• Do you want to be right, or do you want to be fiscally sound?

    So many people sent me this piece from the NYT yesterday:

    THOUGH the recent release of Medicare’s physician payments cast a spotlight on the millions of dollars paid to some specialists, there is a startling secret behind America’s health care hierarchy: Physicians, the most highly trained members in the industry’s work force, are on average right in the middle of the compensation pack.

    That is because the biggest bucks are currently earned not through the delivery of care, but from overseeing the business of medicine.

    The base pay of insurance executives, hospital executives and even hospital administrators often far outstrips doctors’ salaries, according to an analysis performed for The New York Times by Compdata Surveys: $584,000 on average for an insurance chief executive officer, $386,000 for a hospital C.E.O. and $237,000 for a hospital administrator, compared with $306,000 for a surgeon and $185,000 for a general doctor.

    Many of you sent this to me because you saw it as something of a “comeuppance”. You think I believe that doctors’ salaries are the cause of our enormously high health care spending.

    If I didn’t make myself entirely clear in this post, I don’t think that doctors’ salaries are at fault here. Let me say it again (emphasis mine):

    In 2006, physician salaries accounted for $138 billion in costs, which is nowhere near 56% of health care spending. Plus, some of that is to be expected. Calculations by McKinsey pegged “excess spending” on physician salary, or that which was above what you’d expect given the wealth of the US, at $64 billion.

    That’s not an insignificant amount of money. But it’s not the major cause of our over-spending on health care. Physicians make a lot of money, as I’m quick to point out, but that doesn’t mean it’s totally undeserved, or that it’s the rate limiting step in getting spending under control.

    I don’t think doctors necessarily make too much money. I do think that they make too much money to complain about their salaries to the general public so much, but that’s a totally different thing. As Uwe noted here, you could massively cut their salaries and not make things any better.

    This NYT article, to many of your delight, cast a harsh light on the massive compensation packages of those who oversee the “business of medicine“:

    And those numbers almost certainly understate the payment gap, since top executives frequently earn the bulk of their income in nonsalary compensation. In a deal that is not unusual in the industry, Mark T. Bertolini, the chief executive of Aetna, earned a salary of about $977,000 in 2012 but a total compensation package of over $36 million, the bulk of it from stocks vested and options he exercised that year. Likewise, Ronald J. Del Mauro, a former president of Barnabas Health, a midsize health system in New Jersey, earned a salary of just $28,000 in 2012, the year he retired, but total compensation of $21.7 million.

    You’re going to have a hard time finding anyone who will defend this. This level of compensation, paired alongside so many in the system being forced to do the same, if not more, with less, is very demoralizing. But it’s also a red herring.

    Add up all the compensation of all the executives, and I bet it will still be a tiny fraction of our $2.8 trillion in health care spending. Drop it all to zero, and we’ll still be spending a massive percentage of our GDP on health care, still more than any other country in the world. By far.

    It may feel good to try and blame the boogeyman. Be it big pharma, or the insurance companies, or the executives, or even the doctors – it may make us feel “right” to go after them. But it’s not going to make us happy. It’s not going to fix the problem of our out-of-control health care spending.

    The problem is much more holistic, and much more difficult to solve. Until we grasp that, it’s going to be hard to make things better.

    @aaronecarroll

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