Over at Healthhcare Policy and Market Place Review, Bob Laszewski suggests that the elephant in the center of the room is the cost of health care—and I would add, healthcare inflation. The nation’s healthcare bill is rising 6 percent to 7 percent a year—far faster than either GDP or wages. This means that in roughly ten years, your health care bill will double. Even if you have insurance now, do you believe your salary will double over the next ten years? Do you think your employer will be able or willing to pay twice as much for your premiums?
As I have written in the past, U.S. healthcare is so impossibly expensive because we pay more for virtually everything—drugs, devices, hospitals, physicians’ services. Physicians complain that their incomes are not rising as quickly as their costs—and it is very true that the doctors at the low end of the income scale (the family docs, pediatricians, internists, general surgeons, primary care physicians, geriatricians and palliative care specialists) need to earn more.
Yet overall, better-paid physicians continue to command higher incomes each year. Even though fees for many of their services remain flat, they have more than made up for the difference “on volume”—i.e. by “doing more”—more tests, more treatments. Medicare bills confirm that they are taking in more each year.
The bottom line is that many specialists now take home four to six times as much as primary care physicians who typically earn $125,000 to $160,000 a year —yet it is difficult to argue that the services these specialists provide are four to six times more valuable. Meantime, hospitals pay for much of a specialists’ overhead—the operating room, the nurses, the receptionists, the testing equipment—while a primary care provider must cover most of his own overhead.
Granted, specialists who perform the most aggressive and expensive procedures usually spend more years in training. But does it make sense to pay them four to six times more, every year, for thirty or thirty-five years? It would make much more sense to subsidize medical education in specialties where we need more doctors .
How do we justify asking taxpayers to pay some doctors $500,000 or $600,000 or $800,000 a year (and taxpayers now pick up slightly more than half of the nation’s healthcare bill) when we cannot afford to provide basic healthcare for all of our citizens? People who cannot afford health care insurance for their own families are subsidizing those $500,000 incomes.
Other nations put patients first, and outcomes are better, even though specialists in other developed countries earn roughly 40 percent less, as a share of per capita GDP.
I’m not arguing for slashing specialists salaries, but clearly, health care dollars need to be redistributed, up and down the physician income ladder. We need to adjust fees, with an eye to the benefit to the patient.
Finally, research shows that when a service becomes particularly lucrative, volume increases: over-payment drives over-treatment.
I’m focusing on payment to physicians here only because I have talked so often in other posts about how health care dollars are squandered on over-priced, often unproven, drugs and devices—not to mention seven-figure salaries for hospital CEOs who don’t seem to understand the difference between a hospital and a hotel. Too often, they would rather invest in the hotel-like amenities that will bring in “the customers” than the systems that would make patients safer.
Why focus on the cost of care rather than keeping our eyes fixed on the need for care? Because, as Bob Laszewski argues below, if we don’t face up to costs, we won’t be able to fill the need.
Finally, yes, I know how much we have spent bailing out Wall Street banks. And, in my view, the money was not spent wisely. (I’ve said most of what I have to say about Wall Street in my first book, Bull! A History of the Boom and Bust, 1982-2003. )
But the difference between the bail-out and healthcare legislation is this: when we promise universal coverage we are not talking about a one-time expenditure, this year or next. We are talking about a recurring contribution to a industry riddled with corruption and conflicts of interest where costs are climbing by 6 percent to 7 percent a year.
Anyone who thinks that making that industry larger will somehow make it easier to make the tough decisions about where to cut costs hasn’t been paying attention to how American capitalism works.
When an industry grows, it power increases; its lobbyist are better –funded; and the chances of persuading it to settle for a smaller piece of the pie diminishes. (See: the oil industry; the investment banking industry . . . )
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To Break the Bank or Not to Break the Bank With Health Care Reform?–The Wrong Question
By Bob Laszewski, Healthcare Policy and Marketplace Review, January 30, 2009
The new debate in Washington these days seems to be over whether we can or cannot afford to do health care reform given the financial crisis and the huge budget deficits.
Some argue that with the rising unemployment rate, certain increases in the number of those uninsured to follow, and the need to inject money into the system, this is the right time.
Others say that in the face of daunting national debt it is not the time to dramatically increase our entitlement obligations even further.
In my mind this is a false debate.
Both sides seem to presume that solving the access problem, and not the cost of care in America, is the real problem.
I come from the perspective that the onerous cost of health care in America is the problem that needs to be solved. Solving it is exactly the right thing to do in the face of an already dramatic increase in the national debt.
The number of those uninsured–or on the edge of becoming uninsured–is a symptom just as the looming insolvency of Medicare is a symptom of the health care cost problem.
If you want to really reform America's health care system and pay for more people to be a part of it you have to solve its long-term cost problems.
What better time to do that then when we are faced with enormous budget deficits that, even before the financial meltdown, were always being driven to a great extent by health care costs?
But here's the rub. Dealing with costs is the problematic part of health care reform. In a way, agreeing that we should pay to cover everyone is the easy part. Kind of like buying that new Porsche is the easy part–who wouldn't want one? The hard part is paying for it.
The CBO's December report on the cost of health care broken down by 115 options tells the story of real health care reform. *MM– I have written about the CBO report here
I hate to break it to you, but hospital CEOs invest in amenities because that’s what patients WANT, as the latest NBER article points out: http://www.nber.org/papers/w14619
“We also find that a one-standard-deviation increase in amenities raises a hospital’s demand by 38.4% on average, whereas demand is substantially less responsive to clinical quality as measured by pneumonia mortality.”
Who doesn’t have an anecdote about an Aunt that chose the worst hospital in town for her surgery, because all her friends raved about the care they got there? Like it or not, amenities count.
THANKS!
Agree COST IS THE ELEPHANT IN THE ROOM
My Rx?- More incentives for-
-primary care
-chronic disease mgt
-home health care
-public health
-ethical and compassionate rationing (usually at end of life)
HOW TO IMPLEMENT My Rx?- IDEAS WELCOME
Dr. Rick Lippin
Southampton,Pa
A great post!
As a med student interested in persuing specialties such as; ‘the family docs, pediatricians, internists, general surgeons, primary care physicians, geriatricians and palliative care specialists’
it is daunting that w/ $220k in debt it will take me well into my 30s to pay off debts . . .
I would also add that this paradox of unequal compensation is enhanced by the fact that rural docs (the most needed in our country at this time) receive even lower salaries or if in private practice a higher precentage of Medicaid patients, decreasing income and thus making it extremely difficult to have a rural general practice after the debt accrued from U.S. med schools . . . The incentives of our ‘medical system’ do not allign w/ a healthy country!
This is a problem that Obama began to address in his campaing w/ increased service corp funds, however not a word has been heard post inauguaration to my dismay. We may hope
BBK, Rick and Frustrated
Consmer–
BBK –
Thanks.
I am hopeful that Obama will get around to service corps programs . . .
You’re entirely right about the need for rural PCPS, and the lower salaries.
Ultimately, I think loan-forgiveness programs tied to a commitment to pracitce in a specailty and and area where you are needed is the answer.
If I were, say, 32 or 33 and getting out of med school, being free of debt at a point in time when I might want to think about buying a home, starting a family would be more important that being offered an extra 10%-15% a year (before taxes) going forward.
Rick–Thanks for your comment
Frustrated Consumer–
Yes, we talked about that on a thead a few days ago.
See the post on “amenities.”
Also, this is a pretty civil blog where people usuallly avoid phrases such as “I hate to break it to you.”
Lascewski and others are on point that cost containment is crucial to any new healthcare strategy: Incomes aren’t the only issue – there are several, a few key ones discussed below:
1) Physician salaries:
The primary care specialties are out of favor because of sheer economics. An internist with fixed overhead cannot have a Medicare practice because she is “upside down” from the first dollar – she is paid less to see the patient than the cost to provide the care. Suggestions:
change the E&M codes to reward cognition, flesh out pay for performance, incentivize through funding for the EMR (electronic medical record) and through funding for residency IF a primary care specialty is chosen, plus tax credits: for practice in under served areas AND tax credits perhaps for ALL physicians who provide uncompensated care (this would bolster hospital call panels to support ER care).
2) Hospital Costs
Most hospitals have an idea of their markup and CHARGES, but no clue as to the actual COST of the care, ie. an appendectomy door to door. Leading institutions are beginning to grapple with cost analysis. This, plus transparency and competition in cost/pricing (mandate all costs are posted and advertised, and only ONE cost per procedure no matter who the payor) Patients and payors might then have real choice.
3) Practice Behavior due to Risk Aversion
Some specialties (such as Emergency Medicine) need help with tort reform, EMTALA relief, and accepted best practices to set a corridor of practice which is unassailable if there is a bad outcome within predicted risk margins.
This would NOT apply to practice outside the accepted standards. It would allow a reduction in the amount of testing that is done to “avoid missing something.”
4) Pricing and Reimbursement Guidelines
To avoid the gaming and outright underpayment that physicians and hospitals experience from Health Plans and HMOs especially. Witness the recent supreme court decision in CA outlawing “balance billing”, one of the few strategies that CA physicians had to combat the flagrant underpayment by HMOs.
And this is only a start! The challenge is huge, daunting, many players, but crucial to the discussion of the future of health care reform.
GPs underpaid at $160,000? I disagree. This takes too much out of the community, for skills that are not inherently scarce. GPs want to be be paid more for “cognition”? I think there’s a need for evidence-based medicine here. We need evidence, not just credentials, that such skills are worth extra money. We need evidence that nurses, for example, can’t provide many of the same cognitive skills at a price that isn’t so harmful to governments’ budgets.
I sympathize with the large education bills. But it’s wrong to just present communities with a bill you incurred, and expect them to just tell the taxpayers to pay up.
We need to see if there aren’t better ways.
My apologies: I meant to say that a GP’s skills are not inherently VERY scarce. Not top-percent scarce. So to pay top-percent salaries would be harmful to other community services.
Maggie, you state “taxpayers now pick up slightly more than half of the nation’s healthcare bill.” That’s a large portion. Did you discuss this in a prior posting? I’m curious of the data that supports your statement.
“Ultimately, I think loan-forgiveness programs tied to a commitment to pracitce in a specailty and and area where you are needed is the answer.”
Unfortunately, although med students often are not great at math, they aren’t terrible either.
The idea that loan forgiveness amounting to say $40,000 per year for five or six years would be smarter than taking a job that paid $200,000 a year more every year (the difference between higher paid specialties and primary care) or a job that paid $40,000 a year more (rural vs metro in primary care) every single year for the rest of your life is unlikely to appeal to med students, and you probably would not want a doctor who actually thought that was a good deal. Add to that the lifestyle considerations involved in primary care vs specialty or in rural vs metro, and that explains why efforts to use loan forgiveness or repayment as an incentive to get people into rural areas or into primary care have failed, tending to attract only people who lean in that direction already.
Removing disincentives against rural practice and primary care — payment imbalances, underfunding of programs that provide a large share of patients, and the disaster that is Medicaid — would be better. In fact, do you want to improve medical coverage in rural areas as well as in urban inner cities? Federalize Medicaid and merge it with Medicare so that payment is the same. Taking money out of high paid specialties and putting it back in primary care compensation would be another step.
In fact, I think the plan for economic relief for the states should take the form of federalizing Medicaid, leaving the money states spend for it to be spent elsewhere in their budgets. Patients, providers, the states, and the public would all be winners.
Christopher, Jorge, “Anon” and Pat S..
Christopher–
I think your first three suggestions are excellent.
And you are right; even hospitals don’t have a clear udnerstanding of their costs (“Leading institutions are beginning to grapple with cost analysis”)
On #4 I don’t think balance-billing is the answer (And I don’t think you meant to imply it is–Though in our broken system, it may seem, to some doctors, their only option.)
.
Under healthcare reform, payers need to begin paying for value, not volume. They should pay for quality: without regard to how expensive the treatment is, it should be covered IF there is medical evidence that it will provide benefit for a patient who meets a certain profile.
But there still should be some caps on what proucuers can charge: prices shouldn’t be as ludicrous (as they now are for some cancer drugs).
Under Obama’s plan, if private insurers were forced to compete with a public sector altenative (“Medicare for all”), insurers would have to follow Medicare’s lead, or they wouldn’t be able to compete.
Jorge–
I completely agree that we need “evidence-based “medicine
.
And you’re right, the ocmmunity (or tax-payers) should not be required to pay someone $160,000 simply because he has a degree that says “M.D.” No
degree “entitles” someone to a particular salary.
Ultimately, everyone should be paid according to what they are contributing to society (assuming they are capable of contributing.)
In the case of healthcare, doctors’ incomes should reflect the benefit that they are providing to patients.
That said, keep in mind that doctors tyically spend 10 years or more in training (med school and residency) after graduating from college.
This is a long time, And during that time they earn no money (med school) or very little money (residency) and can’t save anything.
And, given what hard work being a doctor is, it makes sense that they should be paid well.
To me, $160,000 repesents very good pay–but given the high cost of living in many parts of the country it doesn’t seem to me excessive for someone who has given up that many years (in school and residency)and continues to do a difficult, exhausting job.
Anon_- Here’s the breakdown: of the $2.3 trilion that we, as a nation, spend on healthcare, 17 percent goes to Medicare, 16 percent goes to Medicaid & Schip; 12 percent goes to toher public programs, including Veterans programs, public hospitals, school hospitals; 6 percent go for private insurance for government employees.
(These numbers are from the Centers for Medicare and Medicaid, circa, 2005, and add up to 51 percent o fthe total. Since then, Medicaid’s share of the pie has risen, along with insurance for govt’ employees (as private insurance premiums have risen.) So, maybe now we’re at 52% , 53% –and rising.
Meanwhile this does not include the revenues that governmetn loses (and other taxpayers make up for) because Washington does not tax employer-based insurance benefits as part of a worker’s income–though it does allow employer’s to deduct those benefits from profits (as if they were wages.)
Pat S.–
Yes, you are right, all of us can do the math. (I wasn’t trying to trick anyone,)
I certainly wasn’t suggsting that PCP’s would wind up amassing a larger fortune long term if they had loan-forgiveness rather than the extra 10% or 15% salary.
I was looking at the life-style issue from the point of view of the student: what is it like to emerge from med school in your early 30’s –a time when you might want to be thinking bout buying a home, marrying, starting a family– with, say, $150,000 in debt.
I would think that having that debt erased might make you feel that you could afford to become a PCP–if that is really what you really want to do.
(We’re not talking about offering a financial incentive to draw people into primary care for the money; we’re talking about making it possible for people who want to be in primary care to do it.)
I absolutely agree that we should fold Medicaid into national healthcare, and providers who care for Medicaid patients should be paid just as much as those caring for the elderly (Medicare)– or anyone else.
But I don’t think that, under national health reform, taxpayers can afford to–or should– aim to increase the number of doctors earning $250,,000 or $300,000 or $450,000.
(That’s really not the point of health reform.)
Moreover, having a small group of people at the very top of the income ladder earning a huge share of total personal income in teh U.s. is not good for the econommy, or society.
Meanwhile , it seems to me that if med students emerged with no debt, a salary of $165,000 (in today’s dollars) would be enough to attract a very intelligent, caring group of doctors from the cream of this countries’ college graduates–especially because loan forgiveness would expand the pool of people who might otherwise feel they could never afford med school.
Put it this way: I could live very, very comfortably in Manhattan, with my two children, (and no second income in the household) on that amount.
Adjusting for inflation, I did just that– for less–throughout the 1990s.
“But I don’t think that, under national health reform, taxpayers can afford to–or should– aim to increase the number of doctors earning $250,,000 or $300,000 or $450,000.
(That’s really not the point of health reform.)”
I certainly agree with that statement, and am puzzled in its inclusion in response to my comments.
I WOULD like to see a small increase in payments to primary care financed out of cuts to higher paid specialties, not driving salaries to over $200K, but rather increasing incomes for primary care people outside large metro areas to closer to the par for the specialty in metro areas — in other words increasing income for FP’s practicing in small cities from the $90K – $120K region it is in now to the range you are talking about: $160K – $180K. I also would like to see pay rates reformed to put more reward on patient services that involve doctor patient contact and interactions and less on procedures.
Meanwhile, in response to anon, the amount spent on government health care is always right around 50% in all estimates. It is sometimes slightly more, sometimes less. This tends to have more to do with the question of what to count as a government health care expense and what not. Some people argue that the government employees insured through private insurance should be counted as private insurance customers, not as government paid. Others suggest that costs related to the NIH, NCI, and CDC are actually research, not health care. You get the idea. By trimming or adding around the edges you can change the numbers from 55% government paid to 45%.
However, the main point remains that we live in a country where about half of health care is already a government program of one sort or another, that that number is increasing with aging related increases in Medicare enrollment and with increasing enrollment in Medicaid and other low income programs as the economy collapses, and that the percent of privately insured is decreasing as fewer employers offer insurance and as more people lose jobs that provide insurance. As Atul Gawande points out, the question of using an American model of health care for reform begs the question, since in America we already have government owned health care (the military, the VA, the PHS, the IHS,) a large single payer system (Medicare,) as well as the private systems most people are thinking of when they use that statement.
Pat S.–
I am sorry.
I totally misunderstood your comment –and your tone.
I think the problem began with the first two sentences–“Unfortunately, although med students often are not great at math, they aren’t terrible either.
“The idea that loan forgiveness amounting to say $40,000 per year for five or six years would be smarter than taking a job that paid $200,000 a year more every year , , , ”
I mistakenly took this as “Oh, come on–do you really think we’re that stupid?
“Obviously, we would be better off making an extra $40,000 a year for 30 years than getting a $150,000 loan forgiven.”
Clearly, that was Not what you were saying. And what you said later in your post–about Medicaid, etc.–didn’t seem to fit with my reading of the beginning.
Anyway I am sorry. Usually, I understand where a reader is coming from, but sometimes, with a new reader, I misread the tone
(One day, comments on blogs will come with audio!).
I agree with everything you say in your most recent comment–particuarly the idea that
“the question of using an American model of health care for reform begs the question, since in America we already have government owned health care (the military, the VA, the PHS, the IHS,) a large single payer system (Medicare,) as well as the private systems most people are thinking of when they use that statement .”
Thanks Maggie for this post. This is exactly the kind of information we at FAIR are trying to get out to the public. For too long, insurance companies concerns superseded patients. FAIR is an emerging national grassroots movement focused on changing the debate about health care costs and holding managed care companies responsible for their behavior. If you are interested in implementing change and working toward a FAIR reform to America’s broken healthcare system. Go to http://www.fairmanagedcare.org, become a member, and fight back.”
M Chee–
Thanks very much. I went to Fair’s website and added it to my favorites.
Please keep in touch; and I hope you wlll continue to comment on the
bog.