Claims about health care

by on December 2, 2011 at 12:28 pm in Medicine | Permalink

The magnitudes of our empirical findings imply that changing provider incentives explain up to one third of recent growth in spending on physician services. The incremental care has no significant impacts on mortality, hospitalizations, or heart attacks.

That is from Joshua D. Gottlieb, who is on the job market this year from Harvard.

1 TallDave December 2, 2011 at 12:48 pm

Not surprising at all.

Like teaching, medicine used to be a noble profession in which practitioners didn’t necessarily expect to be well-compensated. It stops being noble when you get massive compensation, esp. when its financed largely by rentseeking.

2 Andrew' December 2, 2011 at 12:55 pm

Yeah. Thank God at least there is still a kidney shortage.

3 TallDave December 2, 2011 at 1:06 pm

God willing, in another couple decades there will be a surplus of both kidneys and surgeons.

4 revver December 2, 2011 at 12:56 pm

The trouble is even “magnitudes of empirical findings” wont sway policy makers one bit. Massive compensation coupled with state-backed inflation. The public still perceives teaching and medicine to be noble and above reproach, which makes voting against laws which promote there high-wave robbery all the more difficult. “If you don’t vote, you’re against (insert victim du jour)”

5 zrzzz December 2, 2011 at 1:22 pm

The AMA is like a labor union for doctors. Someone needs to break that up. Bring in more foreign-educated physicians to bring the price down.

6 msgkings December 2, 2011 at 2:00 pm


7 RM December 2, 2011 at 2:39 pm

+10 too

8 steve December 2, 2011 at 9:38 pm

How so? Most docs dont belong. How does it control wages? How much of a wage differential do you need to get foreign docs to move?


9 JonF December 3, 2011 at 11:47 am

Has there ever been a time when doctors were not among the better paid professionals? Even in antiquity there were complaints about “greedy doctors” gouging their patients.

10 TallDave December 3, 2011 at 1:33 pm

There’s a graph somewhere showing their mutliple of the median wage over time. IIRC gotten 2-3x bigger over the last several decades.

11 Roy December 2, 2011 at 1:04 pm

Not all compensation is monetary, some of it, often most of it, are status and autonomy. Medicine used to offer a lot of both, often much more than other fields available to those who went into it. Today, both of these compensations are much reduced, and other fields often provide more of both, so it is only natural that pay would go up.

This is true for a lot of other elite professions as well. Academia, the officer corps, etc, have all seen rises is material compensation as their status has fallen relative to business. As an aside elite, non trade, professions that have retained status and authority, such as judges, have not seen such rises in monetary rewards.

12 KLO December 2, 2011 at 1:17 pm

How does the medical profession offer less autonomy now than in the past? Doctors complain all of the time about insurance billing rules and regulations. Before insurance was a widespread source of payment, doctors had to collect from individual patients. Many of these patients had little money, were sick and out of work or were deadbeats. There was no well-developed collection industry either, meaning that doctors had to run their own collection agencies on top of their medical practices. Many — if not most — doctors developed procedures to ensure payment, either by screening out poor patients or by doing house calls for which patients were more likely to pay. In other words, doctors spent a hell of a lot of time and energy collecting from their patients and conformed the work they did to the manner of payment they received for it. Because it is much more difficult to collect from individual patients than from a handful of insurance companies, many doctors did not make much money and there was very little they could do it about.

Now that doctors have successfully lobbied the government to make Medicare easy to bill, an empty storefront in Little Havana can bill the government for millions in unprovided care and equipment in its first month of existence. The government will dutifully pay the bill, without doing any sort of verification at all as to the legitimacy of the claims. The difference between this and some poor schmuck doing house calls for $1.50 back in the 40s explains much of what you need to know about doctors and their wealth and influence.

13 KLO December 2, 2011 at 1:20 pm

This expense increase can be seen explicitly by looking at physicians’ salaries. In 1940, in inflation-adjusted 2004 dollars, the mean income for American physicians was about $50,000, or a little over 6 times U.S. per capita GNP. By 1950 this had increased to about $100,000, or 6.5 times U.S. per capita GNP. By 1960, physicians’ mean net income had increased to $150,000, or 8 times U.S. per capita GNP, and by 1970 to $200,000, or somewhat over 8.5 times U.S. per capita GNP.6 In the 1960s there was much more demand for physician services thanks to Medicare and Medicaid, but little change in the number of physicians, and doctors no longer needed to worry as much about charity cases—the government would pick up the tab.

14 Roy December 2, 2011 at 9:34 pm

If you can see no difference between being the boss and being an employee, I really don’t know how to explain it to you. But it is very real.

The difference in autonomy is real, many doctors just didn’t bother collecting from patients like that, yes they preferred patients who payed there bills, but this is the same as any craftsman who owns their own business. The plumber doesn’t always get paid either, but controlling the business is usually a lot more satisfying than being an employee. A doctor who is an employee is in a supplicant position to those who are not doctors, and today even in private practice that doesn’t take medicare or insurance they are potentially supplicant to attorneys in case of suit.

Believe me a lot of doctors don’t go chasing every marginal dollar, they often chase the last marginal bit of autonomy or status.

15 zrzzz December 2, 2011 at 1:18 pm

There are other factors that drive up the compensation, like liability risk. An OB-GYN pays something like $40K/year on malpractice insurance. Putting a cap on liability rewards could reduce healthcare costs significantly.

16 KLO December 2, 2011 at 1:31 pm

Wrong. Every study of this issue has concluded otherwise. Numerous states have capped awards with little or no effect on cost of overall care. Regional variation in medical malpractice premiums varies enormously ($60K for an OB-GYN in Rochester, New York v. $180K for OB-GYN on Long Island), but cost of care does not very nearly that much. I would guess that for many doctors, rent is a much larger expenditure than malpractice insurance.

17 Silas Barta December 2, 2011 at 1:39 pm

How can you say that liability costs *per* doctor of $60-$180k aren’t significantly influencing health care costs, and that liability caps won’t eventually bring these down?

18 KLO December 2, 2011 at 2:05 pm

Consider that total malpractice liability and associated costs are perhaps 1% to 2% of overall health care costs. Eliminating all malpractice liability would eliminate these costs, which are not large in the grand scheme of things. This is why proponents of the liability theory claim that second order effects are a much larger part of the problem. For example, doctors practice so-called defensive medicine to avoid being sued. Obviously, tests ordered solely for the sake of liability concerns (and not, say, to pad the doctor’s wallet) would not show up in the direct costs. Were the second order effects large, tort reform could reduce costs. But these second order effects are entirely theoretical and cannot be directly measured.

The other problem for this theory is that many states have adopted restrictive caps on medical malpractice awards. These reforms have affected malpractice premiums somewhat (insured losses are only part of the cost of insurance) but not affected health care costs. If we look at, say, Texas, which did adopt tort reform measures, the premium cost for family insurance coverage is well above the national average after adopting tort reform. Since adopting tort reform, insurance premiums in Texas have tracked national trends. Tort reform appears to have had no effect at all on premium costs and Texas remains a high-cost state for health insurance. The same trend has been observed elsewhere in states that have adopted tort reform. Why people continue to insist that tort reform — which has been tried in numerous states — is a magic cure for high health care costs is beyond me. It may be a good idea for other reasons, but tort reform will not lower patient costs.

19 Silas Barta December 2, 2011 at 2:12 pm

Consider that total malpractice liability and associated costs are perhaps 1% to 2% of overall health care costs.

*BZZT* Sorry, something that costs $150,000 per doctor per year is not “1% of healthcare costs”, unless the ratio of healthcare dollars (incl those not going to doctors) to doctors is $15,000,000. That fails basic order-of-magnitude checks.

Were the second order effects large, tort reform could reduce costs. But these second order effects are entirely theoretical and cannot be directly measured.

Yeah, good point, no one ever changes behavior in socially wasteful ways because of fears of frivolous lawsuits — after all, it doesn’t show up in highly aggregated data, so it doesn’t happen.

The other problem for this theory is that many states have adopted restrictive caps on medical malpractice awards. These reforms have affected malpractice premiums somewhat (insured losses are only part of the cost of insurance) but not affected health care costs. If we look at, say, Texas, which did adopt tort reform measures, the premium cost for family insurance coverage is well above the national average after adopting tort reform.

So you missed the bit about “eventually” in my post? Obviously, a decrease in liability expenditures may take time to be accepted by actuaries as typical and adjusted for.

20 KLO December 2, 2011 at 2:28 pm

Where are you getting these insane numbers for the average cost of malpractice insurance. Even most OB-GYN’s do not pay $150K. An internist pays more along the lines of $15K. Regional variation is, as I said before, quite high, however.

But let’s say you are correct. The average malpractice premium is $150K. There are 1 million physicians in the U.S. Based on the average premium, malpractice insurance premiums would total $150 billion or roughly 7.1% of the total $2.1 trillion in health care spending each year. If we eliminated malpractice entirely, these costs would presumably disappear, taking us back down to 2009 or 2010 spending levels. Wow.

As for the claim that tort reform will work eventually, well, states have been adopting tort reform since the 70s. How long do we need to wait for the results? 30 more years?

21 Silas Barta December 2, 2011 at 3:31 pm

Others were listing $300K, so I took that as a high and went with the median. That would be a basic order-of-magnitude calculation (one ignoring defensive medicine) showing the 1% number to be woefully low. And it would be misleading to say that 7% would take us back to two years ago — if done two years ago, costs that year would be 7% lower that what they otherwise would have been for that year.

Seriously, dude, you have to reconcile disparate measures and avoid compartmentalization. None of this, “my data is valid except for sanity checks”.

Yes, there have been general tort reform measures since the 70s. Have they been the same ones that would cap “medical lottery”-style payoffs, which have long faced major opposition? Have they been the kind that would take the efficient, no-nonsense vaccine liability system and implement it for the general system? No? Then it’s not entirely relelvant, is it?

22 TallDave December 2, 2011 at 5:54 pm

I am very skeptical. This sounds like they said “Well, we imposed caps, but spending rose 5% anyway.” Well, okay, but would spending have risen 7% or 10% without them? There’s also the question of how much deterrence the caps actually provide, given that awards can still be pretty large in some of those states.

John Edwards became a multi-millionaire in part by channelling dead fetuses in front of juries and using junk science. It’s a real problem.

Of course, everyone knows the biggest problem in HC costs is price insulation, but no one will do anything about it because the solutions are painful. Still, tort reform will help.

23 careless December 2, 2011 at 1:57 pm

$40k? My wife handles doctors paying over $300k.

24 KLO December 2, 2011 at 2:05 pm

Results not typical.

25 Urso December 2, 2011 at 2:07 pm

There are such caps in many states, and they’ve been in place for years. There are have been plenty papers trying to suss out the connection between liability caps and malpractice premiums, and the CW is that they don’t do much, if anything.

26 TallDave December 2, 2011 at 5:57 pm

That suggests the caps that have been tried are the wrong solution to tort reform.

But I would also bet the issue comes down to culture: some states are just more litigioius than others. Not sure what can really be done about that. Maybe stricter controls on how suits are handled.

27 Dan Weber December 2, 2011 at 3:22 pm

Tort reform won’t have much of an effect. It might help doctors from practicing insane amounts of defensive medicine, but there are a lot of big cultural issues also at play. (Americans don’t like to be told not to fight cancer, even if that is what has the best outcomes.)

28 D December 2, 2011 at 7:48 pm

Texas has had caps for a long time and yet some of the highest per-capita costs for medicine in the country are there. This despite lawsuits dropping to almost zero in even the most expensive county.

29 TallDave December 3, 2011 at 1:39 pm

Yep, overutilization is the natural result of price insulation.

30 TallDave December 3, 2011 at 1:52 pm

That’s actually a very good and interesting article.

The analogy of medicine being like building a house is pretty good one. The point the author misses, though, is that patients don’t need to negotiate with the electrician and the plumber over the esoterica of their fields, they need to negotiate with the general contractor as to how much house they want generally– which today pretty much never happens, because either the gov’t pays or they get insurance through their employer, and even if they buy their own insurance the government often mandates what it must contain and creates local oligopolies by disallowing purchases across state lines.

31 Best Swiss Watches Replica December 3, 2011 at 1:08 am

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