If these figures are already normalized for the overall wealth of the country, does that mean that American doctors and nurses make more money *relative to other Americans* than, say, Australian doctors and nurses make relative to other Australians?

If so, why?

I'm glad Ezra is addressing this; I've been following Andrew's posts over the last few days and wondering why he's been rhapsodizing over Mickey Kaus's arguments when folks like Ezra and Jonathan Cohn are readily available.

Chris, I'd say that the answer to your question is likely yes. Take, for example, how anesthesiologists are compensated in this country. It's a racket. Did you know that your anesthesiologist might not be in your PPO network even if your hospital is? That's messed up.

I think Andrew (and Mickey) are prone to looking at health care as a commodity as opposed to a public service. There's no reason why addressing the problems enumerated in Andrew's "Sweden" and "Burger King" posts are incompatible at all with addressing costs and access through a public plan if you stop looking at health care as a commodity. Because, after all, it's not. It's kind of like law enforcement and fire stations: we pay whatever it takes to have it available. If health care is a commodity, then there's a problem, because there's no incentive for health providers to cut costs and every incentive to raise them. Why? Because people don't want to die. It's not a rational economic scheme. It's like parents of children with autism who blow thousands of dollars on 40 hours a week of discrete trial training when research shows that the benefit disappears after 10 -- people will do whatever it takes and bear whatever financial burden when it comes to the health and welfare of their family.

Chris, here's an explanation I've heard for the higher salaries of US doctors. Take it with a huge grain of salt--I haven't been able to verify it. Maybe someone more knowledgeable could weigh in on this?

Anyway, here's the theory: the American Medical Association (the professional organization for doctors) is also the organization that accredits medical schools. They'll only approve a certain number of medical school 'slots' per year, even if universities want to increase enrollment and qualified candidates are available. This artificially keeps down the number of medical school graduates, which is great for the AMA's members (their salaries stay high) but not so great for public health and health care costs.

Did the study take into account RN and MD scarcity when deciding how much they should be paid?

Can we reduce costs by switching to an entirely-Philipino nursing staff?

So we assume Ezra you will dig into the Political Economy of why Americans opt for such a raw deal. Couple of speculation based on data in your post:
- input cost is the main culprit;
- the numerous players who make this input cost makes it harder for American System to beat the culprit;
- this is bit akin to Wall Street, not only do we pay fees on checking account and fees for getting a government guaranteed student loan; we pay all across the board when it comes to Finance;
- will we have the political debate where such costs are apportioned to each player of the ‘input cost’ class?

Another comment to earlier response – it is not just American Doctors who are looting Americans. Same happens in India too. Successful doctors in India make way too much disproportionately compared to other professions in India; even when the supply of doctors is not artificially restricted. And of course, India does not have any effective ‘mal-practice’ law so these doctors are essentially not only free to charge anything but are free from any accountability too. As Republicans like to point, though there may be cost due to the litigation of mal-practice; at least it puts some leash on what American Doctors offer. But does that mean so high prices? Is it any different than an investment banker?

When you are ‘near to money’; you get the first and largest cut. Similarly, when you are ‘near to health’ your fees probably are high.

Labor costs probably account for a lot of our savings on long-term and home care, too: IIRC the people who provide that care get much worse wages and benefits here than in other nations of comparable wealth (i.e. Europe and Japan).

Ezra,

A number of thoughts, after reading the actual report.

The question is why we allow it to cost so much more.

They provide explanations in the report itself, so not sure why you're taking the numbers but not the analysis. Anyways, here's what they actually said:

Finally, administration, regulation, and intermediation of the system cost another $98 billion in additional spending

This was interesting, as both private and public sector administration spending was higher than the average OECD country. $80 billion too much for private, $20 billion too much for public (Medicare and Medicaid). If we switched to a full public-system, its probably a $40-50 billion savings. Not small, but the the "$100 billion going to insurance companies" implied, and begs the question to single-payer advocates why our government needs to spend $50 billion more than other governments to do the same thing.

input costs—including doctors’ and nurses’ salaries, drugs, devices, and other medical supplies, and the profits of private participants in the system—explain the largest portion of high additional spending, accounting for $281 billion of spending above US ESAW

Of this:

"$50 billion in physician income above ESAW"

They explain this as a fee-for-service effect, as doctors in the US see 1.6x more patients than the average OECD country. We could argue about whether we are "getting something" for the $50 billion, as our doctors are seeing more patients and being more efficient than then average OECD doc. The truth is probably somewhere in between.

"$50 billion in nursing spend above ESAW"

We have higher nurse-to-patient ratios than the average OECD country. Again, its arguable whether we are "getting something" for this. Also they note that 1) state regulations require staffing ratios higher than OECD country averages 2) nursing unions push for higher averages. So it appears that government and unions are the key drivers of this $50 billion.

"$60 billion in drugs higher than ESAW, plus another $20 billion for devices"

We pay higher prices than other countries. It should be noted that with roughly half the global drug spend in the US, if we normalized prices with the rest of the world, we'd see $30 billion in decreases, while other countries would see $30 billion in increases, keeping everything else the same.

"25 billion in taxes to the government due to higher profits"

Just noting that this "waste" helps pay the government's bills.

Inefficiencies and complexity in the system’s operational processes and structure account for the second largest spend above ESAW of $147 billion.

Our hospitals have a more acute care mix than the average OECD country, as we have had more procedures move into outpatient centers (think colonoscopies). This gets at one of the dirty little secrets of medical/Medicare reimbursement-- as procedures moved into the outpatient setting, where they were more efficient than hospitals (simple small company/large company dynamics), reimbursement stayed the same-- meaning profits went up on a per patient basis. This leads to an overinvestment in outpatient centers, leading to sub-scale operations (it doesn't matter when you're being overpaid for the procedures), and overall waste the system. Medicare and insurance companies haven't fought this with doctors, as many have direct equity stakes in the facilities themselves. The McKinsey report says the same thing, without the color commentary.

Also, they tag malpractice with a direct cost of $20 billion in unnecessary insurance expenditures compared to the average OECD country. (This doesn't account for defensive medicine.)

One other thing to note, and that I've noted in the past, is the difference between "cost" and "cost growth." This analysis looks at differences in cost, many of which are long-term structural disadvantages of our system. Not surprisingly, then, when you looks a OECD comparisons of cost growth, there aren't differences between the US and OECD countries. Which gets at one of main meta-points on health care reform-- if we "fix" our system to become like a European system, we'll get European results-- namely some cheaper prices (of course powerful lobbies will prevent us from even realizing those differences fully), but with cost growth patterns that are still unsustainable. We'd still be on a path that keep the Orszag's of the world up at night.

Combination of two primary reasons why we use more healthcare resources...

1 - we have more resources to spend.
2 - our regulations incentivize huge demand for health services. Most people can walk into a doctor's office or a hospital at any time to receive very costly treatment while only having to shoulder 10-20% of the real cost of resources consumed...the rest we prepay as insurance premiums and get provided to us by the gov't in terms of insurance, Medicare, and Medicaid subsidies.

If I had a prepaid plan, that was 40% subsidized by the gov't like my health insurance premiums are, that enabled me to walk into any restaurant in town and only pay for 10% of what I ordered - I'd be eating out at fancy restaurants a hell of a lot more.

Ezra keeps edging back to his "squeeze the providers" slip of a couple of years back. If all the 'health care reformers' would just admit that one of their goals is the lowering of doctor and nurse salaries, it'd make things a lot easier and a lot more honest.

Chris, here's an explanation I've heard for the higher salaries of US doctors. Take it with a huge grain of salt--I haven't been able to verify it. Maybe someone more knowledgeable could weigh in on this?

Anyway, here's the theory: the American Medical Association (the professional organization for doctors) is also the organization that accredits medical schools. They'll only approve a certain number of medical school 'slots' per year, even if universities want to increase enrollment and qualified candidates are available. This artificially keeps down the number of medical school graduates, which is great for the AMA's members (their salaries stay high) but not so great for public health and health care costs.

This is a myth. There are over 35 new medical schools in planning at the current moment. Over 75% of medical schools across the United States are expanding their classes.

Florida just opened 3 new medical schools within the last 5 years and the AMA had NOTHING to do with "approving" them. There's a list of criteria published by the LCME that you have to meet in order to open. But there's no cap or "secret committee" that blocks new med schools.

USA has plenty of doctors. In fact, we have TOO MANY of them which is part of the reason our healthcare costs are so high. We have millions of advanced specialists who are searching for business by sending 95 year old guys with only 75% blockage of the arteries to a major 3 vessel CABG (costing around $300k) or a stenting procedure which costs *only* about $50k.

We need fewer doctors, not more, and we need to pay them on a flat salary to eliminate the race for billing on procedures. When a cardiologist is paid on a flat salary, he's not going to recommend that every 90 year old with a mild coronary blockage have a CABG or a stent placed, and that will save BILLIONS in healthcare costs.

We have millions of advanced specialists who are searching for business

Sorry, Joe Blow, BLS indicates that (as of 2006) the US has 633,000 physicians and surgeons. The American College of Cardiology appears to have 36,000 members. Looks to me like you're off by a factor of 50 or so. Nice try.

Klug:
Ezra is in favor of squeezing the providers, but Uwe Reinhardt who is far more likely to be influential has clearly stated that he isn't in favor of the same.

European MDs are about 70:30 primary care to specialist while US MDs are about 30:70, plus there is a bigger differential between primary care and specialist pay in the US. Worldwide though, MDs are highly payed with respect to other wage earners in their countries with or without single payer insurance. Ezra likes to point out that French docs get paid 80% of what US docs make, but he omits the shorter work week, the different primary care/specialist blend, and the very large income tax subsidy that French medical personnel receive. In comparison French engineers make 50-75% of a US salary and French nurses make 20% of a US salary, but also receive the large income tax subsidy as well, often, as housing. I don't know how to fairly compare apples and oranges.

I think that a lot of people believe that part of the cost problem is due to the decreased availability of primary care in the US.

JBean,

Worldwide though, MDs are highly payed with respect to other wage earners in their countries with or without single payer insurance

This isn't correct.

That was the whole point of this study-- they compared US on inputs and outputs of the system. For doctors, they determined that while a physician makes 4x the average wage in a OECD country, its 6x in the US. As I wrote above, they noted that US physicians see 1.6x more patients, so you can argue its justified. But US physicians make a lot more than most other physicians, relative to the country's average wage.

Wisewon:
Not if you compare primary care docs (US 2006 ave $160K; UK NHS 2006 ave $130-190K). Specialists earn more in the US than specialists in Europe and there are more specialists, therefore average wages are higher. However, if you compare wages within a specialty, the difference shrinks. There's a big variance in income. Apples to apples and all that.

Wisewon:
If you are still reading (probably not!), it's also worth noting that there is a bigger gap between professional pay and non-professional pay in the US than in Europe. Anecdotally, two of the docs in my 4-doc office are out-earned by their non-MD spouses.

It's kind of a silly point to argue anyway, as Uwe Reinhardt has pointed out. Since physician take home pay amounts to 10% of health care costs, a draconian cut in income (cut the specialists please or I'm going back to engineering!) of 1/3 would result in a 3% healthcare cost saving.

Both fair points. But take home pay is the wrong metric. Physicians typically have sub-scale, poorly run practices that limit the "take-home" element. In other words, overall spend on physician services is $700 billion in a $2 trillion system. That's one of the largest portions of health care spend-- with needed pressures on more practices to become similar to yours in structure, IIRC.

I don't know that the problem is poorly run practices. I think that most of the waste (i.e. people who are unnecessarily employed) is the tremendous amount of overhead that is required to interact with insurance companies. The large group practice that I work for spends more money on contracting, referral coordinators, coding, billing, and insurance verification than it does on nurses/medical assistants. Fix that problem (e.g. single payer) add a system for secure communication between providers and you would have ... France. Most European countries get fine medical outcomes with the private practice model. I'm not sure that it's the problem that the medical homes people make it out to be.

Interestingly, because of lifestyle issues newly graduated MDs in the US now want to enter into an employed physician model rather than starting their own practice in this country. The private practice model is slowly beginning to die out anyway.

Use 70:30 specialist:generalist ratios and average US salaries (150K for generalists and 250K overall) and flip the ratio to a hypothetical 30:70 and see what "average" salary you get. Magically, the new number is 80% of the current number and that's without the free education, 35 hour work week, and heavy income tax subsidy that French docs get.