The Coming Obama Administration War on Doctors

A recent study in the journal "Health Affairs" compared physicians in the United States with those in Europe, Australia, and Canada and concluded that higher physician fees, including those by primary care physicians (PCPs), were the main reason for escalating health care costs in the U.S.  In short, the authors of the study Miriam Laugesen, an associate professor at Columbia University, and Sherry Glied, appointed in June 2010 by the Obama administration to the position of assistant health secretary for planning and evaluation, believe doctors are overpaid.

Glied tried distancing the Obama administration from the study in a statement after the study was announced, saying that the study did not reflect the administration's views.  Laugesen has targeted physicians in the past.  In her 2009 paper "Siren Song," she compared Congress to Ulysses as being unable to resist the siren song of physicians' groups.  Glied's work has been no less controversial, penning a study that found "substantial racial/ethnic disparities in satisfaction with care," implying physicians were racists.

I presented the study findings to the CEO of a non-profit hospital.  He believes that this study is the first shot by the Obama administration in a war against physicians to cut health care costs by cutting Medicare payments.  There is currently a bill in Congress recommending a 29% decrease in Medicare physician fees, and he believes that the Obama administration will use this study to negotiate a "compromise" cut of 10%-15%.  Since private insurance increasingly uses the Relative Value Unit (RVU) method to determine their own reimbursement schedules, this would have the effect of cutting payments not just for Medicare but to private insurance payers as well.

It is ironic that doctors would find themselves targeted by the Obama administration.  The American Medical Association endorsed ObamaCare, much to the dismay of a large portion of its members.  Although the Association tried to walk back its support two years later, the AMA finds itself in the sights of the administration that got what it needed from the group, and Republicans who view the organization as providing the cover the bill needed at the critical time when it could have been killed.  Suddenly doctors find themselves with few friends on either side of the aisle.

Laugesen and Glied's study design suffers from errors of omission and faulty assumptions although it was extensively cited by the press.  First, it didn't mention the cost of malpractice insurance, which averages $12,500 per year for primary care physicians but is tiny in countries with national health systems that do not award large payouts.  Second, it called the cost of medical school in the U.S. "negligible."  Medical school abroad is often free, but American doctors graduate $180,000 in debt that will cost each $400,000 in taxable income to pay off over 15 years after the loan is capitalized and taxes are included.  Next the study compared Medicare payments with private insurance payments, but it didn't consider Medicaid, which pays on average a third less than Medicare for the same treatment.

What is the average pay for a primary care physician in 2011?  Statistics vary.  It should be no surprise that health care personnel placement firms report higher salaries since placement firms encourage lucrative starting salaries so that they can get a bigger cut after they place a doctor.  But this overstates salaries since most doctors earn these starting salaries for a fixed time and are then placed on productivity -- whereby their salaries fluctuate depending on the number of patients they see and the procedures they perform in a quarter as translated into RVU's.  The Bureau of Labor Statistics reports a median income for family and general practitioners in 2011 of $163,510.

If salaries are the main driver of escalating costs shouldn't they escalate?  A 2006 study by the Center for Studying Health System Change reported that in 1995 the average salary for a primary care physician was $135,036.  By 2003 that figure had risen to $146,405, but adjusting for inflation by using 1995 dollars, the 2003 salary was $121,262, a 10.1% decrease in just 8 years.  Translated into 1995 dollars, the BLS 2011 median income of $163,510 becomes $110,299.  Primary care physician salaries have actually declined over the past 16 years.  Even Laugesen and Glied's fantastic average of $186,582 is the equivalent of just $125,862 in 1995 dollars, below the 1995 average of $135,036 reported in the 2006 study.

According to the Department of Health and Human Services, in 1995 the per capita national health expenditure was about $3,950.  In 2009 the per capita expenditure was $8,086 -- $5,744 in 1995 dollars.  Health care costs are soaring -- that's a rise in 16 years of 69% beyond inflation, but Laugesen and Glied's conclusion is wrong.  How can primary care physicians be the main drivers of higher U.S. spending on health care when their earnings have fallen over the past 16 years, not risen?

Medicine is a business, but for some reason doctors are penalized when they begin to treat it like one.  As the CEO of the non-profit hospital states, "[r]elating the income to the costs born by physicians is a silly comparison. ... That isn't ever done for the lawyers, is it?"

Doctors aren't to blame for the health care system mess, but they will soon find themselves held responsible by an administration that got what it needed from them two years ago and now finds them expendable.

A recent study in the journal "Health Affairs" compared physicians in the United States with those in Europe, Australia, and Canada and concluded that higher physician fees, including those by primary care physicians (PCPs), were the main reason for escalating health care costs in the U.S.  In short, the authors of the study Miriam Laugesen, an associate professor at Columbia University, and Sherry Glied, appointed in June 2010 by the Obama administration to the position of assistant health secretary for planning and evaluation, believe doctors are overpaid.

Glied tried distancing the Obama administration from the study in a statement after the study was announced, saying that the study did not reflect the administration's views.  Laugesen has targeted physicians in the past.  In her 2009 paper "Siren Song," she compared Congress to Ulysses as being unable to resist the siren song of physicians' groups.  Glied's work has been no less controversial, penning a study that found "substantial racial/ethnic disparities in satisfaction with care," implying physicians were racists.

I presented the study findings to the CEO of a non-profit hospital.  He believes that this study is the first shot by the Obama administration in a war against physicians to cut health care costs by cutting Medicare payments.  There is currently a bill in Congress recommending a 29% decrease in Medicare physician fees, and he believes that the Obama administration will use this study to negotiate a "compromise" cut of 10%-15%.  Since private insurance increasingly uses the Relative Value Unit (RVU) method to determine their own reimbursement schedules, this would have the effect of cutting payments not just for Medicare but to private insurance payers as well.

It is ironic that doctors would find themselves targeted by the Obama administration.  The American Medical Association endorsed ObamaCare, much to the dismay of a large portion of its members.  Although the Association tried to walk back its support two years later, the AMA finds itself in the sights of the administration that got what it needed from the group, and Republicans who view the organization as providing the cover the bill needed at the critical time when it could have been killed.  Suddenly doctors find themselves with few friends on either side of the aisle.

Laugesen and Glied's study design suffers from errors of omission and faulty assumptions although it was extensively cited by the press.  First, it didn't mention the cost of malpractice insurance, which averages $12,500 per year for primary care physicians but is tiny in countries with national health systems that do not award large payouts.  Second, it called the cost of medical school in the U.S. "negligible."  Medical school abroad is often free, but American doctors graduate $180,000 in debt that will cost each $400,000 in taxable income to pay off over 15 years after the loan is capitalized and taxes are included.  Next the study compared Medicare payments with private insurance payments, but it didn't consider Medicaid, which pays on average a third less than Medicare for the same treatment.

What is the average pay for a primary care physician in 2011?  Statistics vary.  It should be no surprise that health care personnel placement firms report higher salaries since placement firms encourage lucrative starting salaries so that they can get a bigger cut after they place a doctor.  But this overstates salaries since most doctors earn these starting salaries for a fixed time and are then placed on productivity -- whereby their salaries fluctuate depending on the number of patients they see and the procedures they perform in a quarter as translated into RVU's.  The Bureau of Labor Statistics reports a median income for family and general practitioners in 2011 of $163,510.

If salaries are the main driver of escalating costs shouldn't they escalate?  A 2006 study by the Center for Studying Health System Change reported that in 1995 the average salary for a primary care physician was $135,036.  By 2003 that figure had risen to $146,405, but adjusting for inflation by using 1995 dollars, the 2003 salary was $121,262, a 10.1% decrease in just 8 years.  Translated into 1995 dollars, the BLS 2011 median income of $163,510 becomes $110,299.  Primary care physician salaries have actually declined over the past 16 years.  Even Laugesen and Glied's fantastic average of $186,582 is the equivalent of just $125,862 in 1995 dollars, below the 1995 average of $135,036 reported in the 2006 study.

According to the Department of Health and Human Services, in 1995 the per capita national health expenditure was about $3,950.  In 2009 the per capita expenditure was $8,086 -- $5,744 in 1995 dollars.  Health care costs are soaring -- that's a rise in 16 years of 69% beyond inflation, but Laugesen and Glied's conclusion is wrong.  How can primary care physicians be the main drivers of higher U.S. spending on health care when their earnings have fallen over the past 16 years, not risen?

Medicine is a business, but for some reason doctors are penalized when they begin to treat it like one.  As the CEO of the non-profit hospital states, "[r]elating the income to the costs born by physicians is a silly comparison. ... That isn't ever done for the lawyers, is it?"

Doctors aren't to blame for the health care system mess, but they will soon find themselves held responsible by an administration that got what it needed from them two years ago and now finds them expendable.