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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  • http://pulse.yahoo.com/_6C65YWGCC7P5C6CGMMBK7VMFXE JenniferL

    Health care “calculations” from Obama Administration staff have proven to be intensely politicized and highly suspect.

    • Anonymous

      Is the status quo any better? I say, let’s give it a chance. What is everyone so afraid of? It’s estimated that our current health care system excludes over 50 million Americans and another estimated 25 million more Americans are underinsured. If you ask me, a status quo like that begs for serious reform! My guess, most Americans would like to see changes to a health care system that is ranked 37th worldwide and has proven only to work well for America’s insurers and providers. The status quo is not working for average consumers in America. As I see it, AHIP and the AMA own Congress. Until members of Congress stop worrying about getting reelected and stop taking the AHIP and AMA payola and begin to serve their constituents, we will not see any significant changes to our broken health care system.

  • http://www.facebook.com/people/Craig-Koniver/100001463176810 Craig Koniver

    Even with this data, it is really difficult for me to make any sense of this. Our health care system is dominated by the insurance industry which sets the reimbursement schedules. This article seems to be trying to make the case that we have unexplicably high incomes for physicians without much reason why. 

    But there are tons of reasons why. But putting that all aside, any thoughts or attempts to regulate what anyone (physicians included) makes in this country to me is deplorable. The market sets the standard for what salaries should be–in America, we value physician services very highly and as such, physicians are paid well. This article hints that as Americans we are paying too much. Too much? Who dare stand on their high horse and assert what anyone should make? That certainly is NOT the job of the government, only for the forces of the free market to decide!

  • Anonymous

    Once again, politicians and their “academic” advisors attempt to misinform the public regarding the true cause of high health care costs. Physicians grow weary of constantly having to defend their right to proper reimbursement in accordance with years of training and debt accumulated in doing so. If the country truly desires cheaper doctors, it WILL come at a price.

  • Anonymous

    This analysis fails to consider the true cost of debt and the cost of moving the time horizon for physicians when compared to the rest of the world. It also fails to consider that any US citizen is likely better compensated for any service compared to any other world citizen. Why pick on doctors? There is also substantial administrative burden in this country which erodes at efficiency, also silently raising costs. Perhaps the Obama administration would like to address that. Did this study include the outrageous cost of college in this country when compared to the rest of the world? Any analysis of why drugs cost more in this country than the rest of the planet? I’m not sure this can be referred to as a “study”. Looks like propaganda. If you want to see a real salary differential, check out what insurance company CEOs make compared to any person doing anything and try to explain why that situation exists. 

    • http://twitter.com/PolicyRx Policy Prescriptions

      I wouldn’t call the study propaganda, any more than any other study looking at a singular research question without attempting to factor in EVERY thing under the sun (e.g. drug pricing in USA). The authors of the study did attempt to include medical education costs as well as the cost of college education:  “Over the eight years of post–high school education, at an interest rate of 7 percent, an American medical student would have incurred as much as $225,000 in tuition expenses by medical school graduation.”Additionally, the authors did consider  that physicians are drawn from the high income distribution in the US: “High physician fees in the United States may reflect the cost of attracting skilled candidates to medicine in a society with a relatively more skewed income distribution.”One of the reasons I decided to review this article on Policy Prescriptions (www.policyrx.org) was because other physicians in my geographic area felt similar to you: “Why pick on doctors?” I wanted – therefore – to provide an analysis of this article and make its findings known to the physician community. Hopefully, that has been accomplished.

  • Anonymous

    For years, I’ve been trying to get my primary care physician to prescribe a generic medicine instead of the brand medicine he insists I take. When challenged, he always says, “I’m the doctor!” The brand drug costs nearly $500 for per refill. That’s ten times the cost of the generic. Are doctors responsible for high costs? You tell me!

    • http://www.facebook.com/people/Craig-Koniver/100001463176810 Craig Koniver

      Sounds like you need to find a new doctor….I think patients are reluctant to change doctors, but the reality is this: there are good doctors just like there are bad doctors. Please change doctors to a doctor that is more modern and willing to work with you. Your current doctor misses the point completely when he says he is the doctor–you are the patient and that is what matters most!

      • Anonymous

        Thanks for the advice. Maybe you are correct. I’ve always suspected something was wrong when he immediately puts me on something new as soon as my current medicine goes generic. Doesn’t matter that the old medicine works just fine in controlling my diabetes. His decision to switch me to the newest brand name designer drug seems to be more affected by whether my insurance plan will cover the huge costs and whether I see a drug salesman in his waiting room that day.

  • http://onhealthtech.blogspot.com Margalit Gur-Arie

    Here is the rub. From the Health Affairs article cited in the OP:
    “When physician fees in each of the comparison countries are compared to
    the mean incomes of the top 1 percent of households
    in that country, the results are broadly consistent
    across countries. Primary care physicians in other countries earn about
    one-third as much as the average income of the top
    1 percent households, while orthopedic surgeons earn between half (in
    Canada)
    and 90 percent (in the United Kingdom) as much. The
    United States, at three-quarters, is in the middle of the pack.”

    We now have two economies in this country: one for the super rich 1% and one for the remaining 99%. Physicians’ fees are progressing with the booming 1% economy (although most physicians do not belong to the 1%). Since the 99% is steadily losing purchasing power, physicians’ fees look more and more exorbitant to those looking from the bottom up.
    Perhaps if we didn’t have such discrepancy between the 1% and the rest of the people, the country would be more productive, the GDP would look much better and health care would not be such a large portion of national expenditures.
    I have always maintained that this is not about health care. The root cause is poverty. Health care is just a symptom. And reforming health care to better fit a society where a few people are rich and the vast majority is poor and cannot afford the best available care, is not the optimal solution, in my opinion.

    • Anonymous

      No, most physicians don’t belong to the 1%.  Most physicians only belong to the top 5%.

    • Anonymous

      OWE-BAMA INCOMPETENT
       
      “Re-balance pricing?” How? When has this been done before.
       
      “The 99%” .. are paying only 66% of taxes. How lucky. No wonder there are so many illegals in the USA.
       
      No one believes this O-B.S. because those involved have never done hard work, in their lives.
       
      Repeal, replace and unelect the MESS-iah.

  • Anonymous

    I agree, that was acomplished. Let me rephrase the propaganda issue: The study itself is not the issue. It is the absence of similar questions like the ones I posed and their presence in the media (which may or may not be influenced by the authors). “Are doctors making too much money?” is getting a lot of attention. But “Why are scans and drugs so overpriced?” gets far less attention.