Are physician services to blame for high health costs?

Why does health care cost so much more in the United States than in other countries? The answer is exceedingly complex; pharmaceuticals, hospitals, and physician services (among others) comprise the multiple slices of the health care pie that in the United States is about twice the size of the next largest spender for health care services.

A new study from one of President Obama’s appointees (note: this study was written prior to the author’s appointment but only published recently) attempts to break down one of these slices of pie – physician services. Per capita spending on physician services was $1,599 (in 2008) in the United States; in other OECD countries that number was a mere $310. Attempting to explore the reasons for this dramatic difference, the authors explored public sector payments to primary care providers and orthopedic surgeons in the US and comparable countries – Australia, Canada, Germany, France, and the United Kingdom.

Unfortunately, the data sets used for this study are piecemeal and derived from multiple sources. Most countries utilize a fee-for-service component for these physician services (with notable exception for the United Kingdom, whose primary care physicians and orthopedic surgeons tend to be salaried, and Germany, where only the orthopedic surgeons are salaried).  Total costs in the fee-for-service model are the product of the fee for each service, the volume of services provided by each physician, and the total number of all physicians. For instance, the total amount a nation spends on hip replacements reflects the cost of an individual hip replacement multiplied by the number of hips replaced by each orthopedic surgeon and the total number of surgeons performing this procedure.

Using a similar methodology, the authors determined the costs associated with routine primary care office visits and for uncomplicated, first-time, hip replacements.

Relative to the other countries, the United States used the lowest volume of office visits (3.8 versus 5.1 – 7.4 visits per capita) and represented the low-end for volume of hip replacements (162 versus 120 – 270 per 100,000). However, the price paid (in the public sector) for office visits was among the highest ($60 versus $32 – $66). Fees for hip replacements were dramatically above other countries ($1,634 versus $652 – $1,251).

Once considering practice expenses and subtracting that value out, United States physicians in both fields were the best compensated in the world. Primary care physicians earned from 17 percent to 100 percent more than physicians in the UK (2nd highest) and Australia (lowest), respectively (average: $186,582). Orthopedists earned from 37 percent to 190 percent more than their colleagues in UK (2nd highest) and France (lowest), respectively (average: $442,450).

The authors then attempted to pull out the up-front costs of medical education incurred in the United States (a cost not borne by physicians in other countries).  A realistic estimate required an additional $21,000 to $24,000 annually to cover the cost of student loans for American doctors. Yet, this did not fully explain the income differential. For primary care physicians, income exceeded these costs by about $6,000 compared to the next highest paid primary care physicians (those in the UK). Orthopedists on the other hand, still earned $94,000 more than orthopedic surgeons in the next highest paid country (UK).

Commentary

Public sector spending on health care in the United States tends to be directed toward the higher end of the spectrum compared to other countries. These differences are not fully accounted for by practice expenses or the increased cost of medical education in the US.

But the adage “you get what you pay for” likely still applies. In order to recruit the best talent into the medical profession, fees must remain at a premium compared to other occupations and to other countries.

Even though public sector physician fees are higher in the US, they still tend to lag behind the private sector.  In any system with differential payments, the seller (physicians) will continue to direct their services toward the highest bidder, shunning Medicare and Medicaid in favor of private insurance. Differences between primary and specialty care, as highlighted here, suggest that rebalancing fees may be necessary.

Cedric Dark is Founder and Executive Editor of Policy Prescriptions.

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