• What makes the US health care system so expensive – Health Care Workers

    If you haven’t read the introduction, go back and read it now.  That introductory post also includes links to all the posts in this series on what makes our health care system so expensive.  Each of these pieces is going to discuss one of the components of unexpected spending that accounts for why our system is so expensive.

    Remember, these posts are going to follow a common theme.  I am going to highlight how the United States is spending more than you’d expect given our wealth.  Much of this comes from the McKinsey & Company study, Accounting for the cost of health care in the United States.

    This post is not going to make me popular (especially with many of my co-workers), but it’s real and it’s significant.  It’s about the salaries of our health care workers.  It’s also going to be slightly different in that these salaries are already bundled into inpatient and outpatient care.  No one gets a free pass in this series, though, and we need to acknowledge this real and not insignificant part of our health care costs.

    In 2006, physician salaries accounted for $138 billion in health care costs.  About $64 billion of that is above what you would expect for the wealth of the United States.  In the United States, physician salaries were 6.5 times GDP per capita for specialists and 4.1 times GDP per capita for generalists.  In the other countries in this analysis, these multipliers were 3.9 for specialists and 2.8 for generalists.

    Now it’s important to note that this doesn’t just mean that physicians in the US made more than physicians in other countries.  It means they made more compared to the rest of US citizens than physicians do compared to the physicians in other countries do compared to their citizens.  You can see it in this chart:

    Each time the dot is above the line, it means that we are spending more than you would expect for our wealth.  Again, that’s OK if you can somehow justify the cost.  Maybe you think that physicians in the United States are so much better than the physicians in other countries that we have to pay them more, even when compared to other professions in the US.  You’d hope to see really improved outcomes though.  Others make the argument that physicians in the US have longer or more expensive training than other professions and that justifies their increased salaries.  Analyses show, though, that this cannot completely compensate for the difference.

    Let me be clear.  Maybe you can justify the higher salaries of US physicians compared not only to physicians in other countries but also to other US workers.  But you can’t deny those higher salaries exist.

    The salaries of nurses are not nearly as inflated in the United States.  In 2006 they were, on average, 1.5 times GDP, not much different from the 1.1 times GDP seen in other countries.

    What’s  different is how we use our nurses.  Regulations in the United States often force higher staffing ratios than found in other countries, meaning that we use more nurses per patient than other countries do.  Maybe this is worth it, maybe it isn’t.  But it’s another added expense.

    I will say this at the end of every one of these pieces.  None of this proves that this money is wasted or fraudently taken.  Nor am I saying that we shouldn’t spend more money than other countries.   But this is money that goes above what you’d expect us to spend based on our greater wealth.  We should at least be able to account for and explain this increased spending in some way.

    You’ll note this pie chart is different from the ones that preceded it.  This is because the cost of health care workers is part of inpatient and outpatient costs, which have already been described.  I just thought you should see their relative amounts in some way.

    UPDATE: Edited for clarity.

    Comments closed
    • Possible type in 5th paragraph, where you wrote:

      It means they made more compared to the rest of US citizens than physicians do compared to the physicians in other countries.

      “…compared to the citizens in other countries.” ?

      And, a comment… if “real” tort reform is such a big deal to some, and its bottom line impact is to reduce what a doctor has to pay in malpractice insurance… gosh, that sure looks like a small component of overall costs that we pay above and beyond what you might expect for our wealth… unless there is irrefutable evidence that docs would actually order less outpatient tests/procedures if they could be reassured there wasn’t a jury massing to scold them.


    • Dale,

      Corrected the language. Thanks. As for malpractice, it’s coming later in the week.

    • I’ve read some of these studies before but, as someone intimately familiar with physician reimbursement I’d really love to see the data broken down in a few different subcategories as there is wild fluctuation between:

      physicians in smaller cities/private practice – specialists
      physicians in smaller cities/private practice – PCP’s
      physicians in larger cities/private practice – specialists
      physicians in larger cities/private practice – PCP’s
      physicians in academic hospitals

      (also another subcategory for most of the above for pediatrics; who are paid less across the board for most subspecialties)

      physicians with the exact same level of training could vary in salary by close to $200K depending on which market they chose to enter.

      Sure we pay some physicians a lot; but the mode is maybe more appropriate a value to study; or physician reimbursement should be broken down by those categories to really get a handle on this.

      I think this would reveal that private practice overpays and academic centers underpay. Academic centers entice those physicians interested in acuity and lesser-seen conditions (and often, those interested in living in bigger cities) and salary is the trade-off.

    • ThomasEN,

      I’m sure you’re correct. That’s why, in general, I don’t like huge broad-brush (ie “easy”) ways to fix problems. I’m sure not all physicians are “overpaid” by the same amount, and I’m not advocating that we, say, drop all salaries by a certain percentage.

      Nonetheless, the overall story is compelling and shouldn’t be ignored.

    • Do you think health reform will specifically affect the pay for any physicians? Obviously we have incentives for primary care now but what about reductions? I ask because I’ve been asked this and I have a few theories though somewhat half-formed:

      1. I think radiologists and anyone who benefits from advanced imaging tests might see a cut in pay. Medpac will probably (I assume) reduce reimbursement or somehow tighten controls on advanced imaging so I’d imagine that those changes will trickle down to radiologists.

      2. I think, maybe, the HIE’s might cut back redundant tests for those wandering between various ER’s (thinking of cath lab time and imaging) though I’m not sure it’d be enough to affect pay. It could help empty ER’s or speed up ER turnaround, but that seems like a ways off.

      3. CER might lead to things like fewer catheter angiographies when an angiogram will do, but, again, not sure it will affect pay.

    • A perception of risk from torts may be a factor, but most notable is the high cost of education, which is frequently impacted by issues like accreditation and research costs, but also simply the ability of universities to make a profit and use it to fund other areas of the university.

      We are stuck in an upwards spiral for salaries.

    • You brush over the point of education debt in a cursory manner. “Analyses show, though, that this cannot completely compensate for the difference.” Where is this analysis? My colleagues in Germany don’t make as much, but they don’t enter practice with $200,000 in loan debt either. When you adjust for interest over many years and deduct that from salary, how does that affect your results?

      Another thing to consider is salary ratios to other skilled professions like law and banking. There is an eternal tug of war among these 3 professions in the war for talent, and I suspect that they settle at a healthy ratio that should hold across national borders. If physicians are being overpaid relative to other countries, that only means lawyers and bankers are likewise overpaid. The higher salary is just a way of enticing people into th profession.

    • I too, would like to see the adjustment for cost of physician education. Also, I would argue that pediatricians are to be sorted with generalists, not specialists (unless they have a sub-specialty…). Fascinating series, so far!

    • There’s also malpractice insurance, which is higher than other countries, if other countries need it at all. Between that, education debt and the attraction of other highly paid professions in the US, higher doctor’s salaries make a lot of sense.

    • I’m always amazed at people’s reaction to this.

      I just don’t have time today, but I will throw up some data over the weekend showing that you really can’t explain this away with the cost of education. And, malpractice insurance is a business expense, not part of salary. That’s not the reason either.

    • It looks like Luxembourg is having a big effect on where the regression line lies in the graph. Can you show us what happens if you fit the national data excluding Luxembourg?

    • I think you’ve missed other tort and insurance factors too, that also compound the costs.

      An example is the simple duplex AC outlets on the wall in any operating room or other hospital room that portable electronic equipment, or health monitoring equipment plugs into. Those outlets can cost $10 to $20 each for a medical facility, plus huge installation costs, but if I buy one for my kitchen, with the same exact ratings, I can get one for more than 90% less.

      Same with almost every device, service, appliance, accessory, paper towel, light bulb, floor wax, air freshener, or anything else in a health care facility, just because they need protection from crazy lawsuits and HUGE insurance policies just to stay in business, as do all doctors and nurses BTW. The only difference in the product is the crazy amount of insurance carried on it.

      So, much of our outrageous insurance payments actually go to pay for other insurance policies in the case of a claim.

      That’s bootstrapping at it’s most excellent prime example, and the insurance industry is having drunken pool orgy at the expense of We The People.

      I don’t think your pie charts accounted for that at all.



    • We cannot reduce physician salaries unless the physician shortage problem is solved. This is the only profession where the person graduating at the bottom of the class is still entitled to a 200K+ salary lifelong without any risk of layoffs!

      To obtain a medical license, one must pass the USMLE steps 1,2 and 3 exams AND complete 1 year of residency in the US or Canada. US medical students complete the USMLE 3 examination at the end of their first year residency. The physician controlled organizations such as the AMA and state licensing boards have maintained the medical monopoly by restricting the number of residency positions to about 22K per year. Refer to the NIRMP match statistics
      http://www.medfriends.org/match_statistics/2007%20NRMP%20Match%20Advanced%20Data%20Tables.pdf and

      The limits on residency positions works as a barrier to increasing the supply of doctors. We don’t restrict the number of people qualifying as lawyers, scientists or engineers, hence there is no justification for limiting the supply of doctors.

      Our health care reform must increase the number of residency positions, or allow the first year (or more) residency to be completed in a foreign country. This is not such a dramatic step after all. Just as we validate foreign medical degrees using USMLE 1 & 2 exams, we would be validating the first year of foreign medical residency training using the USMLE 3 examination. Perhaps we only permit foreign residency training in primary care wherein huge shortages are anticipated.

      Residency programs are partially funded by Medicare and cuts to Medicare have led to elimination of some residency programs in the past. The proposed solution requires no financial outlays from Medicare, federal, state governments or the US teaching hospitals and it should be easy to implement in the short term. The teaching hospitals associated with the accredited foreign medical schools can be approved for imparting the residency training. It is pure hubris to assume that the residency training can only be imparted by the US teaching hospitals.

      We also have a shortage of medical colleges in the US, however it is possible to graduate from a foreign medical school and complete all the three USMLE examinations. A number of our talented and motivated citizens are currently not pursuing the foreign medical school route as they are unsure of securing the required one year residency position. The uncertainty in residency availability results in foreign citizen doctors obtaining nearly 3000 of the 22,000 first year residency positions, eventually resulting in the loss of high paying physician jobs to foreign citizen doctors. Recognition of the first year residency overseas will motivate our citizens to study at medical colleges overseas and qualify as physicians eligible to practice in the US.

    • Note that medical education in the US is absurdly expensive. When I was in school 20 years ago, my tuition was $7500/year. Now, even state schools charge $25,000/year, and new docs are coming out with >>$100,000 in debt. They can’t afford to enter any but the most lucrative specialties and settings. They will fight tooth and nail to keep the status quo (at least til their loans are paid off).

      Additionally, malpractice insurance can cost >$100,000/year for specialists in some markets.

      If we want to significantly reduce the cost of medical care, we need to increase government support of medical education, and enact some kind of meaningful tort reform.

    • Agreed on medical supplies.

    • Did you account for the fact that in some socialized countries, like the UK, most physicians receive a government pension, while most physicians in the US do not? UK physicians can currently retire at an age of 60 with a $230,000 first year separation payment and a $75,000 per year pension.

      Also, as mentioned above, physicians in the US have significant educational expenses compared to physicians in socialized countries, who often receive free education.

      In socialized countries, are the sponsored educational costs and government pension costs to health care providers included when calculating total healthcare costs. I bet not. They should be when making comparisons to the US.

    • I read with interest that the US has higher nurse to patient ratios than other nations. I am an RN, and I have understood that the rationale for this is that our inpatients are much sicker than they used to be, and possibly sicker than inpatients in other nations. We keep them for a briefer period of time. We save them from conditions which were recently universally deadly, including sepsis, ARDS, freshwater drowning, massive MI, pulmonary embolism, severe birth defects, and so on. I would be interested to know if the data supports my belief about the higher acuity of illness in US hospitals compared to others. I do know that our staffing ratios, however high they may be compared to other nations, are low enough to put patients at increased risk of adverse outcomes. Whatever the articles say, I see this every day in mistakes and oversights caused by inadequate staffing.

      This recent review of the literature from the Annals of Internal Medicine takes a conservative approach to describing the relationship of nurse staffing to patient mortality: http://annals.org/article.aspx?articleID=1656445/article.aspx?articleID=1656445