Reconciling Lower Doctor Pay With Rising Health Care Costs

As reported on Bloomberg, "Doctors’ Hours Fall for a Decade, Adding to a U.S. Shortage" by Pat Wechsler:

Feb. 23 (Bloomberg) -- Work hours for U.S. doctors dropped steadily for more than a decade, mirroring a decline in inflation-adjusted fees and worsening a nationwide physician shortage, a study said.

Doctors’ hours per week fell to an average of 51 in 2008 from 55 in 1996, after two decades of being almost unchanged, according to research published today in the Journal of the American Medical Association. The report showed the slide was linked to a falloff in fees paid to physicians. The charges declined 25 percent after inflation from 1995 to 2006, according to an index measure of fees going to doctors.

Physicians are working less and are being paid less. Health insurance companies and hospitals are not making exorbitant amounts of money. For example, see Mark Perry's Carpe Diem blog, "Profit Margin: Health Insurance Industry Ranks #86."

Health costs have been growing faster than the US economy and faster than inflation. If not from doctors and hospitals, where are the costs increases in medical care coming from? It is highly unlikely, the pharmaceutical industry can account for the enormous growth in health care spending.

As more of the costs of health care are shifted from our out of pocket costs to health insurance, it makes sense the cost of health insurance will rise. The problem is discovering why the costs of total medical care have also risen so much faster than the economy and inflation.

Is it simply just a change in consumer preference? Do we just use more medical services, which include doctors, nurses, medical and lab technicians, medical equipment, lab tests, drugs, etc., but no one cost item is overpriced. Do doctors make less because we are spending more on medical services other than physicians?

The open question is how much of the shift in consumer preferences for more medical services are related to the reduction in the consumers' out of pocket expense? If the shift is due to third party payers than the answer to controlling our medical spending is to shift more of the costs sharing to the consumer. It can be accomplished by removing the tax deduction for employer health care benefit and by shifting Medicare and Medicaid more towards a voucher system similar to food stamps with a backstop for catastrophic illness and injury.

If third party payers do not exaggerate the shift to more medical care, than there is not any reason to control our medical costs. The issue then becomes government affordability of government programs and vouchers probably could best control government medical costs. Under a voucher system, the government's yearly costs are limited but individuals are free to seek as much health care as they wish.

It is obvious, that we are seeking to "fix" our medical system and reduce health care costs without a clear understanding of the drivers of health care spending. Without detailed knowledge of the problem, it is highly likely any "fix" will create more problems than solutions.