Kent Bottles: Do Doctors Make Too Much Money?

American medical care costs too much and is contributing to economic conditions that are harming American employers ability to compete on the global stage and helping to cause unemployment rates that are truly disturbing.  Are American doctors paid too much? Are American doctors paid in a way that contributes to wasteful and even harmful medical care? What is a fair wage for an American physician in 2009?  Are American doctors businessmen who purvey services just like any other businessman?  Are not physicians professionals who have special obligations to their patients and society?  Is there really a battle for the soul of American physicians?

Some health care economists believe that the relatively high salaries of physicians and the way they are paid contribute in a major way to our national health care cost problem. They point out that American doctors are paid two to three times as much as doctors in other industrialized countries.  American doctors make an average of $200,000 to $300,000 a year with primary care doctors making less and specialists making more.  In Europe doctors make from $60,000 to $120,000 a year according to a 2002 British study. (http://www.nytimes.com/2007/07/29/weekinreview/29berenson.html) A more recent study that looks at purchasing power parity and gross domestic product per capita comes to a similar conclusion (http://economix.blogs.nytimes.com/2009/07/15/how-much-do-doctors-in-other-countries-make/?scp=4&sq=doctor%20salaries&st=cse)

Uwe Reinhardt, the Princeton health care economist, states, “Cutting doctors’ take-home pay would not solve the American cost crisis. The total amount Americans pay their physicians collectively represents only about 20 percent of total national health spending.  Of this total, close to half is absorbed by the physicians’ practice expenses, including malpractice premiums…this makes the physicians’ collective take-home pay only 10 percent of total national health spending.  If we somehow managed to cut that take-home pay by, say, 20 percent, we would reduce total national health spending by only 2 percent, in return for a wholly demoralized medical profession to which we so often look to save our lives. It strikes me as a poor strategy.” (http://economix.blogs.nytimes.com/2008/11/14/do-doctors-salaries-drive-up-health-care-costs/?scp=13&sq=doctor%20salaries&st=cse)

As much as the rate of payment, the method of compensation is also important. In the United States most physicians are paid in a fee for service system that pays piecemeal for each test or procedure they perform.  Most American physicians are not on salary. In such a system, physicians have financial incentives to perform procedures that drive up health care spending. 

Dr. Peter B. Bach, a physician at Memorial Sloan Kettering and a former adviser to Medicare and Medicaid said, “I don’t have a view on whether doctors take home too much money or not enough money. The problem is the way they earn their money. They have to do stuff. They have to do procedures.” (http://www.nytimes.com/2007/07/29/weekinreview/29berenson.html)

Atul Gawande’s June 1, 2009 New Yorker article “The Cost Conundrum” made such an impression on the national health care reform debate because he described in detail and with real examples in McAllen, Texas, how a physician’s financial incentives can play out in the care of real American patients in a real American town. Gawande concludes “along the banks of the Rio Grande, in the Square Dance Capital of the World, a medical community came to treat patients the way subprime-mortgage lenders treated home buyers:  as profit centers.”  In an address to the graduating class of the University of Chicago’s Pritzker School of Medicine, he called on the newly minted doctors to join in the “battle for the soul of medicine” and to “resist the tendency to see patients as a revenue stream.” (http://www.healthbeatblog.com/2009/06/gawande-calls-on-new-doctors-to-join-the-battle.html)

In a Washington Post interview, the interviewer stated, “One thing you sound like you’re saying but that isn’t often said clearly is that profits matter. Incentives matter. Doctors are not entirely altruistic and solely concerned with patient care.  And even if the influence of these incentives is only subtle…”   Gawande responded by saying, “It may not be conscious, but it’s not subtle! It’s things like whether you decide to take phone calls from patients and instead bring them to your office because you’re paid for office visits but not phone calls.  When you have a referral whether you worry about losing the referral business if you don’t do what the referrer expected you to do.” (http://voices.washingtonpost.com/ezra-klein/2009/06/an_interview_with_atul_gawande.html

Dr. Pauline Chen also acknowledges that physician financial incentives can be worrisome: “Nonetheless, in a fee-for-service payment system that reimburses hospitals anywhere from $400,000 to $500,000 per liver transplant, it’s hard not to suspect less-than-savory intentions from any surgeon or hospital with high transplant numbers and consistently more complications than the accepted norms.”  (http://www.nytimes.com/2009/02/20/health/19chen.html?_r=1&scp=10&sq=doctor%20salaries&st=cse)

Atul Gawande, in a April 4, 2005 New Yorker article titled “Piecework”, provides a fascinating and entertaining history of physician fee schedules from ancient Babylon’s Code of Hammurabi to William Hsiao’s 1985 RVU system. In eighteenth century BC Babylon a surgeon got ten shekels for a lifesaving operation, but only two shekels if the patient was a slave.  In 1985 the RVU system decided that a hysterectomy was worth 4.99 times as much work as a session of psychotherapy.  In the same article, he also notes that since the 1980s, public surveys have found that two thirds of Americans believe that doctors are too interested in making money.

If the fee-for-service system contributes to the cost crisis in American medicine, why is it still being used? Elizabeth Mitchell, CEO of the Maine Health Management Coalition, recently presented a slide titled “Why Are FFS Payment Systems the Norm?”  She states that such piecemeal payment schemes are consistent with our strongly held American values that patients should be free to choose their caregivers; that patients want to seek the care they need; that providers want to preserve clinical autonomy; and that providers want to preserve their economic independence.   Mitchell also notes that such arrangements are expedient for policymakers, payers, employers, and providers.  They have the advantage of being easy to implement and not requiring entities capable of organizing the delivery of care and accepting accountability for cost and quality.

Since, I have not yet addressed whether all doctors should be on salary instead of fee-for-service, I think I will defer that topic until next week’s post.  I will instead end for now with two reader comments to Paul Krugman’s blog about runaway costs in Medicare.  Krugman does not buy that we have a Medicare cost problem because since 1970 Medicare costs per beneficiary have risen at an annual rate of 8.8% while insurance premiums have risen at an annual rate of 9.9%.  One reader named Ben left the comment:  “I want my doctors well paid and happy.” Another commenter named Wally said, “Let’s get to the roots: drug costs, too much expensive equipment, overtesting for things that cannot be treated anyway, extreme doctor salaries…”

About these ads