POLICY/PHYSICIANS: In which I criticize Uwe Reinhardt, really!

Uwe Reinhardt has written to the NY Times about What Doctors Make, and Why. It’s great that they print his letter–they should be featuring a whole lot more of his stuff in comparison to their penchant for printing out of touch loonies who don’t we think we spend enough on health care. But, here’s the fact that may take some of you a moment to digest–I  don’t actually think Uwe’s entirely correct here. Here’s what he says:

In “Sending Back the Doctor’s Bill” (Week in Review, July 29), you compare the incomes of American physicians with those earned by doctors in other countries and suggest that American doctors seem overpaid. A more relevant benchmark, however, would seem to be the earnings of the American talent pool from which American doctors must be recruited.Any college graduate bright enough to get into medical school surely would be able to get a high-paying job on Wall Street. The obverse is not necessarily true. Against that benchmark, every American doctor can be said to be sorely underpaid.Besides, cutting doctors’ take-home pay would not really 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, but excluding the amortization of college and medical-school debt.This makes the physicians’ collective take-home pay only about 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.Physicians are the central decision makers in health care. A superior strategy might be to pay them very well for helping us reduce unwarranted health spending elsewhere.

Uwe’s right in saying that doctors pay per se isn’t a big enough share of medical spending (around 10%) that a cut in it would make much difference to overall health care costs. And he’s also right that we should change their incentives so that–at the least–they don’t make more by running up health care costs elsewhere in the system. And I’m including in that fixing malpractice, college debt and the other issues that make physicians feel under so much stress to increase their incomes.

And of course he’s right in saying that we need to gain some support
(or at least avoid outright opposition) of physicians if we’re to
reform health care.

But there are two points in which Uwe is only partially right, which means he’s partially wrong. (Yes, I did write that!)

First, other countries have their equivalent of Wall Street, and
plenty of their best and brightest become doctors (and make a decent
living all the same, as Michael Moore found out).

In fact in the US there are over 700,000 doctors. A decent chunk of
them do work on Wall Street or for drug companies or consulting
companies, presumably in part because the money is better. But it’s
just not feasible that all doctors could become Wall Street superstars.
According to this report
there are some 850,000 people working in the securities industry as a
whole, which I assume includes lowly clerks at regional Merill Lynch
offices as well as the hedge fund guys making billions. It’s not very
likely that more than a few tens of thousands of them are the well paid
Wall Street types that Uwe thinks doctors would otherwise become. In
fact despite the huge earnings of those at the top….

The average securities salary is now 5.1 times the average salary paid
in other industries, up from 2.5 times in 1990 and 4.3 times in 2003,
according to a recent report released by the New York state

five times other industry’s wages is not a millions miles away from the
average physician’s earnings compared to the average workers.

I admit that’s a crude analysis, but suggesting that most physicians
could trade in the stethoscope for a multi-million dollar Goldman Sachs
paycheck is stretching it. So I’m not sure that’s the right comparison
to make. After all perhaps their alternative is to become lowly-paid
professors of economics?

Secondly, and more importantly, Uwe of course knows but doesn’t
mention the most important part of physician demographics in the US. We
have a huge over-preponderance of specialists who both earn way more
than primary care physicians, and use considerably more resources. Of
course, this has been demonstrated at nauseam by two (of the very
limited number of) health economists who could be mentioned in the same
breath as Uwe–Victor Fuchs and Jack Wennberg.

Both have shown that the more specialists in an area the higher the intensity and cost per capita of the care that’s delivered there. Wennberg’s disciples have gone on to show that not only does this lead to more care, it leads to worse care.

What’s the rational answer?  Do what most other countries do and
restrict the amount of specialty positions available. Instead insist
that most physicians focus on primary care which is both cheaper to the
system and more cost-effective. Of course, doing that would be better
for the system overall, but it would be worse for individual
physicians–or at least for their incomes. It would though of course be
better for the taxpayer, who is funding the vast majority of that
specialty training. (You thought we had a free market? Don’t make me laugh!)

So paying physicians to spend less money elsewhere in the system is
a good start, but for real success in cost containment and improving
the value gained from health care spending, we need to fundamentally
change the supply structure of the physician workforce.

And whatever Uwe says, for many physicians–and of course the
medical and business infrastructure of hospitals, AMCs, and suppliers
that surround them–that is liable to be a painful process.

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23 replies »

  1. This is an important dilemma in healthcare that has been slowly occuring over time, similar to the aging population totals. However, as an advanced practice nurse and clinical graduate faculty person I daily observe the operation of a specialty physician office and find that this work is not profitable for the physician because as you have addressed, there are student loans to pay off, costs for purchasing a practice to pay off, and with the low reimbursement rates at times 50% of the practice may not pay a dime. Many phyicians buy practices that provide them with minimal tools to diagnose and old ways of doing business. It doesn’t take a rocket scientist or a wall street tycoon to see that balancing this checkbook (especially without a PhD!) is a toughy. It causes stress and anguish on the docs and they also are on call for the hospital at the drop of a hat. People do die in this profession as one did this past Monday, how do you pay someone to prevent death? What are the benchmarks for the emotional cost?
    Some thoughts to ponder. My physician is a special kind, a talented doc that provides the best kind of care in that he actually loves his patients. This is like no other job you may find difficult. And yes our nation needs to wake up to personal resonsibility and self care before it is too late. Healthcare is not a right but a priviledge that many people cannot afford. If it continues to be a right for those with high risk behaviors and poor personal habits or those that choose not to mind their body signals then we will be doubling the cost of healthcare rather rapidly.
    I have loved this thought provoking discussion that was posted! CMB

  2. Mr. Reinhardt states that physicians can justify their high compensation because smart people like themselves can just as well get a job as a Wall St. analyst making far more money.
    The skills to land at a top 5 MBA program and survive the cutthroat process of breaking in to Wall St. are not the same skills as becoming a doctor. In fact there are about 750,000 physicians, but only about 50,000 Wall St. workers making more than $400k per year. And they don’t last long. Physicians don’t lose their jobs. So it is naive and silly to suggest otherwise.

  3. There are 32 industrialized nations on earth and 31 have a single-payer system. The US stands alone in relying on the private sector to provide our healthcare.
    The result? Americans spend 16% of GDP on health care whereas France, Germany, Japan and Canada spend about 8%, or half of what we spend per capita. That amounts to about $1.1 trillion each year in waste, money we would save if we moved to a national health care model.
    This total far exceeds the entire discretionary part of the Federal budget. We need a single payer system or we are doomed to financial ruin. It’s a fact.

  4. Without going into too much depth on the rest, the government considers physicians to be independent businesses and punishes perceived “collusion” among them to an absolutely ridiculous extent. There are cases where there were two groups of physicians in a given specialty in an area, the predominant insurer cut reimbursement, both groups dropped the insurer and were then found guilty of anticompetitive practices even without collaborating together. Any attempt to strike by physicians (ignoring the issue of the relatively small number of employee ones) would be illegal collusion and would get destroyed by the courts.

  5. At what point does a provider decide to stop accepting insurance or medicare as payment:
    How hard is it for a doctor to establish a cash-based customer pool that can outperform just accepting medicare/insurance?
    Of urban, surburban, or rural markets where is it easiest to establish the business model?
    And then what about the specialty vs general? Generalist like concierge is just cash up front, but specialists perhaps need just fewer high-fee customers.
    What prevents providers from achieving this type of cash flow, revenues?
    Finally, what prevents providers from just declaring strike, accepting cash-only payments? (are NPs/residents able to prevent the effectiveness of these types of tactics)
    (thanks for the earlier reply-> as a follow-up, how are residency slots allocated?)

  6. Matt Holt just pulled a 180 on this. his stance has always been that the AMA was trying to create a cartel on the number of doctors and artificially restrict their numbers to inflate incomes.
    Now he does a 180 and actually claims that more doctors = HIGHER healthcare costs, not lower.
    Furthermore, he advocates FEWER DOCTORS by slashing residency slots for specialists.
    Maybe he finally woke up to what I’ve been saying all along: healthcare is not a free market and increasign the number of doctors makes costs HIGHER, not lower.
    Witness New York City, the highest doctor/patient ratio in the world. All these docs competing against each other must mean that docs make lower incomes and healthcare costs are lower as a result, right? Of course not, NYC docs make some of the highest incomes in the country, despite the fact that the market is “saturated” there.

  7. “what technically prevents Walmart from creating residency slots?”
    You need a hospital to have residency slots. Last time I looked Walmart was not in the hospital business.
    “or for that matter what prevents a specialty hospital from creating slots? it seems like the cheap labor might offset any requirement costs- like maybe charity care?”
    Specialty hospitals already do have residency slots.
    “Are the residency slot just “cartel style, good-old boy system”, or is it cost prohibitive somehow for the market to train people to meet demand.”
    Residency slots are funded by the federal government via Medicare. The balanced budget amendment in 1997 put a cap on the number of residency slots. Doctors and the AMA had absolutely nothing to do with it.

  8. drthom,
    About the problem of attracting students to primary care: two small points. Some years ago I heard an elderly dentist talking to a much younger one about how it used to be he had to send patients out for much specialty care. But more and more, as dental technology improved, he found he was able do more difficult tasks himself. And isn’t the same going on in medicine? For example, in matters of cardiovascular health, so much more can be done in prevention now. So less need, relatively speaking, for the cardiologist, at least among the under 65 crowd. More the GP can offer.
    Second, about the idea that the only way to wean folks from their preference for on-demand specialists is to make such care unattainable. I’m doubtful. I may be wrong, but I believe that in California for public employees (of whom lots) CalPers only offers two choices, PPOs and Kaiser, nothing in between. And so people who want a GP over 30 have to pay more for the PPO. It’s not necessarily about access to specialists. But if there were a more expensive Kaiser-for-the-middle-aged, maybe more would prefer that. And CalPers does not offer catastrophic care. If they did (plus suitable rebate), I expect many would be happy with cash-at-the-desk GPs. Now I could be wrong about CalPers details. But what I’m getting is that there are incentives that have yet to be tried, that could encourage people to make better choices.
    Note to all,
    I agreed, Uwe really goofed this time. Well, nobody’s perfect.

  9. What Uwe did not have space to go into and you apparently do not recognize by blithely saying other countries have Wall Streets and competent doctors is the relative pay of professionals in each country. It is not just doctors who make substantially more here than they do in other countries. So do lawyers and MBAs (who, strangely, you never hear anyone demand take a pay cut). Coupling this with our postgraduate professional education system, it’s hardly unfathomable that cutting physician salaries (and the ensuing prestige hit/physician complaints all over the media) would convince desirable applicants to simply apply to law, business or graduate schools instead.

  10. what technically prevents Walmart from creating residency slots?
    or for that matter what prevents a specialty hospital from creating slots? it seems like the cheap labor might offset any requirement costs- like maybe charity care?
    Are the residency slot just “cartel style, good-old boy system”, or is it cost prohibitive somehow for the market to train people to meet demand.

  11. Peter;
    Why don’t you read it once you find it in the fiction section? I will, too, and then we can have an intelligent discussion.

  12. “In reality it’ll all be through price.”
    “The Medical Home or Gatekeeper model should look increasingly attractive on a price basis, even (especially?) to patients. Laws in some states may have to change to (re)enable this; the free marketeers have a point on this score. Of course, none of this moves towards universal coverage.”
    The separate but equal argument?
    “This book offers fundamental change and issues a plea to the nation’s physicians to lead the way.”
    Book must be in the fiction section.

  13. We also need to fix the health care system as well.
    As a patient and a former employee (I used to work at a famous hospital on
    Long Island) of the health care system – I have first-hand knowledge on how
    the care system works in America.
    Close to 100,000 people die each year in hospitals due to medical errors.
    The hospital I worked at had too much administrative waste. There was
    endless paperwork in processing patient information.
    Many of the positions, especially in the non-medical areas, were filled
    through nepotism. Many of the supervisors and mid-level managers at this
    hospital were concerned about how they looked to top administrators, rather
    then perform thier jobs effectively. (CYA was the major activity).
    A question I would like to ask the general public, particularly doctors –
    How come doctors never challenge other doctors?
    Right after I graduated college I was “confused,” doing drugs, and getting into trouble; so my parents sent me to psychiatrist. The psychiatrist said I was “mentally ill” and he sent me to neurologist for my tests. (Our family doctor stated at first I did not need any tests, and then he changed his mind.) The neurologist examined my brain and said I was fine. I just needed to “grow up.”

  14. Merrill;
    Actually, this book was reviewed in the June 28, 2007 issue of the New England Journal of Medicine. The concluding sentence of the review says;
    “This book offers fundamental change and issues a plea to the nation’s physicians to lead the way.”
    It’s on my list to read.

  15. Your final comment about needing a reorganization of how medicine is practiced, and how this will be painful for many physicians is spot on. I wonder why Arnold Relman’s book, “A Second Opinion,” which discusses this issue in depth, has received no attention in the press or even the specialized health care journals.

  16. > How will you incentivize the patient population
    Oh! This is not necessary. No matter who is paying for it, the profession will determine that specialized care is to be done only by referral — this will be called “Ethical Care” and it will be unethical for a specialist to see a patient without a bona fide referral, a “prescription” of a sort, in order to make sure that all medical services are appropriate and high-quality. Unethical specialists will of course exist, but will be shunned by Ethical Physicians and won’t have privileges at Ethical Hospitals. In this way, the profession regulates itself, and needs no outside oversight.
    Or not.
    In reality it’ll all be through price. You want a plan where you can “self-refer”? Fine — that’ll cost you an additional $250/month per person plus a 20% copay compared to a plan with a primary gatekeeper. This’ll also have to be pushed into Medicare somehow, maybe through a deductible plus copay.
    What I have called Real Managed Care will come back I think — I just hope its men like Drs. Wennberg and Thom doing the management. To accomplish it, the primes will be pushed to accept capitation through some mechanism, and small practices can’t really do capitation. So I think it’ll mostly kill off the small practice, at least among primes.
    The Medical Home or Gatekeeper model should look increasingly attractive on a price basis, even (especially?) to patients. Laws in some states may have to change to (re)enable this; the free marketeers have a point on this score. Of course, none of this moves towards universal coverage.

  17. Uwe conveniently glosses over the pyramid-like reward structure of the financial industry and the lack of uniformity in salaries among the various types of employers in the financial industry. Guys (and ladies) working at private equity and hedge funds have made much more than their counterparts at the typical long-standing Wall Street firms the past several years.
    Additionally, the bosses at the top make insane amounts of money but are also under tremendous amounts of pressure. You underperform the market, you are out quite quickly. I don’t know of any medical doctor who stops practicing due to poor performance compared to his peers.

  18. Very well said Peter! Reading your comment reminded me of my brother-physician. He was very devoted to his profession and excellent at what he did, but he couldn’t balance a checkbook if his life depended on it. His wife went and got C.P.A. certified to take care of their checkbook. He originally wanted to be an electrical engineer because he was fascinated by it. However, he chosed the medical profession and settled as a radiologist (good compromise). I can’t remember though, if he was one of those many doctors who invested in strip malls in the ’70’s?

  19. Notice dr. thom’s comment says there will have to be an attitude adjustment on BOTH the drs’ and the patients’ parts. (“The only way to wean folks off their preference for on-demand specialty care is to make such care unattainable.”) This is a true statement coming from someone with direct experience. Well said, and pay attention, people. How will you incentivize the patient population, Matthew?

  20. I get a little tired hearing that if we don’t pay docs all this money they will just go to Wall Street or become rocket scientists or engineers. That somehow a brain is a brain is a brain. People choose (and are good at) all sorts of careers based on a lot of different reasons and if my doc chose medicine because it pays the most, I don’t want him as a doc. Just because a person is good at medicine doesn’t mean they would be good at finance or mathematics or engineering, or even like those careers. I’ve seen more lawyers I wouldn’t trust with a nickel of my money. I’ve met PHD’s that couldn’t balance their checkbook. I’ve seen docs that passed med school with good memory skills and nothing much else. And why is it that many East Indian docs are trained here then go back to India to practice for a fraction of the pay?
    Docs pay has more of an affect on the cost of healthcare than just their own pay. They set the financial bar high and establish an upper base line that everyone follows; other docs, suppliers, manufacturers, support staff, CEOs. The whole healthcare industry is feeding on itself pushing costs higher and higher. How long do you think we can absorb 6% to 10% compounding yearly increases in healthcare costs?

  21. As someone who has tried for ten years with varying degress of success, it is now near impossible to convince an American medical student to choose a career in primary care. A significant number of those in residencies now are either angling to subspecialty care or in a holding pattern to re-apply for some other specialty. Current traditional practice encourages early retirement and I have no idea who will be caring for my patients when I throw in the towel.
    Can’t really blame them when they see income disparities. Even the decent specialists who have not opted out of the system live a substantially different lifestyle than me, though their income is going down too. Those who are going cash only, well they seem to have the golden ring. We recuit orthopedists against those who offer no call, surgery center ownership from day one and no ARs, cash up front.I know orthos work hard, have increadible skill etc…, but can we afford a system where public money is spent to train a surgeon to make 800k/yr fresh out of training, and 1-2 million/after 5 years and not doing their share of indigent care. How can my little clinic compete with that? How can my specialty compete with that?
    The only way to make an arguement to students is to show them private pay practice models which limit their exposures to non-medical responsibilities which suck the life out of so many primes. Such models exist but you would need untold hundreds of thousands more physicians just to service those patients who could afford it.
    One catalyst for change may be a developing access crunch for specialty care. As most reimbursement is tied to Medicare rates, and those rates get cut, I am begining to have difficulty finding specialists who will take anything other than cash, especially in DERM, Neurosurgery and, surprisingly, OB/GYN. This week, I had my first Ortho tell me, “no insurance, cash only.” Used to be I could find a hospital system sponoring these types of docs who would take all comers, but those folks have full practices now.
    It will require a seachange in public attitude to allow for a system like the British one based on medical home. The only way to wean folks off their preference for on-demand specialty care is to make such care unattainable. Perhaps a combination of a self-imposed specialty access crisis where the current specialists continue the trend to opt only to care for the affluent and changes in government funding of the mix of post-graduate training slots will bring it about.
    Better hurry though, I am not getting any younger.

  22. Matthew,
    You are mincing words. The thrust of Reinhardt’s letter is essentially correct, and the spirit of his intent is no different than yours. I think a Princeton economist knows the score on Wall Street and he was merely making a point.

  23. Matthew,
    You are mincing words. The thrust of Reinhardt’s letter is essentially correct, and the spirit of his intent is no different than yours. I think a Princeton economist knows the score on Wall Street and he was merely making a point.

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