‘Physician Shortage’ and the Free Market
Glenn Reynolds links to this piece in the New York Times that asks “Where have all the primary doctors gone?” The writer, a doctor herself, tells us
In the last several months there have been reports in medical journals about an impending shortage of primary care physicians. This spring in the health policy journal Health Affairs, researchers at the University of Missouri -Columbia and the federal Department of Health and Human Services published a study that projected a generalist physician shortage of 35,000 to 44,000 by the year 2025.
The writer notes:
The Physicians’ Foundation, a nonprofit organization that supports physicians’ work with patients, last month published the results of a survey on current medical practice conditions in the United States. Some 12,000 doctors responded, the vast majority of whom were primary care physicians.Nearly half of them said they planned in the next three years to reduce the number of patients they see or to stop practicing altogether. While these doctors rated patient relationships as the most satisfying aspect of practice, over three-quarters felt they were at “full capacity” or “overextended and overworked.”
She also forecasts that things will only get worse as Obama enacts his plans to “fix” the health care system.
The situation in Massachusetts should be a wake-up call. Since a landmark law was enacted in 2006 requiring health insurance for nearly all residents, the state has struggled to provide primary care to the estimated 440,000 newly insured.
Since Dr. Wife is finishing up her residency as a primary care physician, I’ve become quite familiar with the job market for primary care physicians. She had her mind set on family practice before she began pre-med class a decade ago and never wavered in her desire to become a traditional GP.
Supply Imbalance and Market Limitations
If primary care physicians are so scarce, why don’t their salaries reflect the scarcity? The average salary for primary care physicians in practice for at least 3 years is around $147,000 nationally. Starting salaries are about $20,000 below that on average. This conceals tremendous variation depending on region and locality. For example starting salaries in the Philadelphia area for PCPs are roughly $90,000, while it’s no secret that the highest salaries are in the rural South and Midwest that can approach $180,000 for physicians fresh out of residency.
Why the difference? Because Philadelphia has 5 medical schools; medical students tend to apply to residencies near where they went to school and newly minted physicians tend to practice where in the same area that they do their residencies. Philadelphia is a large metropolitan area with the amenities that come with it. It therefore has an abundance of primary care physicians, although managed care and malpractice insurance rates that border on the obscene are starting to force them out of the area.
Meanwhile few doctors want to live in places like Grant New Mexico or Greeley Nebraska. Rural areas such as these don’t offer many opportunities for single physicians to meet potential spouses, nor do they have many job openings for the minority of new physicians with spouses. The migration of American population from rural areas to urban began a century ago and continues today. Doctors are no different from the general population.
What results is an imbalance of supply and demand, with low supply/high demand in rural areas and low demand/high supply in urban areas. The salaries offered by rural areas although substantial have so far failed to attract physicians away from the urban settings. But given the depressed economics of rural America this “rural premium” on PCP salaries has most likely already reached the maximum rural areas can bear.
In order for primary care physician salaries to draw residents away from the urban areas they would most likely have to double to $240,000-$300,000. Since Medicare makes up about a third to half of a PCP’s patient load, Medicare reimbursements would have to quadruple for rural doctors. Currently Medicare reimburses a third less than private insurers, discouraging doctors from taking new Medicare patients and pushing them to replace those they do have with the privately insured.
While most Americans would be happy to make $147,000 a year, they might think twice about doing so when other factors are considered. The AMA estimates that in 2007 the average medical student graduated with $140,000 in educational debt. The average medical school loan is for a term of 15 years, and at 4% interest requires a monthly payment of just over $1,000 every month for the life of the loan. Loan repayment of $12,000/year + taxes paid on that income (another $3,000 – medical school debt is not tax free) reduces that salary down to $125,000. Physicians usually work far beyond 40 hours a week, with the average PCP putting in 53 hours a week (specialists tend to work even longer.) Therefore on an hourly basis the average primary care physician earns $45/hour after debt repayment and before taxes.
Finally all PCPs operate with the threat of malpractice hanging over their heads. This threat varies by state with some being more litigious than others (Pennsylvania is notoriously bad). The threat of possible litigation makes PCPs practice “defensive medicine” whereby the doctor does procedures and orders tests that may not be necessary for the health of the patient, but could fend off a line of attack by an aggressive malpractice attorney should the doctor wind up in court. This drives up costs for everyone from the physician to the insured and his or her provider and employer.
Is $45/hour worth 4 years of undergrad, 4 years of medical school, 3 years of training and a week per year of continuing education with the ever present threat of having to explain one’s actions in court? Evidently fewer doctors think so as Dr. Chen points out.
Whenever the supply of something decreases while demand for it goes up, its price must also rise. Yet this has not happened for doctors practicing in primary care. Why? Managed care. Primary care physicians are reimbursed on a per patient, per procedure basis with rates set by the insurance company or Medicare. These rates are not based on the time or effort required by the doctor, nor are they negotiable except in rare time consuming cases when doctors must challenge insurance companies to allow an off-schedule prescription or procedure. This forces doctors to either accept the reimbursements as they are and choose to bill the patient for the difference or refuse the insurance. Since there is little competition between insurance companies within a region, there is no incentive for them to listen to their patients who want to see a particular doctor. At the same time a doctor who refuses to accept patients from a particular provider can freeze herself out of a significant chunk of the market.
This shifts the payment burden from the insurance company to the physician who must decide whether to bill the patient for the difference. Since the physician is bound both morally and legally by an oath to provide care regardless of cost, the doctor is the one forced to provide services to patients who can’t afford them, then turn around and bill the patient at a reduced rate, market rate, or not recoup the cost of his or her services. Most either bill their patients at a reduced rate or not at all.
As a capitalist society we do not expect people to work for free, yet we expect doctors to perform their services for free or reduced cost in the managed care system. The so-called savings promised a decade ago from the managed care system have yet to materialize even as doctors face declining reimbursements from providers; as a result doctors are burning out and patients are left receiving substandard and expensive care.
Once a doctor establishes his or her practice in an area, it is extremely difficult to uproot and move somewhere else where the malpractice climate and reimbursements are better. In response doctors are leaving primary care for more lucrative and less taxing boutique practices, positions in the pharmaceutical industry, or better paying specialties. This forces patients to find new doctors within their area, and since many of the remaining doctors refuse new patients this leaves people to rely upon emergency rooms and urgent care centers for their primary care needs – something that these facilities are not intended nor designed for.
So what is the answer? There isn’t a single problem within the medical system in America; there are more than one. Irresponsible patients who refuse to leave a doctor’s office without a prescription for their common colds or viral infections. Others who gamble with their own health care by avoiding the expense of insurance only to end up seriously ill in the hospital. A legal system that demands perfection from doctors and a society that refuses to bear the burden of that level of care. Huge bureaucracies shuffling paper in independent and loosely regulated insurance companies, each with its own unique codes for procedures and treatments. Electronic medical records systems that cannot communicate with each other let alone their own billing modules. The misapplication of HIPAA by health care professionals who don’t understand it. A society that treats medical care like any other business yet blanches when medical care providers act like one. Doctors who receive no formal training in the business of medicine. The grey area separating public from private health care.
These are just a few of the problems facing the American medical care system. Each is complex and a microcosm of competing interests with no obvious solution. As HL Mencken quipped “For every complex problem there is a solution that is simple, neat and wrong.” Medical care seems to fit his aphorism nicely.
Richard L. Reece, MD:
This is very well done. It captures the primary care doctor’s dilemman perfectly. Raising primary care fees is one answer; medical homes might be another; yet another might be full medical school scholarships for future primary care doctors.
6 January 2009, 11:43 amWatcher of Weasels » Change, War and Corruption:
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7 January 2009, 1:59 pmThe Glittering Eye » Blog Archive » Eye on the Watcher’s Council:
[...] The Razor, “‘Physician Shortage’ and the Free Market” [...]
7 January 2009, 3:11 pmDebbie:
Things started going downhill in the 1980’s and 1990’s with changes in the insurance, medicare, and things like medicaid etc. Doctors spent more time on the phones or doing paper work,trying to prove to the insurance companies ( or get permission from them ) for lab, x-ray, other procedures. Then the reimbursement was only a fraction of the actual charge, insurance companies didn’t pay much of the time even it they approved procedures, or if a patient had more than one insurance each one wanted the other to pay. Things went downhill from there. There was less time to spend with patients, less money coming in.
We got out of private practice and went to strictly Emergency Room work. No on call or after hours work. You go in, you do your shifts, and you leave. Other than attending staff meetings, board meetings, etc. which you might attend if you were private practice.
On another note, I see you are not getting my trackbacks. Don’t know what the problem is.
7 January 2009, 9:50 pmCheat Seeking Missiles » Wednesday Reading - Gazathon Edition:
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7 January 2009, 11:05 pmThe Razor » Blog Archive » ‘Physician Shortage’ and the Free Market:
[...] Loan repayment of $12000/year + taxes paid on that income (another $3000 – medical school debt is not tax free) reduces that salary down to $125000. Physicians usually work far beyond 40 hours a week, with the average PCP putting it 53 …[Continue Reading] [...]
9 January 2009, 12:42 amWatcher of Weasels » Of War and Healing:
[...] First place with 2 1/3 points! – The Razor – ‘Physician Shortage’ and the Free Market [...]
9 January 2009, 8:39 amThe Glittering Eye » Blog Archive » The Council Has Spoken!:
[...] for the most outstanding posts of the preceding week. The winner in the Council post category was The Razor’s “‘Physician Shortage’ and the Free Market” for which I voted. Second place honors went to [...]
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[...] with the current war in the middle east, rather, The Razor wrote of doctors, supply and demand in ‘Physician Shortage’ and the Free Market, which the Watcher introduces saying: Please read it as you consider that Democrats are seeking [...]
9 January 2009, 10:22 amThe Razor » Blog Archive » The Council Has Spoken: Jan 9, 2009:
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13 January 2009, 7:55 pmThe Razor » Blog Archive » The Three Shocks of Medicine and Incentives:
[...] quarter or a third of your salary? Good question, and one I’ve been considering since writing my post about primary care physicians last week. In that post I argued that in essence the market was failing to provide better working [...]
13 January 2009, 8:42 pm