What if doctors worked for free?

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 MRIs, 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?

“A Country Doctor” is a family physician who blogs at A Country Doctor Writes:.

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  • Anthony D

    Here’s the thing.

    The problem with PPACA (ObamaCare’s real acronym) is that is fails
    completely to understand the real problem or deal with it. The primary
    reason that medical prices have been growing faster than inflation for
    many decades in a row without end is because of Third Party Payment. TPP
    break the market’s natural cost control mechanism…which is prices
    being paid by the consumer.

    In a HEALTHY market, a consumer pays for goods and services and
    therefore has incentive to seek the best total value he can. he
    prioritizes from himself what is important, and what is worthwhile. The
    provider is always under pressure because of this to innvoate, be
    efficient and meet the consumer’s expectations and desires at a price
    point that both can live with.

    But in the medical market in America, the consumer doesn’t pay. About
    90% of all medical dollars are spent by someone OTHER than the patient
    (insurer or government usually). But wait, it’s worse! because not only
    do most people not pay for 90% of their bill themselves, but their
    insurance isn’t even paid for by them directly. Either their employer or
    the taxpayer pays. So you really have 4th party payment MOST OF THE
    TIME.

    The effects of this are a classic Moral Hazard (if you don’t know what
    that is, look it up, it’s an important economics term that every
    American should know). The consumer, because he doesn’t pay for
    anything, is incentivized to overconsume medical services. The provider,
    because the consumer doesn’t worry about costs, is incentivized to
    overprovide.

    Thus unnecessary tests are prescribed, unnecessary procedures, new
    expensive drugs are prescribed when an older cheaper one could solve the
    problem almost as well., etc. This overconsumption is an increase in
    demand. If you know ANYTHING about economics you know that when demand
    rises, prices rise.

    In a normal market, when prices rise, suppliers have incentive to
    increase supply to capture profit which then brings prices down.
    However, medical markets have two problems. One is that training doctors
    is REALLY hard and expensive. Only so many people have the capacity to
    be doctors and it takes more than a decade of schooling and interning to
    make more, not to mention hundreds of thousands in debt. This is a
    naturally inelastic supply (another economics term you should know).

    But in addition to natural inelasticity, our licensing system has turned
    the AMA into a medieval guild that suppresses competition. The AMA
    takes steps to ensure that only a small number of medical colleges
    exist, and that those colleges keep from expanding their production of
    new doctors. The AMA has this power because it writes the licensing
    rules to restrict doctors to having come from AMA approved medical
    schools rather than using skills tests. The result is to give the AMA
    the power to control the supply. And no such group will ever voluntarily
    expand competition so as to lower their own compensation. So we have
    natural and artificial limits on supply.

    These are the challenges. PPACA does NOTHING to reduce them. It does a
    GREAT DEAL to make Third Party Payment worse. Independent industry
    analysts are predicting 33-169% premium rises over the next few years
    after PPACA comes online. These are not conservative interest groups.
    These are group paid by businesses to give them the most accurate
    forecasts they can so that businesses can plan for the future. They have
    every incentive to be as accurate as they can without political bias
    because the degree to which they are right determines if they get their
    next contract.

    PPACA is going to to substantial damage to our health industry. Ten
    years from now, I GUARANTEE, the situation will be SO much worse than
    today, and I also guarantee that no one on the left will admit that
    PPACA made it worse. They will instead call for more solutions that fail
    to recognize the problem.

    • HJ

      So third party payers aren’t part of a natural market? So my car insurance breaks the market’s natural control mechanism?

      So that $15,000 my family pays in premiums, for Medicare and Medicaid, and copays isn’t really paying? Where do you think that money comes from?

      • NewMexicoRam

        Your car insurance doesn’t pay for oil changes, car washes, or tune-ups, does it?

        I have a $5000 deductible to meet. You better believe it’s changed what I demanded before for healthcare. But I do pay less than I did before in premiums.

        • HJ

          I also have a high deductible plan. It has prevented me from seeking care because of the cost, therefore saving money. I often visit Dr. Google for diagnosis and treatment options.

          My car, on the other hand, gets great care from my extended warranty…unlike me, who has to decide whether or not I can afford to pay for that treatment and if not, go without. Do you think my purchase of an extended warranty distorts the market?

          Some auto dealers offer free car maintenance with purchase. Does this distort the market?

          • M.K.C.

            A new car warranty is not insurance. A “free” dealer servicing plan (hint: it’s not “free” – you’ve paid for it) is not insurance.

            In fact your pre-paid “free” servicing plan with the car dealer is a lot more like subscription concierge/direct-pay medical plans than like insurance.

          • _userM9801

            If I only had enough money to (a) set aside a lump “rainy day” sum equal to my annual deductible for medical care, or (b) buy a new car with extended warranty and comprehensive dealer service plan, I’d go for (a).

            I don’t mind driving a 10-year-old beater and getting my hands dirty changing my own oil, if it means the difference between being able to provide for the medical needs of me & mine or not.

            But it’s a free country. If you prioritize your mode of transport higher than you do your health, that’s the choice you’ve made and that’s the choice you have to live with.

          • Suzi Q 38

            I agree. We have driven paid off beaters for years in order to have good health insurance and pay cash for our children’s college. No fancy vacations or a huge house with a huge payment.
            Priorities.

      • M.K.C.

        Does your car insurance cover 100% of routine everyday maintenance costs?

        You can’t really compare health “insurance” with what we normally think of as insurance (insurance against risk, providing protection against unanticipated catastrophic loss).

        • HJ

          So the problems are fixed if “maintenance” care was not included in healthcare?

          I have warranty on my car that covers mechanical problems and insurance for collision and theft.

          • M.K.C.

            I do think the problem would go a long way to being solved if health insurance were more like home or car insurance.

            Homeowners insurance, for example, typically pays for losses due to theft, wind, hail, fire and so on. But it doesn’t pay for the normal wear and tear of daily living, such as replacing worn-out carpet or repairing a leaky faucet or an air conditioning system that’s on the blink. Similarly, automobile insurance pays for collision damages, but it doesn’t pay for oil changes, new tires, tune ups or normal maintenance.

            Health insurance is different. The typical employer plan, for example, covers general checkups and such routine screenings as
            mammograms, Pap smears, and PSA testing for prostate cancer. These may all be worthwhile tests, but they are not the result of some unpredictable, costly event. The Affordable Care Act mandates that no American ever be one cent out of pocket for any of these “preventative maintenance” items (including, oddly, birth control pills).

            If health insurance stuck to insuring individuals and families against large financial losses owing to medical conditions, and the government incentivized more HSA-type accounts for routine care and maintenance, I think that would solve a lot of problems in. re. the distortion of costs in our healthcare system.

          • HJ

            Doesn’t the free market allow health insurance companies the ability to provide a product that covers health maintenance?

          • M.K.C.

            There is no such thing as a free market in health insurance. Thanks for playing, though.

          • Dave Miller

            “Free market” and “health insurance” don’t go together for one huge reason that you rarely hear discussed: it is currently ILLEGAL for health insurance companies to compete across state lines. As a result, the premiums and coverages are regionalized with each state, creating a situation that in most markets would be considered a violation of anti-trust laws.

        • adh1729

          Bad drivers lose their license to drive and get their auto insurance cancelled. Tell me the last time that smoking/boozing/risky sex/junk food/soda pop caused a person to lose their license to live and get their health insurance cancelled.

      • azmd

        A “natural market” by definition, means that whoever receives the services is paying the service provider directly for them and therefore is in a position to control costs.

        So even though you are paying real money, a lot of it, for your health care, you are not in a natural market. You are not in control of what is paid for your medical care and worse, you have no idea what happens to all that money you pay in premiums. Also, it is a fixed fee and bears no direct relationship to the services you use.

        If you are a typical American, you probably have absolutely no idea that a significant part of your premium dollar (anywhere from 15-30% of it) does not go towards paying for your medical care, it is instead used to pay the administrators and executives whose main job is to make sure that the insurance company keeps as much of your premium dollars in the form of profits as possible.

        But because you are paying out a lot of money, when you go to the doctor, you expect to receive the best care possible. Regardless of expense. So costs do not get controlled, because you, the consumer of the service, have no incentive to keep them down.

        • HJ

          A friend of mine hit my car and her insurance covered the damage. I took the car to a auto body shop and I didn’t pay any thing for the repair. An insurance company that I have never made a payment to paid for the car repair. Is this a natural market? I would suspect that 15-30% of the premiums my friend pays goes toward administration and profit.

          • Guest

            Third-party insurance (insurance to pay for damage one inflicts on others) is liability insurance, strictly speaking.

            Your friend was insured against the massive risk of having to pay out for damage he or she did to others and/or their property. If he/she hadn’t had third party insurance, they would still be legally liable for your car repair bill if, as you say, they were at fault.

            Liability insurance bears very little resemblance to what we have come to know as health insurance.

      • Dave Miller

        You’re car insurance pays to have your car fixed when it is wrecked. It doesn’t pay for oil changes and planned maintenance.

        Health insurance pays for not only when our bodies get wrecked (sick or injured) but also pays for “oil changes and planned maintenance” (well visits, vaccinations, small little boo-boos, etc).

        In other words, auto insurance and health insurance are very different things. When you go to get an oil change, most people shop around and try to get the best value because you’re paying for it. However, when your car is wrecked, you take it to the shop the insurance dictates because they’re paying for it.

        In health insurance, very few people pay for much these days (deductibles and small co-pays that are a very small amount of the total, which is a negotiated fee, not to mention that over 40% on some sort of public assistance) so no one bothers to “shop around” to seek the best value. Because the money doesn’t pass through their fingers, they feel no need to maximize it.

        This is the critical difference, the reason health insurance drives up the cost of health care differently than other forms of insurance act in their respective markets.

    • Filo Bedo

      I agree with this 100%. During one of my interviews for med school, I was asked what one thing I would change about the health care industry if I could. I told them getting health insurance out of the equation because the feedback mechanism (supply and demand) is obstructed.

      Federal student aid has had a similar affect on the cost of education. Record low interest rates coupled with sub-prime loans did the same thing to the housing market (You gotta love government intervention).

      One of the interviewers responded by asking how would I go about doing this and what would be an alternative. To be completely honest, I really didn’t have a good answer other than allow the market to correct the cost. So my question is how could an entity that has become such an integral part of the system be removed to allow those natural mechanisms to dictate more proportionate costs?

    • adh1729

      The goal of PPACA was not “fixing” our broken healthcare system. The goal was, increased governmental control and ultimately socialized healthcare. (Socialism is the holy grail of the Democrats, and of the power elite that run the world.)

  • _userM9801

    “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.”
    ============================================
    Be careful. This idea of yours will enter Congress as A Modest Proposal for Preventing Greedy Tonsil-Thieving Doctors From Exploiting the Fruits of their Education, and for Making Them Beneficial to the Publick
    ;-)

  • buzzkillerjsmith

    The numbers I have seen suggest that docs take about 20-24% of each HC dollar and that half goes out the door in overhead., so we earn 10%-12% takehome. Cut our salaries by 50% and save 5-6% and destroy our profession. Or cut into the 30% that CorpMed takes with zero improvement in health outcomes. Your choice.

  • co-patient

    The pot calling the kettle black.

    Physicians are too trying to undervalue others’ works. I want physicians to set an example for others to follow by paying more than “retail price” for other goods and services, since they too, must be underpaid in your definition.

    • Suzi Q 38

      I don’t think that my specialists getting paid $400K is “underpaid.”
      In fact, I wonder if this amount of money per year is “sustainable.” I don’t argue that they deserve it, but I wonder how long they are going to be able to command this type of salary with Obamacare on the horizon.

  • karen3

    Think about it not in capitation, but value. Is the doctor a spot on diagnostician — great. But if half the diagnoses are wrong, then alot of money gets spent on useless investigations. Such a doctor could easily cost the system millions — be of negative value. If we want to cut costs, we make the most of the first doctors and eliminate all of the make work caused by the second kind of doctor by pulling his or her license.We might be able to do very well with fewer doctors if they were the better doctors.

    Hard problem. On average, 40 percent of diagnoses are wrong.

    • azmd

      Please explain what, exactly, would motivate our young people to spend hundreds of thousands of their own dollars and more than a decade of their lives to become trained in an occupation where the punishment for making a mistake would be to have your right to work permanently revoked?

      The smarter college students (the ones you say will be the spot-on diagnosticians) will be smart enough to recognize a profession where the risks now substantially outweigh the rewards. They will choose to go into business instead. Somehow I think that is not the outcome we are looking for.

    • Suzi Q 38

      Some conditions, like MS, cancer, heart disease, etc., are very difficult to diagnose. Cut them a break.

  • Suzi Q 38

    Not every doctor that gets through medical school is a good doctor. this is no different than any other profession. There are the excellent, very good, good, average, below average, and very bad.
    The very bad need to get out.

  • http://euonymous.wordpress.com euonymous

    I thought the direction this would take was universal healthcare and/or single payer healthcare. Those are discussions worth having. I worry that young people won’t be motivated to pursue medicine as a career if it continues to become (a) increasingly more expensive to become a doctor, and (b) less rewarding all around. The structure of the US healthcare system underlies the problems. Insurance companies do nothing but add expense to the system. Doctors in other countries are actually not suffering the way they are in the US. Perhaps the AMA won’t advocate for the principles of other systems, but the US could learn a lot from the current German model. Just sayin’….

  • Jack Forbush

    Is there a Family Physician making more than $200,000 a year?