Friday, May 16, 2014

The Richdoctor Myth Revisited

Several years ago, I posted on the myth of the "Richdoctor,"  a myth that is really about wealth envy and isn't supported by the facts. Fast forward a few years, and the effects of the myth have escalated. Fortunately, not everyone buys into it.

As an advocate of increasing physician reimbursement, it is refreshing to read an article in support of physicians being able to make more money. In “Why Primary-Care Physicians Need a Minimum Wage," Daniela Drake makes an argument for better pay for physicians:

[T]he health insurance calculator for Southern California says a 62-year-old would pay $7,200 a year for the top plan. Most people resent paying this big a fee for something like insurance — and it’s easy to see why patients can be manipulated into thinking their doctor is being overpaid.

However, the math is simple. The average PCP has 2,500 patients and supposedly makes $180,000 a year. Therefore, the insurer is paying your primary care doctor $72 a year per patient — out of the $7,200 a year paid to the insurer. That’s 1% of the insurance premium. It works out to $6 a month (19.7 cents a day!) to have a highly trained professional overseeing your care

Wow, these number are depressing, but due to two errors in her calculations, the reality is actually much worse.

First, in regards to her example, she makes the assumption that a PCP (Primary Care Physician) only sees each of their patients once a year. So a patient load of 2,500 patients seen once a year would be a daily average of 10 patients. The reality is that most PCP’s see well over 30 patients a day, which is 7,200 a year.

Second, that $180,000.00 is only 20% of what the physician is actually paid. In medical office settings, 80% of the reimbursement paid to physicians goes into overhead, staff salaries and government mandated programs.

So let’s redo the math based on the realities of medicine today:

If $180,000.00 is 20% of the total reimbursement, then a PCP brings in $900,000.00 a year. Therein lays the misconception that doctors are overpaid, but remember: the doctor does not pocket that total. At a patient load of 7,200 patients that is $125.00 for a 15 minute appointment. This is great pay. But remember also that 80% of that total goes to pay the staff salaries and benefits, rent, utilities, as well as such government mandated programs like Electronic Medical Records and all other costs needed to keep a business running. So, after the doctor pays his bills he is left with $25.00 per appointment, which at 7,200 patients a year is $180,000.00.

So in her example she states that physicians are paid $72.00 per patient encounter, but the real number is $25.00 per patient encounter. I do agree with her statement that this is a bargain to have a highly trained professional oversee your healthcare:

"To have someone like that available for you at 19 cents a day [reality: it is closer to 10 cents a day] would strike most people as a bargain."

Ms Drake then goes on to quote Uwe Reinhardt, an economics professor at Princeton (about whom Mike has also written). Professor Reinhardt "has argued cogently against physician salary reductions and for salary raises. “Physicians collectively [earn] 20% of total health spending,” he wrote, “half is absorbed by practice expenses… physician’s collective take-home pay [is] only about 10% of total national health spending.”

Reinhardt points out that physician pay is such a small fraction of health care expenses, it wouldn’t do much good to cut it. In return we’d get “a wholly demoralized medical profession to which we so often look to save our lives. It strikes me as a poor strategy,” Reinhardt wrote. “A superior strategy might be to pay them very well for helping us reduce unwarranted health spending elsewhere.

This article is a great way to begin discussing the realities of how little PCP’s - and all physicians for that matter - are actually paid for the services rendered. However, instead of a minimum pay, which is more government intrusion, the best solution is to let competition set the charges, as is done by all other service providers:

Let’s look at hair stylists; have you ever seen a Government fee schedule for haircuts? Of course not! Each salon sets their prices and the customer chooses. The argument against doing this for medicine is that health care is a "right;" that doctors will make their prices so high that the paying public could not afford care. Going back to the hair stylist, why don’t they charge $150.00 for a haircut? Simple: people would not pay it and some stylist would learn that if they charge $45.00 for a haircut then they will get the customers. It is simple economics. Prices will stay low due to competition. I know that this is a radical idea, but how long before the best and brightest of our population learn that it is economically impractical to go into medicine?
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