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Sunday, July 29th 2012

Wages As Part of Healthcare Expenses

American physicians earn more than physicians anywhere else in the world. Even the most primary care of specialties still, on average (see here and here for example) exist amongst the top 90% of all American earners. And despite the mythos of the physician work ethic per hour earnings compares well to individuals with similar years of education and training. It’s true, physicians are also saddled with larger education debt and other burdens but even considering such, in adjusted terms, American physicians are doing better financially than doctors anywhere else in the world. And they’re doing better than the vast, vast majority of American workers.

Conceded, that espeiclaly amongst primary care phsyicians, there are examples of careers physicians could’ve chosen that would’ve been better for their wallets. In my experience many a physician points out what they think they could’ve earned in business, with far less lost earnings to education, had they chosen that career path. Those are anecdotal dreams usually but in a recent piece, Drs. Kenneth Chen and Judith Chavlier argue that female physicians planning for a career in primary care would be better off financially becoming a physician assistance instead.

I take that as a lone scenario and despite that recent publication the situation remains that doctors are in a pretty good place.

You hear much about tying reimbursement to performance or leveling the playing field between primary care and specialists, but rarely is the argument made outright that physicians simply earn too much. So this article in The Weekly Standard (h/t Andrew Sullivan) is novel in that regard.

Wages drive high medical costs much more than any other factor. Between 2005 and 2011, as overall average wages barely kept pace with inflation (with rising health costs making real take-home pay flat for many workers), average medical wages grew a healthy 18 percent, rising from just over $62,000 to almost $73,000. The American Hospital Association estimates that two-thirds of all medical costs are attributable to wages and benefits.


[U]unless medical wages get under control, entitlement spending will continue to eat up an ever-larger share of the federal budget and necessitate either service cuts elsewhere or tax increases. Better access to medical care for the poor—a key priority of the left—will also remain out of reach if almost everyone involved in providing it must earn an upper-middle-class income.


In countries like Japan, Germany, and the Netherlands, which also administer many health benefits through private parties, insurers have much broader latitude to cooperate in setting prices. Since doctors typically have the ability to opt out of accepting insurance altogether if these prices are too low to cover costs and retain talent, such a system isn’t necessarily unfair to them. But it does level the playing field.


Hardly anyone doubts the overwhelming majority of veteran registered nurses could—with a little more training—do a fine job setting broken bones, stitching wounds, and even dispensing drugs for common ailments. But laws and regulations limit almost all of these things to physicians and nurse practitioners, who must complete a graduate-level course of study similar to medical school. Among less-skilled medical workers, the current certification requirements border on the absurd. Licensed practical nurses are essentially menial hospital workers who collect vital signs, change bedpans, and bathe patients. To do this, however, they need more than a year of full-time schooling and, even so, generally can’t even give hospital patients aspirin a doctor has not already prescribed. Some work of LPNs might be done by people trained mostly on the job and those with LPN training should be able to do more than they do now. And so forth.

These solutions aren’t a total fix. Medical wages are high in part because medical care is so important. It’s vital that medical professionals get fair pay. But their pay cannot and should not rise at a rate so much faster than everyone else’s. Achieving the health care goals of both the left and the right is eventually going to require doing something about the wages paid to medical professionals.

Let me be clear, despite pointing out physician’s relatively good standing amongst the public in general and their international colleagues, I actually think physicians are underpaid. And I specifically take a little offense to the argument, as laid out by Eli Lehrer in The Weekly Standard piece, that market forces, if allowed into play, would reduce physician earnings.

Mr. Lehrer talks about some common ideas such as broadening the scope of practice for non physician providers and giving insurers broader leeway on negotiating their fee schedules with physicians. I think it is incredibly hypocritical to discuss these libertarian ideals without discussing regulations which likely suppress physicians earnings. Things like regulations to treat in emergency situations independent of payment status, limitations on collection practices and the like.

I’ve made this argument before but arguing for deregulation as a solution to rising provider earnings is a little ridiculous. Many acute healthcare situations involve an incredibly scarce resource and a huge disparity of knowledge between the provider and the consumer and a pressure to act with urgency; it is a situation ripe to drive up costs without regulation.

Without at all arguing for such a world, let’s imagine a situation in an American with a completely deregulated health care provider system. Anyone can practice medicine and offer whatever services they want (its as broad as scope as anyone could hope for), providers are able to bill whatever they want above insurance reimbursement as long as they negotiate it with the patient or family before hand, providers and institutions have no obligation to provide emergency care, results data is freely available to all patients if they choose to use it.

Now someone’s child needs a liver transplant and there’s one legitimate game in their town and a few quack jobs. For plenty of people that operation and care to follow would be worth their home as a surgeons fee; their life savings.

Now a young wife has a subdural hematoma and needs a craniotomy. Yeah, there’s a neurosurgeon across town might do it for cheaper but the delay transporting the patient to him is going to lower the odds of a good recovery. For plenty of people that emergent operation and care to follow would be worth a huge chunk of say the husband’s future earnings.

Now a mother of three is in septic shock and one intensivist group in town has better outcomes than all the others. For plenty of people being in that ICU would be worth anything.

I don’t know, seems the ideas of the libertarian minded when it comes to physician earnings are dangerous and potentially counterproductive to the goals of lowering health care cost.

In my mind I think we should concede that for what they do physicians are not overpaid. And it isn’t matter of comparison, because health care doesn’t play out in a free market the situation is that, in most of the world, physicians are underpaid. Health care spending is huge and provider income is a big part of costs. In terms of solely numbers, of reducing costs it’s tempting to put physician reimbursement on the chopping block. But in terms of the societal value of some of what physicians do, it would be ethically challenged to consider reducing their compensation.