In a recent op-ed in the Washington Post, Matt Miller of the Center for American Progress denounces members of our "medical-industrial complex" - physicians and specialists, ostensibly - for their dependency on "far higher payments than their counterparts abroad get," despite allegedly worse outcomes and inefficiency.
What both Republicans and Democrats are missing (or ignoring), Miller writes, is that even with $700 billion in cuts to Medicare, our spending trend compared to other countries will remain roughly where it is.
Miller is certainly correct that the Medicare cuts will do
little to 'bend the curve' of health care spending. Spending will shift, those
with Medicare will have fewer doctors accepting their coverage, but the trend
of spending will continue uninhibited.
Yet, Miller's claim that our supernormal healthcare spending is driven by the medical-industrial-complex's greed needs to be fine-tuned somewhat. The problems that Miller identifies are largely the result of our third party payer system that - a hybrid model that gives us the worst of capitalism and the worst of socialism by insulating consumers and the medical-industrial complex from price signals. Before discussing the implications of not having price signals, however, we can start to address Miller's basic claim by looking at the salary of physicians in the US compared to other developed countries. This should give us some idea of the actual cost that the 'medical-industrial-complex' imposes on Americans.
Source: Commonwealth Fund, Explaining High Health Care Spending in the United States: An International Comparison of Supply, Utilization, Prices, and Quality
For both general practitioners and specialists, the US leads the pack in salaries. American general practitioners out-earn their French counterparts by nearly $100,000. American specialists lead by nearly $300,000. It would appear that this lends some credence to Miller's argument that the medical-industrial complex is in fact purposely bankrupting Americans.
However, an important factor driving these salaries is the high cost (both the explicit financial and the time-opportunity cost) of becoming a physician in the United States relative to other countries.
In France, for instance, a student interested in becoming a physician starts immediately after high school - this consists of: a two-year "first cycle" focused on scientific training; a four-year "second cycle" focused on general medical training; and a "third cycle" that offers two options: a two-year residency focused on practical and theoretical training (the general practitioner track) or a specialized four to five year program that allows specialization in one of many fields (the specialist) track. A general practitioner can finish his studies in a mere eight years; a specialist in 10 or 11.
By contrast, in the US a medical student will take at least 11 years to become a general practitioner - much longer to become a specialist.
The financial burden is very different as well. In France, medical education (indeed, most higher education) is heavily government subsidized and graduates leave with little to no debt. This, however, means much greater government control - explicit limits on the amount of medical students, as well as strict government control over schools' curricula. Additionally, the cost of physicians' schooling is passed onto the general population through higher income taxes.
In the US, the average medical school graduate will have around $150,000 in loans. Malpractice insurance and board certifications add even more. Only by his mid-30s will the graduate start seeing the 'big bucks'. This creates a more implicit and nuanced cap on the amount of doctors in the US. However, the added bonus is still the lack of overt government control, giving US-based schools more leverage in developing innovative programs.
So, perhaps the salaries of American physicians are justified - after all, the time and financial investment they make is significant.
However, this is far from the whole story. Physician's salaries generally make up a relatively small portion - only 8.3 percent of US national health expenditures in 2006. Spending on physicians' services and hospital services in 2006, on the other hand accounted for 20% of spending, and there is wide variation on quality and price. The problem if it lies anywhere, lies here: in the inability of the health care system to drive efficiency and productivity gains that contain costs or at least keep them growing at a more sustainable rate. Here, the lack of price signals is at the root of the inefficiencies buried within our health spending.
To understand what it really means not to have price signals, we can look at the share of total health expenditures that out-of-pocket spending (OOP) makes up. In a single-payer system we expect this to be very low; in a capitalist system we expect it to be rather high.
As it turns out, OOP's share of total spending has fallen tremendously in the US - roughly 10 percent since 1990. Current OOP spending levels puts us in line with Germany and Canada - more socialized systems with defined budgets for healthcare, rather than Switzerland - a market-based system where spending is determined by price signals. Today, out of pocket spending accounts for about only 12-13 cents on the dollar on health care spent in the U.S. We have no price signals, and no budget constraints (save for Medicare's Sustainable Growth Rate; Medicare does have plenty of price controls, which is part of the same problem) - we're left with a system where people have diminished incentives to stay healthy or seek less expensive treatments (how much does an MRI cost? Is a "watch and wait" approach better than getting more expensive tests, etc.), and healthcare providers have diminished incentives to become more efficient (Medicare largely pays according to the pre-determined fee schedule, regardless of outcomes or relative quality).
As noted earlier, Matt Miller is ultimately correct in his implication that we do not get the most efficient outcomes for all of our spending. The high cost of drug trials (that increase the price of prescription drugs), the lack of a transparent price mechanism for healthcare (that make consumers less likely to shop for the 'best value'), and government distortions of the existing market (Medicare, after all, is a prime culprit here through its RBRVS, which creates lower reimbursement rates for primary care physicians compared to pricey specialists, raising the cost to private and out of pocket payers). Along with other state regulations that limit competition (think certificate of need and scope of practice regulations) and tax policy all contribute to the inefficiencies and high costs that Miller lumps together.
Unfortunately, his solution isn't very helpful - "weaning" the medical-industrial complex off of high payments is more nuanced than he lets on. The real villains are not the private actors (pharmaceutical companies, doctors, hospitals etc.) that charge high prices - it's the high-cost and inefficient regulatory environment that they're operating within and the license we give them to charge so much by insulating consumers from prices.
Increasing competition and transparency in the system - and encouraging more consumers to shop for health care value - would go a long way towards improving price competition and allocating resources (like physician pay) more effectively.