Here is an excellent NYT column on health care, by Alex Berenson. The bottom line is this: U.S. medical care costs are so high for (at least) two key reasons: a) personnel costs are much higher than in Europe, and b) U.S. doctors usually are paid fee for service, rather than fixed salaries. That leads to much more spending, for obvious reasons.
Keep this in mind next time someone tells you that America can cover everyone through a single payer system at lower expense. Berenson continues:
Medicare, especially, does not like to second-guess doctors’
clinical decisions, said Dr. Stephen Zuckerman, a health economist at
the Urban Institute. “There’s not a lot of utilization review or prior
authorization in Medicare,” he said. “If you’re doing the work, you can
expect to get paid.”
As a result, doctors have steadily increased
the number of procedures they perform on Medicare beneficiaries – and
thus have increased their income from Medicare, Dr. Zuckerman said. But
the extra procedures have not helped patients’ health much, he said. “I
don’t think there’s any real strong evidence of improvements in health
status.”
This same incentive is weaker when doctors are paid fixed salaries. One key question for single payer advocates is the following:
Through what mechanism will you replace doctors’ fee for service with fixed salaries?
In closing, let me quote the always-worth-reading Matt Yglesias:
…when it comes to defending the interests of powerful, entrenched local groups, Democrats are usually about as bad as Republicans.
I’ve always been amazed at the difference in salary between Doctors who perform internal medicine and any doctor who performs procedures.
why does a dermatologist receive 4 times the income of a family doctor? is it just because the AMA says so?
Hun!?
Answer, have a public system based on fee for service where the government pays the fees and sets the fees (I guess one could also set an upper limit of patients one can bill the gov’t for that is slightly above the number the best doctor can be expected to do a decent job for).
Why does fee for service mean you can’t have public health care insurance? Canada has a public fee for service system (no Canadian doctors are not starving to death).
The Canadian system is cheaper than the US system but the approach does put an upward pressure on costs. Yet I fail to see why that is viewed as getting nothing for your money even if we accept the premise that you do not get health benefits comparable to the extra costs of the fee for service approach.
You are buying something, namely a more effective health care system in terms of how many patients are treated and how quickly patients are treated. In a system where doctors are paid a fixed salary, having many patients becomes the doctors biggest problem not her biggest source of income (obvious incentive structures at work here).
If you tell me that when the government spends an extra 100 dollars on me for health care this will not improve my overall health but means that I only have to wait 2 months for my knee operation instead of 6 months I am all for it (geez I sure hope they calculated the overall economic costs involved in more burden of disease when convincing themselves of the luxury analysis).
Public systems have some bad things and some good things, and we try to address one of the bad things by having fee for service. We think it is worth it because the bad things in a private system are both irrational and unreasonable (i.e. morally speaking). Fee for service in a public system keeps some of the good things and some of bad things from its application in the private system. And then we do some other things to address the bad cost raising stuff, e.g. invest in preventative care, and so on.
Why is it that the US thinks it can do anything better than the rest of the world, but on health care they think it would be impossible for them to implement universal health care.
Eliminating fee for service would probably also eliminate the need for at least one claim staffer per office.
Oops
a “straight fee” system is supposed to mean a “fixed salary” system, but I don’t know how…
David Gratzer, a Canadian doctor, did a great job recently advocating against universal health care.
His book “The Cure — How Capitalism can save American health care” is well worth the read.
The problem is the customer pays for the services through a third party, where significant amounts of control reside.
Eliminate state licensing and maybe doctors will be replaced with technicians in systems designed by engineers.
I have another take on why medical costs are percieved to be so high. Have you ever looked at a hospital bill that is not paid by insurance or a government program? Prices are inflated 600-1000%. (true story – my dad was charged 150,00 per hour for oxygen – which last time I checked was a freakin element that constituted 21% of the atmosphere). Its like going to a restaurant and being told that the hamburger you just ate was $1,000. Oh but if you have insurance it is only $7.99.
But nobody ever actually pays these prices. They get negotiated down (for uninsured people with money) or are a tax write off (for the poor & uninsured). The only people who pay these fake prices are defendants in tort lawsuits (and their insurers) – they have to pay full fare to the plaintiff, and then the plaintiff negotiates them down with the hospital and pockets the difference.
These prices are not the prices negotiated by HMO’s or set my medicare/medicaid either (and which constitute 90% of the work actually done). They are, as far as I can tell, “made up priices” with no real ceiling or incentive to make them correspond to market in any way.
The issue is Have is this: if the rate that the hospital/doctor is willing to accept for a service or procedure (the medicare/insurance rate) is a market rate, why do the phony inflated rates exist? Are they purely to scare patients into having insurance? Are they inflated so the hospital can take an even bigger tax write off on their bad debt from the uninsured? If the general public knew that your doctor performs a surgery for $500 in payment from an insurer, instead of $10,000 “rack rate” price, would the public be so concerned about insurance? Would the price of health care really be that much higher than other countries?
Why can’t there be an open system of pricing so that the public can be informed about the real market rate for health care services?
I’ve always been amazed at the difference in salary between Doctors who perform internal medicine and any doctor who performs procedures.
why does a dermatologist receive 4 times the income of a family doctor? is it just because the AMA says so?
This book says that the reason is largely historical. Specialist’s procedure rates were set back when specialists required more time to do the procedures. As the specialists procedures became more routine and could be done faster there wasn’t much competitive pressure to bring down the rates.
Medicare currently has to convince doctors to take medicare patients. This will be less of an issue under medicare for all. If america goes to universal care there will be downward pressure on doctors salaries, just like in all the other universal care systems.
What’s your solution, TC? Letting the market take health care where it will–with ever-more-luxurious options for the wealthy and healthy, and devil-take-the-hindmost?
Here’s a glimpse of the future from the WSJ:
http://blogs.wsj.com/health/2007/07/30/a-la-carte-health-insurance-stirs-controversy/
Yancy the patent protection runs for 20 years, the fact that the drug is not on the market for all of this period is irrelevant.
If a competitor knows that such a drug is in trials they will be inhibited from developing a competitive compound. Thus the patent inhibits innovation even before the drug is sold.
The same thing happens with patents in many fields. There is now a whole subspecialty of “patent trolls” who buy up patents which aren’t being used and then sue companies for infringing them. There is a new counter movement aimed at discrediting many patents to help correct the over issuing of patents. Tell me how someone could patent clicking on a button on a web site to complete a purchase? Whatever happened to the requirement that it be “non-obvious”?
As to the cost of future medical technology, that is, of course, unknowable. But my projection is more likely than not. Follow on discoveries are never as costly as the original ones. Many drugs, for example, are small modifications of existing compounds. Knowing a starting point makes the chances of success much greater. (I’m not talking about me-too drugs).
So I maintain that the growth rate of health expenses will moderate. I don’t see why this is such an unreasonable expectation. It has worked elsewhere.
“If a competitor knows that such a drug is in trials they will be inhibited from developing a competitive compound. Thus the patent inhibits innovation even before the drug is sold.”
I’m afraid this is totally wrong. Almost all of the so called ‘me-too’ drugs are developed in parallel with pretty much full knowledge that other companies are working on similar things. If a competitor knows that such a drug is in trials they are not inhibited from developing a competitive compound.
Mr. Feinman,
“There is no crisis in Social Security and there is no crisis in Medicare either. The scare tactics are all part of the never-ending attempt to privatize these highly efficient government-administered services.”
Would you mind showing me exactly HOW this report is flawed and how fixing those flaws results in a situation you wouldn’t classify as a “crisis”:
http://www.ssa.gov/pressoffice/pr/trustee07-pr.htm
Or, maybe you could take a look at disability backlogs and tell how this is classified as “highly-efficient”?
I hope you were kidding, because that is one of the most ridiculous conspiracy theories I have ever heard.
Jake:
Like almost all areas of the present administration the output of the trustees has been politicized. The reports that they issue are at variance with the projected actuarial data. The most common tactic they make is to set the horizon for when payments and expenses will become an issue at infinity rather than using a 75 year window as was done before.
Currently Social Security takes in more funds than it pays out. The excess revenue goes into the general treasury and is used to minimize the current budget. This is a slight of hand which was started by Alan Greenspan in the 1980′s and has been used as a way to collect extra federal revenue ever since. At some point in the future the current collections will be less than the obligations and the government will have to “pay it back” to Social Security. This will require a rise in taxes and is why the scare tactics exist. The idea is implant the thought that when the day comes the solution will be smaller benefits and/or a later start date. Anything but raising taxes.
If you are really interested in the funding issues of Medicare and Social Security you will have to do a bit of research on your own. I don’t have time to educate everyone who has opinions, but not the facts.
Tyler clearly forgot about Baumol’s disease when he wrote his post. Also, to get talent into health care you have to pay roughly comparable wages as the other alternatives for smart individuals. Their other alternatives are not jobs in Europe but jobs in America like law, dentistry, etc. whose wages are also far higher than comparable jobs in Europe. This obvious point escaped the NYT columnist because of his lack of economics background but Tyler does not have that excuse…
Also European systems can pay doctors less because doctors face much less high fixed costs, opportunity and otherwise. Most do not have debts or long years of residency training at minimum wage (if paid at all) under European health care systems. Their hours as residents are capped at 35 to 40 hours–here they are 80 hours a week during residency and still significantly more than 40 after residency. Vacation times are much shorter, number of patients seen and treated much less, etc…Unless one is willing to adjust the regulatory and cost structure governing medical training (no college needed, free medical school, doubling residency spots each of which sets medicare back 40 grand/yr. or even eliminating residency, etc.), all lowering medical wages will do is cause shortages like those seen in primary care…
* Dermatologists make so much more than most doctors because they can charge market value for many services like wrinkle treatments, etc.
…what is it with this blog and double comments? I’ve never seen such a problem as this. Either the commenters all don’t know what they’re doing (doubtful), or this blog has some problems with the nuts-n-bolts…
robertdfeinman;
If anyone thinks that doctor costs are the reason for high health care expenses they haven’t been paying attention.
Should we pay attention to this?
From Arnold Kling, who’s 50% in agreement with you (maybe Arnold hasn’t been paying attention, either?). But if tech aids like MRI’s are overabundant, why aren’t the costs coming down?
Doctors say that getting payment from Medicare and Medicaid is extremely costly and time-consuming and that they only do it for their patients’ sakes. That’s not my idea of a “highly efficient government-administered service”. And efficiency has nothing to do with the future solvency of those programs or SS, in which the “sleight of hand” dates to the Johnson Administration, not Greenspan.
all lowering medical wages will do is cause shortages like those seen in primary care…
True, if the legal monopoly remains an effective one. Must it? The fight against contract practice was one of the factors that brought doctors together in supporting the AMA’s lobby for and subsequent control of licensing. When looking at European practices, where both “salary” and “single payer” are in effect, why are all the good effects attributed to the latter rather than the former? Could we not have private payer, salaried payee?
I forgot to note that US non-prescription drugs cost less.
From Malcolm Gladwell
“Doctors in the US are not overpaid in general. Compare their earnings to people who produce nothing of value like CEO’s and hedge fund manipulators.”
ha, after that line I stopped reading your post.
By far, the best means to undercut the AMA will be to loosen immigration restrictions. Tyler brought up Matthew Yglesias. His type of liberalism would be supportive of loosening such highly skilled immigration regulations to combat inequality. I could see an alliance forming.
People talking about importing more foreign docs clearly haven’t visited many hospitals recently. The system is heavily dependent already on massive importation (my brother was one of them) but the blockages always have been residency spots and the fact that quality doctors are hard to obtain even from India in numbers sufficient to pass the licensing exams. The LCME (not the AMA who only Friedman thought had any power) decides residency spots and Medicare funds them. Unfortunately, neither has proved willing to expand these spots because of the prohibitive costs involved that the govt. would have to fund. The other option would be to remove residency as a requirement which most doctors would be in favor of but sadly would never get public support given the increased death rates that would result…
As for the AMA and medical schools, again another myth. The AMA has no role in the process and in fact, applications to start medical and osteopathic schools have been consistently accepted over the last 30 years. Unfortunately, it isnt an attractive business given the costs involved either for the govt. or the private sector…
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