July 10, 2009
‘Rationing’ Doctors’ Pay
By Uwe E. Reinhardt
Uwe E. Reinhardt is an economics professor at Princeton.
My post last week, on the rationing of health care, prompted many commentaries, two of which asked whether reductions in physician fees constitute rationing. A reader named EFW asked:
President Obama is prepared to cut gov’t spending for Medicare and Medicaid. Doctors and hospitals will be paid less for services provided under Medicare. Is that an example of rationing in action?
Lee Beville, a radiologist, also wrote:
The proposed fee schedule for 2010 for radiologists and cardiologists is 21% less than this year! Instead of being reimbursed 36.00 per RVU, CMS proposes to reimburse at 28.00 per RVU. These reductions are the first signs of removing economic incentives for medical practice. There will be few radiologists and cardiologists working after they hit the magical cap number.
Let us be clear about who is rationing what here.
When Medicare reduces its payments to doctors, it rations money to them. It does not directly ration the health care the doctors might render patients.
If physicians refuse to treat patients at the lower fees, it is they who ration health care, even if the incentive to do so came from Medicare.
While I doubt that the payments to radiologists and cardiologists actually will be cut by 21 percent soon — more on that next time — let us suppose it were so. Would there then be “few radiologists and cardiologists working” after such a fee cut?
Presumably, the afflicted physicians would withhold their services only from Medicare and Medicaid patients, assuming that private insurers pay more. But could most radiologists and cardiologists actually earn an adequate livelihood only from privately insured patients? I have my doubts.
Like everyone else, radiologists and cardiologists certainly can claim to be sorely underpaid relative to the extraordinarily high compensation of bankers and corporate executives, which appears to have little correlation with contributions to society. But relative to their colleagues in internal medicine, pediatrics and family practice, radiologists and cardiologists actually are very well paid.
There are a number of sources on physician income (see, for example, this). All of them suggest that the median annual net income of radiologists and of cardiologists (around $400,000) is more than twice that of family practitioners, internists and pediatricians (less than $200,000). The median is a statistic such that half of physicians earn as much as the median or more, and the other half as much or less.
So even if Medicare cut fees of radiologists and cardiologists by 21 percent, the income of these specialists would still exceed that of their colleagues in primary care by 60 percent or more.
Would that be a reason to quit medical practice? After all, doctors are not bankers. They do not work merely for pecuniary gain, but derive nonmonetary, psychic rewards from their jobs.
Coldhearted as it may seem, economists judge a profession’s income as adequate if it attracts enough young people into the profession. For the last half-century that has been so in American medicine. The constraint on the number of American-trained physicians has never been an inadequate supply of eager and qualified American applicants to American medical schools. Instead, it has been a deliberate constraint on the number of American medical-school slots.
For reasons that elude me, United States policy makers and the medical establishment have for decades preferred to deny thousands of eager and qualified American youngsters the opportunity to study medicine and have then met the resulting shortage of physicians by importing foreign-trained physicians from other countries.
But while there is no overall shortage of qualified young Americans eager to study medicine, there is now a nationwide lament over a shortage of American medical school graduates willing to enter the primary care specialties. For that reason Medicare may soon substantially increase the fees for primary care physicians, assuming private insurers will swiftly follow suit, as usual.
The only question then is whether such fee increases will come at the expense of taxpayers or from other parts of the health care sector, perhaps even the more highly paid medical specialties, including radiology and cardiology. That is a political call.
In subsequent posts to this blog I shall explore whether, through the good offices of the Congress, United States taxpayers have been too stingy vis à vis the medical profession.
I shall also describe a highly ritualistic and entertaining form of Kabuki theater staged annually in Washington in conjunction with the year’s Medicare fee update.
Act I in the play is always the announcement of a 20 percent cut in the fees Medicare pays physicians.
That “cut” actually ends up as a increase of 1 to 2 percent and an annual increase in Medicare spending per Medicare beneficiary on physician services of 5 to 6 percent.
It will be so again this year.