Today I am going to write about how the US could save up to 10% on its healthcare bill.
The US spends more on health care than any other nation, $8,500 per person per year. Multiply that by 300 million people and try to grasp the vast sum of $2,5 trillion.
A lot of changes are taking place with the intent to save healthcare dollars. So far, many of those changes have involved creating new layers of middlemen, whose paychecks will come out of the same healthcare budget as MRI’s, prescription medicines and physician salaries.
Every so often physician salaries come into focus as a place where money might be saved. Some people even picture physician pay as a major driver of healthcare costs.
Now, I am just a country doctor, and I don’t have an MBA or any financial background. But I used to be pretty good at math, and I’d like to think I still am.
If the 2.5 trillion dollars this country spends on healthcare is paid to or prescribed by our 850,000 physicians, then each doctor controls 3 million dollars from our nation’s healthcare budget.
Of course, physicians aren’t the only providers or prescribers. I don’t have a figure for how much money is controlled by our 100,000 Nurse Practitioners and 70, 000 Physician Assistants. I also don’t know what portion of our 50,000 chiropractors’ work falls inside the traditional healthcare budget, but let me assume each physician on average controls only 2-2.5 million dollars worth of products or services…
Then, if every physician took a $200,000 pay cut, we could reduce our healthcare spending by up to 10%!
This would be a 50% pay cut for many surgeons, and would actually make the average primary care doctor have to pay Uncle Sam for the privilege of working. I suspect most wouldn’t.
Is 10% too much to pay the providers of the intellectual and procedural services that are still necessary for $3,000 MRIs and $200/month prescriptions to be used for the right reasons and produce the right outcomes for patients?
Would a symphony fire the conductor to save less than 10%? And would we still want to hear the music if they did?
Sources:
http://www.cdc.gov/nchs/fastats/hexpense.htm
http://www.ahrq.gov/research/findings/factsheets/primary/pcwork2/index.html
http://www.bls.gov/ooh/healthcare/chiropractors.htm
Country Doctor is a Swedish-born family physician in a small town in rural Maine. This post originally appeared on Country Doctor’s blog, A Country Doctor Writes.
Categories: Uncategorized
I said ALL the prices, docs compensation are part of the prices.
I asked the question about competition from more docs, I did not say I believed it. If fact more docs create more medical care not lower prices.
The “consumer driven health care” group are talking nonsense, as I have always posted on this blog.
Platon 20 has it right.
And what happens as reimbursement per procedure is driven down (which has been happening for many years) doctors strive to do more procedures (and new procedures) to maintain their incomes.
As the old joke goes: “We lose money on every car we sell, but we make it up in volume”
“Actually it’s all the prices that contribute to high U.S. medical costs – including docs.”
High costs relative to what? Europe?
Lets take a look — US healthcare costs are roughly 100% higher than Europe. That article you posted shows that doctors incomes account for 10% of total US healthcare spending. That means that you are still 90% more expensive than Europe even if you pay US doctors zero dollars. Hardly any kind of significant savings. On a more realistic scenario where you give doctors a 50% paycut, there is only 5% savings. Again, hardly worth the effort. You are still massively more expensive than Europe. Therefore, I reject your premise that doctors incomes are a primary reason as to why US healthcare is more expensive than other nations.
“Wouldn’t the market forces guys say more supply would increase competition?”
That is said only by fools (including Matt Yglesias) who dont understand that it only occurs in a pure free market economy, and US healthcare never has been and never will be a pure free market economy.
Consider this — if your premise was correct, then areas with high numbers of doctors should have very low healthcare costs because supposedly they are competing against each other and driving down prices. Does this actually happen? Nope. Check out the Dartmouth Study Group and their healthcare pricing atlas study. They have shown over and over again that areas with high doctor concentrations = HIGHER, not lower heatlhcare costs.
Manhattan has the highest concentration of doctors per capita anywhere in the world. The Manhattan doctor ratio per capita is 1 doc per 80 persons (national average is 1 doc per 416 persons). In rural Montana, the ratio is 1 doc per 10k population. If your free market premise were correct, then Manhattan should have ridiculously cheap healthcare because all those doctors are competing for a very limited number of patients. Is that what the data shows? Nope, Manhattan healthcare costs are the highest in the country DESPITE having the most doctors in the world per capita. This is true even after you factor out cost of living differences, capital gains costs, investment costs, real estate costs, etc.
Consider the case of McAllen, Texas. In 1990, there was roughly 1 doc per every 1000 citizens. Then a bunch of investors opened up a huge healthcare mecca and everything changed. By 2010 the number of doctors had skyrocketed and now there is 1 doc for every 250 citizens in the McAllen area. So what happened to healthcare costs in that time span? According to your free market theory, costs shoudl have gone down dramatically as all those new doctors were competing against each other and lowering prices. The Dartmouth Atlas proved that this was wrong — that in fact healthcare costs in McAllen had more than doubled vs inflation in that time period, even when you strip out the increased technology costs, capital gains increases, real estate value, etc.
More doctors = higher healthcare costs. Period. US healthcare does not operate in a free market economy like opening donut shops.
“Arguments #2 and #3 on the other hand, are blatantly false ”
Actually it’s all the prices that contribute to high U.S. medical costs – including docs. Wouldn’t the market forces guys say more supply would increase competition?
http://content.healthaffairs.org/content/22/3/89.full.pdf
Good article. About every 6 months or so, a liberal healthcare policy wonk who has no healthcare experience (i.e. Peter Forbes, Ezra Klein, Sarah Kliff, Matthew Yglesias, etc) writes an article complaining that:
1. Doctors are paid too much
2. Doctors incomes are the reason why healthcare costs are so high
3. Doctors’ supply is artificially limited and increasing the numbers of doctors or “providers” will lower healthcare costs.
Argument #1 is solely a matter of personal opinion with no real argument to back it up. Similar to saying that “fried green tomatoes are good.” I dont like fried green tomatoes, but I really dont have a good counterargument that the person’s opinion is wrong.
Arguments #2 and #3 on the other hand, are blatantly false and we have actual evidence that PROVES they are false. Whenever one of these articles is published every 6 months or so, I always email the author about a dozen research papers showing that their presumptions regarding #2 and #3 are wrong. They usually email me back with a rebuttal such as “I dont care if #2 or #3 are wrong, doctors in the USA still make more money than other countries therefore they are paid too much.” I expected more from supposedly smart policy wonks, but I guess I was being naive — after all these policy wonks think they are experts on everything from finance to the legal profession to the economy to healthcare.
You didn’t quite make the point I thought you were trying to make. From a macro perspective, there’s really no inefficiency from the fact that we pay physicians a lot. That is, there is only a pareto-type welfare loss if you are going to argue that there are too many or too few doctors, but if the number of doctors is correct, then how much we pay them is simply a matter of redistribution and not efficiency.
More generally, I cringe whenever someone talks about healthcare “costs” as if every dollar we spend on medical care disappears from the economy. In any other industry, having expenditures outpace GDP growth would be called “job creation”–no one talks about the “skyrocketing cost” of, say, information technology.
if there was an “applause” button to it, i would have pressed it. well said peter1!
Bravo!
“Solutions that are expensive and/or provide little real benefit to your overall health (90 year old knee replacement or 10 prescription meds) will be used less and less.”
David, WHO will decide the “real” benefit”?
David this is so true. I find it so amusing when otherwise smart people have such a narrow vision. Yes, hospitals would be lost without physicians. Good luck to any physics the tries to practice medicine without the availability of a: hospital, medical staff, pharmacy or pharmaceutical company. If you meet a physician like that run.
I also object when individuals use carefully culled facts to make their argument but then use “common knowledge” when pointing the finger at others.
Here we go again…
The driver of healthcare expenditures in the USA is the patient.
The patient has too much free money and free time to spend on his healthcare, so he does.
The patient has a shark in the water with him, so the doc gives the patient everything he wants so the shark will not try to bite the doc.
MRI’s cost thousands because the insurance company will pay it. The patient would never have one if he had to pay for it. Too much money sloshing around tempts everyone.
You cannot change outcomes when the care was not necessary in the first place.
You cannot change patient behavior unless there is something in it for the patient.
Nothing like a patient paying for his own care to help the doc realize what care is really for risk management and what is really necessary.
To cut healthcare expenditures, give the patient a percentage of the money he does not spend.
To cut healthcare expenditures, get rid of the ineffective accountability overhead. They are really not necessary.
Stop buying scooters for fat people.
Exactly…I think you’ve hit the nail on the head here. Too many people want to kill the messenger, when the real problem has to do with the “middlemen” you mention, and MRIs that cost thousands of dollars.
” For example, in England if a patient sues for medical negligence, the National Health Service gets sued, not the health care provider.”
They’re employees on salary. Do the same in the U.S. and I’d agree to that system as well. Of course as employees they’d be subject to professional oversight and discipline by the employer.
And, your Reserves against scientifically modeled potential losses are precisely $_________________?
Other countries also limit health care providers exposure to medical malpractice litigation and this limits the cost of defensive medicine. For example, in England if a patient sues for medical negligence, the National Health Service gets sued, not the health care provider. New Zealand, Sweden and several other countries have no-fault medical malpractice systems. Trial lawyers in the US continue to be effective in lobbying against meaningful tort reform, and medical care in the US remains more expensive because of it.
This is just one of the many reasons why medical care is more expensive in the US than in other countries. Tort reform in combination with the “Choosing Wisely” initiative would be a good place to start at ratcheting down medical care costs while maintaining high quality care, and avoiding rationing of care.
Thanks, Country Doctor. I agree with you and do not resent the salaries of most doctors and in fact I definitely believe generalists need to be paid more.
Now the salaries of insurance, hospital, and pharma execs — that’s another matter entirely. Salaries they often make by pushing doctors to see too many patients in too little time — with a quota yet. And by cutting back on nurses so they are too short-handed to do well by patients. At MD Anderson the MD/businessman/scientist who is president collects big bucks and is exempt from conflict-of-interest rules while funding his scientist wife, Lynda Chin, lavishly: “Purchase order by purchase order, the money came from MD Anderson’s capital accounts—state money replenished from a variety of sources, including practice funds. The story of rising costs and reconfigurations in Chin’s suite is unlikely to lift the spirits of MD Anderson faculty members, who are expected to work harder to offset the institution’s rising operating costs.” In fact, “MD Anderson doctors who plan to attend the annual meeting of the American Society of Clinical Oncology next week have to submit plans for making up the time missed in the clinic.” — they are driven hard to see more patients every year. http://www.cancerletter.com/articles/20130524
THOSE salaries — of people who unlike doctors are not producing real value — who in many cases such as pharma execs are playing a zillion destructive games to run up all of our medical costs (cf. http://www.dailykos.com/story/2013/05/29/1212289/-The-Cost-of-Cancer-Drugs-Is-Unsustainable) — I’m furious about.
The idea that physician salaries are a big driver is very typical of MBA thinking — they always want to cut the salaries and benefits of the people who actually do the work in order to pad their own pockets.
But to doctors who struggle with folks like that and who do a lot of the good medicine that still does get done — thank you, and it’s not YOUR pay I’m bitching about!
Good column, Country Doctor!
Right, Mr. Clymer, I am 62 and I too have spent less than 5 days in a hospital my whole life. Ya know why? Cuz we are both not in the age group that spends a lot of time in hospitals normally, although I’m a lot closer than you to the age I might use more. And yes you’d define how you manage your health by that time because it tends to be the most intensive use and a great fraction of health care spending, although you are right there are other costs also.
And yes, I too am an “expert patient” who is going to pick and choose my care. But most people aren’t and can’t be that, especially the age group that actually uses the most care, or the very sick people who do so.
And you and me being able to pick and choose simply isn’t gonna save much money except at the point one of us gets some bad disease but isn’t yet old or incapacitated enough not to be an “expert patient”. Yes, we may be able to save a bit of money on drugs (I choose cheap hypertension drugs, but the Advair ripoff means my asthma drugs are expensive and I have NO alternative till the patent runs out with the company jacking up the cost each year), but that’s about it.
Your ideas are very unrealistic, as Timmy and OldRN point out.
right on Peter1
“Until we stop lying to ourselves and others we will continue to struggle with excessive costs”
Wholeheartedly agree, but being honest and taking action would reduce the income of those “arms merchants” who support both sides – the cause and the treatment.
You are defining health care as what happens in a hospital not what happens the other 99% of the time that lead up to it. I am 46 years old and have spent less than 5 days in a hospital my whole life. Why would I define how I manage my health by 5 days out of the nearly 17,000 days I have been alive.
Even then, I am not willing to let my outcomes or the outcomes of my family be completely dependent on the quality of the provider you assign to me. The idea of “buyer beware” has never been more valuable advice than when spending those 5 days with you. I am confident that anyone who has spent time in a hospital recently will agree.
We continue to fail to recognize one the root causes of excessive health care costs – We have foisted “the big lie” onto the American consuming population about the effecacy and safety of many (most?) medical interventions by organized bio-medicine. We have also medicalized America’s social problems.
see http://www.unnaturalcauses.org
Until we stop lying to ourselves and others we will continue to struggle with excessive costs
We need megadoses of humility and honesty
Dr. Rick Lippin
Southampton, Pa
“Today I am going to write about how the US could save up to 10% on its healthcare bill.”
Boy is this self serving. If insurance companies didn’t make a profit we’d only save 5%, if hospitals didn’t make a profit we’d only save 10%, if executives took a pay cut we’d only save 2%, if we eliminated malpractice we’d only save 5%. As noted there is no one cause, however docs are in control of 100% of potential costs.
If docs would lobby for reducing costs (and passing that along) rather than feathering their own beds we’d do much better.
By the way other countries keep their costs less because they regulate much more – something docs are against.
The idea that the patient is too stupid to participate in their care is an antiquated rationale that is not only self-serving but simply not true. Leaving all their care decisions up to the professional and hoping everything works out is not only insults the patient, but potentially threatens their life.
They do complicated things all day long in how they spend the rest of their paycheck, why should their routine health be any different. No one is calling for a patient to make surgical decisions on their own or direct their care in a hospital bed but those cases are but a fraction of the average consumers overall health care experience.
Claiming that only 10% of my care is something that I can be involved in is the real folly.
Agree Tim. After 30 yrs in the hospital, I’ve learned a thing or two, more than most people off the street. I still have to rely on my physician’s expert advice just as I rely on my trusted mechanic. I know how an internal combustion engine works but I don’t know how to fix it. Expecting lay people and elderly to come in the door with some knowledge base is the exception rather than the rule. The expert physician will always be necessary to inform and provide options. Having an educated and informed patient class is another problem altogether.
Most patients have no idea what is needed for their care when sick, so to say they should have more skin in the game is folly. Perhaps, 10% of the people/potential patients have the time or interest or intelligence to have menaingfully significant “skin” in the game. They rely on professionals.
Rob,
You need to take it one step further. There is no ONE cause for excessive healthcare spending and David Clymer is right, if patients had “more skin the game” there would be fewer useless tests/procedures.
And there are tests/procedures done that are a “deep wallet biopsy”.
But one of the huge drivers of unnecessary testing is malpractice. A doc can be right in NOT ordering a test 99 times out of 100 – and in doing so can save a huge amount of money. But the one time he doesn’t order the test and he is wrong – KaChing – potential malpractice suit. Docs know this and practice accordingly.
It’s obvious that the waste in health care is not in the realm of physician salary, except where that’s tied to unnecessary procedure (like coronary stenting padding salaries of cardiologists). Just like the solution to obesity is less food intake, the solution to overspending is to spend less. The insurance companies, led by Medicare, are unwilling to say “no” to unnecessary ER visits, admissions, MRI scans, etc. and so choose instead of accepting the blame the deserve, to use reimbursement to try to control physician behavior or to shame those who “do bad.” It’s like parents who keep a pantry full of candy and then resort to shame and/or punishment for the child who takes that candy. Why not just stop buying the candy in the first place? It’s not a perfect analogy, as I don’t see physicians only as the children in this case, but instead the hospitals, drug companies, and other procedure based providers as being the ones made fat on the candy the payers refuse to stop buying.
After reading these comments I am reminded why nothing ever changes in health care. For the last 40 years everyone involved in patient care has taken the stance that by finding someone more inefficient or greedy than you, they are the problem and you’re not.
The truth is that everyone is at fault by running their piece of the machine (at least from the financial side) in THEIR own self interest. I am not one to argue that this is not human nature, but just like Margaret Thatcher’s famous quote about socialism, eventually it fails because it runs out of other peoples money.
The result of all that “protecting what is mine” is a system that the patient can no longer afford to be part of. Just like in the rest of the economy, if the price of a good or service becomes to much, people have to find better alternatives or simply do without. The fact that a surgeon needs patients to operate on to continue paying his/her bills is not a reason to keep doing it.
For the vast majority of routine health care experiences, the answer is to put more of the decision making power back into the common denominator in all YOUR health – YOU. Once YOU, the consumer, sees that your benefits (what you can take from the system) has a limit, you will spend what you do have more wisely or go without.
Solutions that are expensive and/or provide little real benefit to your overall health (90 year old knee replacement or 10 prescription meds) will be used less and less. Smart people in those spaces will be forced to look for new and more efficient ways to deliver their goods for less or be removed from the future equation because the system has run out of other people’s money to pay them for it.
David Clymer, CEO
MyMedLab
Forbes columnist Peter Ubel thinks physician salaries must be cut if we are to reduce healthcare spending. I think it is worth pointing out how the salaries of employed doctors cannot possibly be the driver he and others would like the public to believe.
See: http://www.forbes.com/sites/peterubel/2012/08/21/its-physician-pay-stupid/
These are all high roller career (an on demand) but what are the income threshold and how would you control it along with the accountability of rising inflation?
Yes, it is very necessary for take control on the cost of medical subscription for providing all required facilities to all patients
You forgot the 20-25% of the premium dollar that is taken by the insurance companies and the 100% jack-up in pharmaceutical prices that the U.S. patient pays.
You are missing the point. Some one on this blog comments and other blog comments used that concept that each doc controls how $3 million is spent by their ordering.
The goal is to provide incentives to get them to spend it wisely.
How would you do that? NOT by working for nothing. That is stupid.
Pay supra-baseline compensation and have them go out there and practice good medicine and surgery in order for each to cut their ordering so that spending from their ordering is cut by $200,000.
For instance, do not do a knee replacement in a 90 year old with cancer. Stop the polypharmacy in the 80 year olds. Do not put a 90 year old with dementia on a ventillator. Keep patients out of hospitals. The list goes on.
The fat salaries of the hospital administrators and consultants will be cut in this scenario.
This, my friends, is the ultimate accountable care.
I know many academic based Internal Medicine physicians that barely make $200K. Conversely, I know several neuro and cardiovascular surgeons who make 2-4 times as much. If we could find a equitable salary for physicians, we’d still be ahead of the game in the long run. Thanks for your article.