Pardes on the Physician Shortage

http://www.futureofcapitalism.com/2009/11/pardes-on-the-physician-shortage

The chief executive of NewYork-Presbyterian Hospital, Dr. Herbert Pardes, is a person I admire and who I've defended in the past, but his opinion piece in today's Wall Street Journal, "The Coming Shortage of Doctors," strikes me as off-base. He writes:

The fundamental reason why medical students are not entering primary care on their own is that they can't afford it. Medical-school tuition can cost a student as much as $50,000 a year. Some doctors start out owing hundreds of thousands of dollars before they are even able to open a practice. Going to medical school is a little like taking out a mortgage, only without getting a house in return.

Once doctors do start treating patients, they are squeezed between what they earn from government programs and insurance companies on one side and escalating malpractice insurance rates on the other. Meanwhile, specialists can often charge more and pay less in other costs than primary-care doctors. The reality is that many physicians cannot afford to go into primary care.

To address the shortage of doctors and the incentives that compel young doctors to eschew primary care, Congress needs to think about how to increase doctor pay, institute malpractice reform, and provide subsidies to reduce the amount of debt doctors have to take on.

It's true there are some primary care doctors who, especially in markets like New York City with high medical malpractice insurance premiums and high costs for office space and taxes, find that their practices don't pay. But if being a doctor is such a bad financial deal, why are there so many more people who apply to medical school each year than get in? One Web site estimates that 50% to 60% of those who go through the arduous process of filling out medical school applications, The most selective medical schools, like Stanford, Harvard, and Yale, let in only two or three of every hundred people who apply, and even the least selective schools reject more than eight out of 10 applicants. The idea that "Congress needs to think about how to increase doctor pay" is going to strike many non-doctors as ridiculous and out-of-touch to the point of being offensive, especially if that pay increase is going to come in the form of tax dollars or health insurance premiums extracted from the non-doctors. Since a lot of the non-doctors make less than the doctors, it's a reverse Robin-Hood. At Dr. Pardes's own Columbia-Presbyterian hospital system, a dermatology specialist earned more than $4.8 million a year, and a reproductive endocrinologist earned $3 million a year, according to a report in the Daily News. Even at less prestigious hospitals outside of Manhattan, the doctors' parking lots are full of Mercedes and BMWs and Lexuses with MD plates. Never mind the fact that few other industries in New York City, where real estate is some of the costliest in the world, even have designated employee parking lots. And Dr. Pardes wants Congress to raise their pay? As one wise longtime healthcare industry figure put it to me, "The doctors are complaining about their reimbursement rates all the way to the bank." Anyway, if Congress starts to get in the position of setting physician pay, as Dr. Pardes seems to suggest it should, it is possible that salaries will get adjusted downward as well as upward. Does Dr. Pardes really think that senators from poor, rural states are going to be voting in favor of the $4.8 million salaries for Manhattan dermatologists, never mind that those salaries are what allow the health care system to incentivize excellence and innovation? It'd be a non-starter, espcially at a time when health care costs are growing at a pace that is unsustainable for the federal budget. As for increased subsidies for medical education, the subsidies are already huge, and have been growing, as I noted earlier:

a key part of professional training for doctors, residency, is heavily subsidized by the federal government. A 1995 study by the Congressional Budget Office found, "Through the Medicare program, the federal government subsidizes graduate medical education--the training of resident physicians--in amounts that approach $6 billion annually." A 1999 study by the National Bipartisan Commission on the Future of Medicare found "The largest single Medicare subsidy, $6.9 billion in 2000, is the one for GME [Graduate Medical Education] which supports the advanced training physicians receive, mainly in teaching hospitals, after they graduate from medical school." A report in the New England Journal of Medicine published in 2008 says, "In 2007, Medicare provided $8.8 billion to teaching hospitals in support of their GME programs and related patient-care activities."

Genuinely free markets are dynamic and self-correcting. If there's a shortage of doctors, it's because medical schools have limited admissions in keeping with the government cap on residency slots, as Dr. Pardes mentions briefly in passing in a section of his piece that is right on. An article from Colorado's Independence Institute explains further:

The U.S. government controls the supply of physicians by how much federal funding it provides for the residency training. Hospitals are reimbursed for the cost of training medical residents through the federal Medicare program, which is the major financier of graduate medical education. In 1996, Congress passed the Balance Budget Act, establishing caps on the number of physicians in training (residents) that can be paid for by Medicare.

Government control of supply leads to a shortage. (Note that in 1996, Republicans controlled Congress a Democrat, Bill Clinton, was president. Again, both parties are complicit.) Without lifting that restriction on supply, the government could raise doctor pay so that pediatricians and podiatrists make as much money as bankers and traders at firms that received TARP money, and there would still be shortages. One can't really fault Dr. Pardes for trying to get more money for doctors; after all, the trial lawyers and nurses' unions are going to be taken care of. But just because an interest group asks for more money from Washington doesn't always mean it's the best thing for the country as a whole.

by Editor  |  Nov 5, 2009 at 10:09 am Related Topics:  Banking, Compensation, Health Care, Reverse Robin-Hood, Taxes receive the latest by email: subscribe to the free futureofcapitalism.com mailing list