meant this diary to be anything more than a quick reply.  Thanks PCG 😉

  7. WitnessProtectionForGeeks says:

    Often the doctor’s pen sends them to a machine they own (or as a corollary a pharma they have been wined and dined in to promoting)

    http://www.newyorker.com/repor

    Not all Docs are equally egalitarian.

    • DaftPunk says:

      is definitely a corrupt racket, and an illustration of the problem of the fee for service model, and for-profit health care. These docs have clearly forgotten that the patient comes first.

      There are laws against referrals to entities in which one has a financial interest and rewarding others who make those referrals (kickbacks.)  I vigorously support enforcement of those laws.

      The major hospital corporation I work for is so aggressive about enforcing the Stark provisions, that in making the moonlighting schedule for emergency backup shifts I can’t show preference in scheduling the Docs who support our institution by bringing their patients here.

      As for the drug dinners, let me paraphrase Rick Perry “it was a $5,000 contribution that I had received from them. If you’re saying that I can be bought for $5,000, I’m offended.”  Most docs have the ethics to separate a nice meal from what’s best for their patient.  The problem is there is little to no pressure to reduce costs to the third party who is footing the bill.  Most advances in pharmaceuticals are marginal, and older cheaper drugs are often almost as good if not superior in actual clinical outcomes.  Unfortunately these older off-patent generic medications can be harrd to get as drug companies will cease production if there’s not enough money in it for them.

      The last few years have seen efforts to improve quality and costs by the big insurers.  If you meet the basic quality measures on certain protocols you get a quality star.  If you provide that quality below a certain cost of doing business, you get a second cost star, and patients who pick you out of their insurance book will have a smaller co-pay than if they saw a no-star doc. One of my partner’s seems offended by this because it’s not the insurance company treating her patients, and it’s her medical license on the line if something goes wrong.  She’s a textbook example of a doctor who overtests and overtreats because she’s afraid of getting sued.  

      • WitnessProtectionForGeeks says:

        Most advances in pharmaceuticals are marginal, and older cheaper drugs are often almost as good if not superior in actual clinical outcomes.  Unfortunately these older off-patent generic medications can be harrd to get as drug companies will cease production if there’s not enough money in it for them.

        I see this a significant cost driver.  FDA should test for relative efficacy/safety as well and that literature to doctors should include this along with pricing info so that “bang for the buck” analysis can be made by doctors.  I don’t like patients self diagnosing so this info doesn’t need to be in consumer ads. For patients whose scip insurance is weak this can make the difference between treatment and no treatment.  As to the meals–let’s just say its more than a diner a lot of times and as a rule I would avoid taking ethics advice from Rick Perry.

        The second thing I like is

        The last few years have seen efforts to improve quality and costs by the big insurers.  If you meet the basic quality measures on certain protocols you get a quality star.  If you provide that quality below a certain cost of doing business, you get a second cost star, and patients who pick you out of their insurance book will have a smaller co-pay than if they saw a no-star doc.

        I have argued that people who use GP, Internists and other PC Physicians should have lower costs.  Same goes for people who use advanced practice nurses as PC (provider).  Strange fact my daughter has never been seen by her pediatrician–it is always a PA–still costs us the same.

        As to the threat of being sued.

        Numbers are declining both as a per capita and nominal rate.  Awards are declining on a inflation adjusted rate.  As far as malpractice insurance being to high maybe, but I suspect administration, investment performance and reserves are more of a culprit.  Relative to income, malpractice insurance is historically low, except for obstetrics.

        Obstetrics is the one exception, because the cost of lifetime care for disabled children is so high.  

        • DaftPunk says:

          its more than a diner a lot of times

          When I was first in practice in 2000, a drug company hosted a happy hour across the street from Coors Field before a Rockies game.  It was something of a memorial for this type of event, as the PhRMA guidelines were about to change, so only educational meals would be allowed, no sporting events or entertainment.

          Back in the “good old days”, drug companies could take you on a golf outing to Bermuda for the weekend, but that’s long gone.  They can’t even give us pens and sticky notes any more.

          Device manufacturers and lab services have slightly looser rules, but they mostly adhere to PhRMA as well.

  8. BlueCat says:

    encourages doctors who usually face astronomic loan payments after medical school to go into specialties and then encourages many to rely on relatively low risk, quick profitable procedures with little evidence of efficacy.  Fewer and fewer go into much lower paying general practice.  

    I know our long time family doctor, who recently retired, made a nice enough living and worked very hard for it but made nowhere near what various specialists make. I mean not even in the ballpark. Or the neighborhood of the ballpark  

    He knew all of us from my senior mother-in-law to our son, a baby when we found this great guy, and was always happy to spend as much time as we wanted, talking and getting our questions and concerns answered. Because he wasn’t willing to overbook and cut short patient time he stopped dealing with HMOs with their constant negative pressure to see more patients in less time but worked with many PPOs.  He was a good decade ahead of his time in refusing to hand out antibiotics like candy.  When he felt a specialist was called for he sent us to one he knew well and we always had complete confidence in anyone he recommended.

    This type of doctor is a dying, or retiring, breed and it’s increasingly difficult for those who might have the kind of people skills and compassion to be a great GP to be able to do so since medical school costs are much more astronomical than in my retired doctor’s day.  It’s certainly not always greed. Unlike doctors in most other countries, for many, especially people from families of modest means who strive to become doctors, a lucrative specialty is often the only viable choice to get out of crushing debt.  

    The entire system is what sucks.

  9. Lurker19 says:

    when the debate began, but Plouffe bounced it.

    It should have been called health care insurance reform in the first place.

    The system needs to be largely revamped.  There should be basically four types of insurance–high tier Medicare (for people with chronic problems, a lot of medications, who wind up in the hospital, etc) which costs more initially, but less out of pocket.  Low tier Medicare–low initial cost and less coverage.  Option to switch tiers annually.

    Commercial coverage–if you want to provide insurance in the US, you have to sign up.  Again the two tiered approach with the option to switch up or down once or twice a year.  

    The truly poor would be subsidized by the government and after a set fee, say $1 million, the government would reinsure for the commercial companies, to avoid them losing their shirts.

    The insurance industry would still make profits, although, not the obscene ones that they were making before the crash.

    Make health insurance mandatory, cut obscene profits from big pharma and outlaw for profit hospitals.

    The system would work for at least another couple of decades and really would put us back to the very early 90s in terms of coverage offered.  Costs would be back to the early 90s as well.

    • BlueCat says:

      health care that the rest of the civilized world enjoys, in most modern industrilized countries for less than half the cost of our system.  Still demands sacrifices in quality of coverage in return for affordable cost for most. Don’t see how it would reduce multiple layers of bureaucracy, the complexity that now requires armies of clerical workers in every practice to deal with claims or prevent that American phenomenon, unique to us among developed nations, medical event bankruptcies suffered by the insured.    

  10. ohwilleke says:

    Rising provider costs are clearly one of the main driver’s of the rising costs of health care in the United States.

    Medical providers, in general, make something on the order of double or more the pay of comparable medical providers elsewhere in the developed world on a purchasing power parity basis than those in the U.S. (the margin would be even greater on a pure exchange rate basis, but much more volatile).  

    Americans overpay for the adminstrative costs associated with health insurance as well, of course.  But, this only accounts for something on the order of a fifth of the cost differences between the U.S. and the rest of the world.

    This is across the board.  Americans pay more for drugs.  They pay more for specialist doctors.  They pay more for generalist doctors.  They pay more for nurses.  They pay more for MRI machines.  You name it, we pay higher prices.

    Long term physician compensation has had a hiccup or two, but the long term trend over the last three decades, and over the last decade, is that physician compensation has exceeded inflation.  Indeed, MDs, JDs and MBAs are the only categories of people who beat inflation over the last decade in compensation.  They were in the low single digit percentages in excess of inflation compensation growth while the median household income fell about 6%.  Nurse compensation and drug cost have likewise grown far faster than inflation.  We overpay all health care providers, probably as a result of the market failures in our helath care market.

    Also, malpractice awards are a trivial contributor to the cost of health care, haven’t increased faster than inflation, and premiums for malpractice insurance have shown remarkably weak relationships to tort reform efforts designed to address them.  Malpractice insurance premiums shifts are more closely relate to the investment returns of malpractice insurance company investment returns on their insurance reserves than to rising liability costs.

    No, our doctors are not dumb.  Indeed, they are too smart.  The selectivity of medical schools has doubled over the last three decades as the supply of qualified potential doctors and the demand for doctors with rising and aging populations has grown.  Half the people who were admitted to medical school in 1980 would not make the cut today.  The supply of MDs has been artificially limited and the interaction of supply and demand drive price in the labor market.

    Nobody disputes that doctors should be well paid.  But, the case that a specialist physician should make $600,000 rather than $300,000 a year after expenses as the same physician might make in France or Japan or Switzerland is highly morally ambiguous.  Indeed, physician pay is so high that more U.S. physicians than physicians elswhere feel economically secure enough to retire early, despite starting their professional lives later than almost any other kind of professional.  Sure, there are student loans, but we are talking $200,000 spread over an entire working career of mid-six figure compensation.

    The economic case that those very high salaries are necessary to induce the best quality people to be doctors is doubtful.  Mao Clinic, for example, with a reputation for world class medical care, pays a below average straight salary to its physicians in exchange for relieving them of the business management and administrative chores that most of their MD peers take on in addition to their medical duties (outdated medical ethics rules basically require self-employment of physicians subject to select exceptions).

    On average, physicians make a moderate markup over cost (including their own compensation) on the order of 16% from private insurance company patients, roughly break even with Medicare patients, and take a pretty big loss (large double digit percentages) with Medicaid patients.  It is absurd that two physician compensation programs governed by federal regulations written by the same federal government agency for precisely the same services should be so different.

    • Can we add some links to some of these facts?

      I was sure I’d read something similar the other day, but can’t for the life of me remember even where to start looking in my browsing history.  Also, Daft has done a good job fleshing out his diary and I’m sure we’d love to have the equivalent in counterpoint.

    • DaftPunk says:

      Besides Phoenix’s request for substantiation when I’ve linked to sources for the facts behind my claims, there are few manipulations here which merit exposing.

      1) You’ve refuted claims I haven’t made.

      2) You haven’t supported your opposition to my point with data.

      3) You’ve made an appeal to emotion not based on facts in evidence.

      4) You’ve introduced a moral argument you may not want to explore.

      1)  Assuming every claim you made is true, you’ve demonstrated that doctors in the US make more than their counterparts in other countries, healthcare professionals have weathered the economic downturn better than other fields, and that tort reform won’t lower healthcare costs, none of which are germane to what I’ve argued.  The only mention I made of liability insurance costs is as a driver of expense in medical practice which cannot be passed on to the customer.

      2)  Your math doesn’t work.  You claim:

      Rising provider costs are clearly one of the main driver’s of the rising costs of health care in the United States.

      yet acknowledge Americans overpay for everything in healthcare. In this over-inflated market, you haven’t shown that compensation is disproportionately high so as to drive medical inflation.  Since provider compensation is a small slice of overall healthcare spending, to drive the double digit increases we see, inflation in provider pay would have to be exponential.

      Higher physician income, of course, cannot explain all or most of the total higher health spending in the United States, as…  prices of other, non-physician health-care services and products in the United States also seem to be higher than elsewhere, as is suggested by the annual surveys of health care prices conducted by the International Federation of Health Plans in their comparative price reports.

      The Kaiser Family Foundation cites:

      Since 2001, family premiums have increased 113 percent, compared with 34 percent for workers’ wages and 27 percent for inflation.

      There’s no evidence that physician pay has increased 113% over the same time frame.  My personal salary has increased 27.3% since I entered practice in 2000, so in those 11 years, I have neither kept up with other wages nor exceeded inflation.

      3) Citing a $600,000 salary is emotionally prejudicial, and represents more than the combined salaries of the 4 OB/GYNs in my group (3.5 FTEs.)  There may be a handful of docs in Colorado making $600K (probably busy orthopedists who studies show are the most overpaid), but when you say six-figure student loan bills should be balanced against mid-six figure earning potential, you are describing a minority of doctors who are capable of pulling in a half million dollars a year.

      4) As a philosophical argument, what role does morality play in the exchange of goods and services in a free market?  Do moral arguments about the market price of medical care also apply to the price of food or shelter, which are certainly more profoundly essential?  To legal help, without which many rights cannot be protected? Should health care not be a market commodity?  If not, why shouldn’t food and shelter also be taken off the market and be rights?

      I understand that absent health, one cannot engage in the pursuit of happiness we hold as our inalienable right.  However when you start talking about healthcare as a right (you haven’t), you’re claiming the right to someone else’s work product.  By somehow limiting “morally ambiguous” compensation, you’ve claimed a societal right to take compensation that the market might otherwise provide them.  

      A rational actor in the market they provide their services will seek to maximize their reward.  If you want to start questioning the morality of this, ask yourself if you want to have a discussion of the morality of a tort system which prevents no limit to the contingency fees plaintiff’s attorney’s take out of medical liability rewards, or the fact that a grievous injury to a malpractice victim with a poor chance of a large reward (whether due to short life expectancy or low future earning potential) is less likely to find legal representation.

      • ohwilleke says:

        I argue that physicians are overpaid in the sense that they are paid more than they would be in the absence of some sort of serious market failure (which appears to be present), and that this is a bad thing that hurts consumers.

        This isn’t quite the same as the conclusion that the problem is that doctors are greedy, but it has the same remedy: Pay doctors less as one important part of the solution to excessive health care costs.

        You fact that physicians are overpaid and that their being overpaid contributes meaningfully to the excessive cost of healthcare is in no way inconsistent with the fact that other people are also overpaid.  We need to pay them less too, but that is a question beyond the scope of your post.

        On a technical note billing codes for services which provide income to physicians don’t necessarily get billed as physician charges.  For example, if a doctor’s office has a mark up on a strep test or a nurse visit that the physician gets, or a hospital bills the services of its residents as hospital charges rather than physician costs, the problem is still overpaid physicians even if the cost is not billed as a physician service.

        The point that I make about “moral ambiguity” is a counterpart to your essentially moral argument that physicians work hard and are smart so they should be paid a lot.  Yes, physicians should be at the high end of the pay scale.  But, nothing in that argument tells us jus how high they should be on it.  Their lifetime incomes to education debt ratios are low relative to many other kinds of college graduates going into lower paying careers.  Very high pay and even higher pay make a big economic impact but don’t necessarily have much impact on the incentives to determine how many doctors we get in the system.

  11. ohwilleke says:

    Rising provider costs are clearly one of the main driver’s of the rising costs of health care in the United States.

    Medical providers, in general, make something on the order of double or more the pay of comparable medical providers elsewhere in the developed world on a purchasing power parity basis than those in the U.S. (the margin would be even greater on a pure exchange rate basis, but much more volatile).  

    Americans overpay for the adminstrative costs associated with health insurance as well, of course.  But, this only accounts for something on the order of a fifth of the cost differences between the U.S. and the rest of the world.

    This is across the board.  Americans pay more for drugs.  They pay more for specialist doctors.  They pay more for generalist doctors.  They pay more for nurses.  They pay more for MRI machines.  You name it, we pay higher prices.

    Long term physician compensation has had a hiccup or two, but the long term trend over the last three decades, and over the last decade, is that physician compensation has exceeded inflation.  Indeed, MDs, JDs and MBAs are the only categories of people who beat inflation over the last decade in compensation.  They were in the low single digit percentages in excess of inflation compensation growth while the median household income fell about 6%.  Nurse compensation and drug cost have likewise grown far faster than inflation.  We overpay all health care providers, probably as a result of the market failures in our helath care market.

    Also, malpractice awards are a trivial contributor to the cost of health care, haven’t increased faster than inflation, and premiums for malpractice insurance have shown remarkably weak relationships to tort reform efforts designed to address them.  Malpractice insurance premiums shifts are more closely relate to the investment returns of malpractice insurance company investment returns on their insurance reserves than to rising liability costs.

    No, our doctors are not dumb.  Indeed, they are too smart.  The selectivity of medical schools has doubled over the last three decades as the supply of qualified potential doctors and the demand for doctors with rising and aging populations has grown.  Half the people who were admitted to medical school in 1980 would not make the cut today.  The supply of MDs has been artificially limited and the interaction of supply and demand drive price in the labor market.

    Nobody disputes that doctors should be well paid.  But, the case that a specialist physician should make $600,000 rather than $300,000 a year after expenses as the same physician might make in France or Japan or Switzerland is highly morally ambiguous.  Indeed, physician pay is so high that more U.S. physicians than physicians elswhere feel economically secure enough to retire early, despite starting their professional lives later than almost any other kind of professional.  Sure, there are student loans, but we are talking $200,000 spread over an entire working career of mid-six figure compensation.

    The economic case that those very high salaries are necessary to induce the best quality people to be doctors is doubtful.  Mao Clinic, for example, with a reputation for world class medical care, pays a below average straight salary to its physicians in exchange for relieving them of the business management and administrative chores that most of their MD peers take on in addition to their medical duties (outdated medical ethics rules basically require self-employment of physicians subject to select exceptions).

    On average, physicians make a moderate markup over cost (including their own compensation) on the order of 16% from private insurance company patients, roughly break even with Medicare patients, and take a pretty big loss (large double digit percentages) with Medicaid patients.  It is absurd that two physician compensation programs governed by federal regulations written by the same federal government agency for precisely the same services should be so different.

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