Asymmetrical Information - Megan McArdle

01.24.13

Why Would We Cut Doctor Pay?

They make less than bankers. Why pick on them?

I get the sense that doctors don't like the article I wrote yesterday, suggesting that healthcare wonks want to cut their pay substantially.  Hey, docs, it's not because they hate you; look at this chart, from a great paper by David Cutler and Dan Ly:  

Contributing to those higher provider incomes is this:  

That's why wonks want to cut your salaries.  They're a sizeable portion of the "excess costs" in the United States health care system.  Not all, by any means.  But some of the other things (liability, for example) look harder to cure.  And while we probably want to do fewer procedures, in practice, that's really fraught, as Cutler and Ly note:  

On one side, the greater use of intensive therapies after a heart attack in the United States compared to Canada is not associ- ated with improved mortality, though morbidity is more diffificult to determine (Ko et al., 2007). Similarly, a recent study concluded that there was no systematic differ- ence in outcomes in favor of the United States over Canada; if anything, Canadians had better outcomes in most circumstances (Guyatt et al., 2007).


In other settings, however, the differences in health outcomes resulting from differences in treatment intensity may be important. The United States is more aggressive in screening for and treating cancer than are other countries. Mammography rates in Europe are 40 to 80 percent below those in the United States, and rates of screening for colon cancer are 50 to 65 percent lower (Howard, Richardson, and Thorpe, 2009). The difference in screening is especially large among older patients. Treatment with expensive chemotherapy agents is also higher in the United States. This is particularly true for the newest therapies, which can be extremely expensive and are not approved for use in all countries. Consistent with these differences, cancer mortality has declined more rapidly in the United States than in other countries (Preston and Ho, 2009). Compared to 15 other high-income countries, the United States went from a higher rate of prostate cancer death in the early 1990s to 20 percent lower mortality in 2003. Over the same time period, mortality from breast cancer fell by 13 percent more in the United States than in other rich countries.


Signifificant technology regulation seems unlikely in the United States, but payment reform is defifinitely possible.


Our profligate spending on cutting edge treatments and drugs also advances the medical frontier, even though at any given point, we're doing a bunch of stuff that doesn't work.  So we're not just going to cut all the extra procedures, and we're not just going to cut all the extra administrative costs. Wonks are looking at ways to reduce all of these things.  But since we can't eliminate any of them, everything--including provider incomes--is in the crosshairs.

To be fair, provider salaries don't just mean doctors.  All health care workers in the US get paid a lot more than their foreign counterparts. Check out nurse differentials:  

Interestingly, Cutler and Ly's paper suggests that this is true not for the reason that most people tend to suspect: because there's some sort of cartel, or because doctors are rigging their own salaries by cheating payers.   Rather, is a function of broader trends in the American income distribution.  If you compare doctor salaries to worker salaries, doctors are paid very well indeed.  But if you their incomes to other high earners, doctors in the US are actually kind of middling by OECD standards.  

Take heart, doctors: if Cutler and Ly are right, the corollary to this is that it's actually going to be really hard to reduce provider salaries.  To be sure, it was going to be really hard anyway, because people don't like having their salaries reduced, and health care workers have some of the nation's most effective lobbies.  But it gets a lot harder if reducing provider incomes has knock on effects, making it harder to attract top-quality talent into the field.  

Of course, you could argue that perhaps we don't need our doctors to be the very top folks in their class.  No, I know that sounds terrible.  But computing power is probably going to allow us to offload a considerable portion of rote, decision-tree diagnosis, which means that maybe front line doctoring can select for skills other than memorization and organic chemistry chops, like rapport with patients.

Or maybe not--I'm sure doctors will vociferously disagree.  But if you want to know why health care wonks want to reduce provider incomes, this is why.  It's the same reason that Willie Sutton went after banks: because that's where the money is.