America’s Doctors Are Paid Way Too Much

Commentary about business and finance.
Feb. 25 2013 3:39 PM

America’s Overpaid Doctors

Time’s long investigation of American health care prices missed one thing: We pay our doctors way too much.

Medical professionals examining x-rays.
Medical professionals examining x-rays.

Photo by ERproductions Ltd/Gallery Stock

Steven Brill’s 24,000-word magnum opus in Time on health care billing practices in the United States is remarkably easy to summarize: American health care costs a lot because the prices Americans pay for health care services are very high. And hospitals charge those high prices for the same reason any other business would—because they can.

It’s easy to see why a health care provider is almost uniquely well-positioned to bilk you. If you don’t get treatment, you or someone you love might die. It’s a high-pressure emotional situation that makes it extremely difficult to bargain, comparison shop, or just decide to cut back. Most of us, fortunately, get to outsource most of that bargaining to our insurance companies. Cold-blooded executives, not stressed-out patients, cut the deals that determine how much actually gets paid. This means that the real price of health care services is driven largely by the purchasing clout of the buyer. An uninsured individual gets totally screwed. A big insurance company can drive a harder bargain and get a better deal. But as Brill shows, the best deal of all goes to the biggest insurer around: the federal government, whose Medicare program for senior citizens is such a large purchaser that it and it alone can drive a truly hard bargain and squeeze provider profit margins to the bone.

The policy upshot of this seems clear enough. Rather than cutting Medicare as is currently all the rage in deficit-hawk circles, we ought to be expanding it and enlarging the cheapest and most cost-effective part of the American health care system.

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But of course only left-wing crazies think that, so though Brill concedes that this is precisely the reason that more-statist foreign health care systems have much lower costs than ours, he rejects the idea out of hand.

But Brill’s reason for rejecting the idea is interesting. He doesn’t care a fig for the hospitals, which are the villains of his story. Rather he rejects Medicare expansion because if Medicare expanded, “no doctor could hope for anything approaching the income he or she deserves (and that will make future doctors want to practice) if 100% of their patients yielded anything close to the low rates Medicare pays.” It’s true that many American doctors do believe that they would be crushed if they were paid only Medicare rates. They insist they’re hard-pressed as it is, barely getting by, and practically treat these Medicare cases as acts of charity. There’s no way they could swallow those reimbursement rates without the whole system collapsing.

But that’s not remotely true. The last time the OECD looked at this (PDF), they found that, adjusted for local purchasing power, America has the highest-paid general practitioners in the world. And our specialists make more than specialists in every other country except the Netherlands. What’s even more striking, as the Washington Post’s Sarah Kliff observed last week, these highly paid doctors don’t buy us more doctors’ visits. Canada has about 25 percent more doctors’ consultations per capita than we do, and the average rich country has 50 percent more. This doctor compensation gap is hardly the only issue in overpriced American health care—overpriced medical equipment, pharmaceuticals, prescription drugs, and administrative overhead are all problems—but it’s a huge deal.

Doctors aren’t as politically attractive a target as insurance companies, hospital administrators, or big pharma, but there’s no rational basis for leaving their interests unscathed when tackling unduly expensive medicine.

If doctors earned less money, fewer people would want to be doctors. We could offset some of that impact by helping doctors out with medical malpractice reform and more government funding for medical school tuition. But a shortage of people wanting to enter the medical pipeline is the last thing we should be worrying about. As it stands, medical school is getting harder to get into (continuing a longtime trend) even as it gets harder for medical school graduates to find residency slots. What’s more, in the 18 states where lesser-paid nurse practitioners are allowed to do primary care without a doctor’s supervision, their treatment is just as good in terms of health outcomes and better in terms of patient satisfaction. Any shortage of primary caregivers, in other words, is about bad rules limiting the number of people who can practice, not a lack of monetary incentives. We need more residencies and more scope for nurses to work unsupervised, not higher-paid doctors.

When it comes to the federal budget, Medicare is a problem. An uncapped commitment to finance the health care needs of elderly Americans is a big challenge for an aging country. But when it comes to the question of health care costs overall, Medicare is the solution. Its vast bargaining clout lets it get much better prices than any private insurer, and we should be relying on it more to pay our bills, not less.

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