I was having lunch last week with two colleagues, a fellow economist and a business school professor (and former physician assistant), when the discussion turned to the likely effects of health reform. The B-School prof mentioned that he knew of physicians who were planning to retire prior to 2014 rather than face the market force that is health reform. In a similar vein, a regular reader just sent me this article about docs fleeing Medicare's low payments and onerous rules.
Here's Dr. Juliette Madrigal-Dersch, an internist in Marble Falls, Texas, who has left Medicare altogether, and whose patients pay cash and cannot claim payment from Medicare for her services.
"The reason I opted out is because the reimbursement rates were low, the amount of paperwork was exceptionally high, and the fees -- even if you made an innocent error -- could be up to $10,000 per incident," she told American Medical News. "Why would you sign up for something that would guarantee to pay you less over time when you`re expected to work harder? We want to be able to spend our time caring for patients instead of assigning codes to them and filling out paperwork."
My first reaction was "At last, someone who is actually willing to be voluntarily under- or unemployed!" Followed almost immediately by, "Oh dear, this will rejuvenate rational expectations."
My second reaction was "I wonder how any of the roughly 10% of US workers who are unemployed feel when they read things like this?" I'm betting that even as I type some of them are considering "signing up" for a job that will probably "pay them less and expect them to work harder." I'm guessing most of them would like to spend their time doing whatever it is that they used to do at their old salary (and on their own terms, no less), instead of dealing with the vagaries of a changing economy.
And that got me thinking about changing economies, because even in the best of all possible worlds, change is what a well-functioning economy grounded in commercial enterprise and a well-functioning financial sector is supposed to deliver: the right mix of innovation and creative destruction. "Creative" because it promotes the necessary failures or resource shifts that must occur in order for technology, supply chains, and consumer products to evolve both in quality, in the characteristics and mix that best serve consumer preferences, and (if the market is doing its job) in lower prices, all else held constant.
I found myself contemplating the kind of market power one must have to tailor one's job, one's customers, the prices one charges, the means by which the prices are paid, and one's work load to one's very own preferences, even as the market shifts in new directions. There's a lot of economics and ethics in this, probably too much to cover in a single blog. And a frank discussion of it will almost certainly make your blogger very unpopular with some of her physician friends. So let me see if I can raise some issues without raising too many hackles.
For starters, during the conversation over lunch last week, I opined that paying physicians a salary rather than by piecework would do much to shift incentives away from "more is always and everywhere better," which almost certainly accounts for some of the reason that the US spends twice as much per capita on health as any other developed country (for which we obtain worse population health indicators than any other developed country). The former PA, now B-School prof, responded with an argument akin to those I have become accustomed to hearing from investment bankers and CEO's of large corporations. "How can we expect them to stay up all night with a sick patient, if they're on salary?" he asked.
The investment banker/CEO version of the question is some variant of "How can we expect innovation and shareholder value if we limit compensation?" Which in essence seems to ask: Why would anyone do their job well if they weren't paid astronomically? To which I say: Gosh, I don't know. Maybe we should ask the other 90% of the country who have seen their real wages fall while their real productivity has risen? Why do they do that, I wonder? Why don't they know that if you're not well-paid, then you should slack off, or charge more, or retire early?
But I digress.
One possible answer to my colleague's question is: we'll pay nurses to stay up all night with sick patients. They've been doing it for years. I have nurse friends who actually become so invested in caring for a sick patient that they will stay on after their shift is over if the patient is in crisis. Last time I checked, they do this without receiving a bonus or even a particularly high salary in compensation for it. And they'll even call a doc if it seems a doc is needed.
Another possible answer is that maybe, just maybe, health care will evolve, finally, to a different, less physician-centric, physician intensive model, at least for acute primary care and chronic disease management. If so, health reform could be viewed as a "market force" in the sense that if it is done right it should mimic the results of a competitive market and produce a more efficient mix of inputs to health production. In what competitive market would management allow output to be constrained by skewing the production process toward the most expensive, most constrained input when other lower priced substitutes were available, at least for some products? (No, I'm not suggesting that docs and nurses are perfect substitutes in all cases. I'm suggesting that over some range of services they are probably near perfect substitutes and if health care markets were not characterized by a long history of physician rent-seeking, we would see different production processes that combined inputs differently and less expensively.)
A final possible answer is that maybe the way we've structured health care financing has induced selection bias in physicians in much the same way that CEO and investment banker compensation schemes may have altered the types of individuals attracted to those jobs. If this is the case, then a little correction in the selection effect may be just what the doctor ordered for US health care (and investment banking). I'm willing to bet that most good docs will stay with a patient in crisis even when they're salaried and they won't mind being salaried as long as we figure out how to reduce their med school indebtedness. The evidence from Cleveland Clinic, Mayo Clinic, and Geisinger suggest that improved quality and reduced costs using salaried physicians is a viable model.
What are some of the obstacles that impede changing the way physicians (and investment bankers)are paid? Well, certainly concentrated (and self-interested) economic and political power are important obstacles, but in a democracy they should be surmountable. I suspect that the obstacle that matters most (because it undermines democratic response in opposition to concentrated economic and political power) is cultural beliefs that enable the incomes of the top of the US income distribution to outpace the incomes of the middle and bottom. We teach in Econ 101 that people's wage rates reflect the value of their marginal product (give or take some positional effects that may tend to shrink the wage distribution when fairness matters). The cultural narrative that resonates with increased wage disparity says that people who are paid more are more productive, more innovative, create more wealth. The high wages compensate them and keep them working to the benefit of us all. Let's repeat that last part: to the benefit of us all. The discrepancy is fair because we all benefit from their increased skill, ability, productivity, and work effort.
The problem is that we now have clear counter-examples. The financial sector has siphoned off trillions of dollars that could have been used to improve all of our lives: investments in health and human capital and investments in physical capital would all have improved our society and our economy for generations to come. The high salaries paid in that sector do not reflect wealth creation, except for those receiving the salaries. At present, the health care sector is distorting resources in much the same way, but on a smaller scale. Roughly $3,000 per US resident is wasted each year on health care that does not yield a comparable rise in benefit as measured by population health indicators. In fact, many US health indicators are worse than those of other developed countries. This almost certainly implies negative marginal product from some inputs (for those of you who speak the econ lingo) or waste (for those of you who don't). It's probably no coincidence that both sectors are characterized by information asymmetries and agency problems. Changing how docs are compensated won't fix all that ails the health care sector, but it should reduce some of the agency problems.
Health reform is aimed at correcting some of these problems. I don't know how it will ultimately shape US health care, but I'm pretty confident that changing how docs are compensated and creating a larger role for nurses and physician assistants, particularly in primary care and chronic disease management, will not only reduce health care costs, it will improve access to and quality of care. That most nurses will stay up all night with a sick patient at half or even three quarters of the cost of having a doc do it seems to be just what a well-functioning competitive market would reward.