Doctors and Money - This Little Piggy Goes to Market

Photo by **Maurice**

Let's go to Market! What would happen to doctor payments if the free market was allowed to work? Let's begin.

A few postulates about the public:

1. The public has absolutely no clue how much their own doctor gets paid
2. The public has no clue how much the average doctor gets paid
3. The public has no clue how much even the wealthiest doctors make.

A few postulates about doctors:

1. Doctors have no clue how much the doctor across town is making ( or how much their patients make for their jobs)
2. Doctors have no clue what their services are actually worth in a free market
3. Doctors have no clue what their worth is as compared to other professions

But wait, there's more...

1. The public thinks that doctors are grossly overpaid.
2. Doctors think they are grossly underpaid.

Now let's look at cost:

1. The public has no idea how much it costs to support and run a medical office
2. The public has no idea of the cost of training a doctor
3. The public has no idea of the amount of time their own doctor spends treating patients

Of course, the other side:

1. Doctors are not the most savvy businessmen and have no idea how to efficiently run a service company
2. Doctors think the world owes them forever for the financial and personal sacrifice they made to go to medical school
3. Doctors think that they are entitled to a huge amount of money for every service they do with the patient.

I hope that at least some of the above completely annoys both patients and doctors. The patients reading this will be saying to themselves that I am wrong about the things I say about the public perceptions of doctors and the doctors will say I am totally on drugs (a charge often made on this site after one reads what I write. Some may even call me a traitor. I am none of those, but I'm not afraid to air the dirty laundry, either.)

The Experiment

by BeeldenZeggenMeer

If the public think doctors are pigs let's send the piggies to market and see what we are worth. BTW, I think pigs are pretty cute, very smart, and quite tasty.

At least the last time I looked, the United States was a free democracy that allowed capitalism to thrive. Every kid can grow up to be President, and that the free market rules in business. The law of supply and demand. The more people that want your service, the more you will get paid. If no one can afford your service, you will be forced to lower the price of your service. The free market. It actually works. It may explain why a majority of people in this country sleep in beds rather than caves.

To look carefully at this issue I devised the following thought experiment. I actually did real research for this article. I talked to other people. Colleagues, friends, and patients. This is how is all went.

Here are the assumptions I made:

I invented a sample practice based on real numbers after interviewing a number of colleagues in the practice of Orthopaedic Surgery. This model is based on Orthopaedic Surgery because it is the world I know. I kind of like to write on something I at least know something about. The conclusions drawn from this informal study probably applies to all medical practices, but you make your own decision on that.

Based on real information this is what our "WebMD - Get a Medical Life" practice looks like:

1. The practice has three surgeons
2. The gross revenue collected from patient fees is 3.6 million dollars
3. The overhead of the practice which includes everything except salaries is 60% of revenue (believe me this is a real number!). In actual dollars for our thought experiment this is 2.16 million dollars
4. Each doctor works an average of 70 hours a week, not including being available for phone calls or visits to the emergency room on off-hours every other day = another real number.
5. The practice is in a community where there is a normal mix of insurance companies and Medicare.
6. The practice is on the panel of every insurance company that exists in their area. This goes by other common terms: The doctor accepts the patient's insurance, the doctor is par with the insurance... I think you get it.
7. Each surgeon in this busy practice sees an average of 4,000 office visits a year. This is a lot of visits. Needless to say, they probably don't spend a ton of time with each patient.
8. The practice philosophy is based on excellent surgery, commitment to proper diagnosis and treatment, and making money, which is why this group chooses to work longer hours and see more patients.
9. The group is a respected group in its community from the point of view of patient satisfaction and the perception that if you need surgery this is a group to have it with. A "Go To" group.
10. In the town next to this group is a group from a prestigious university clinic that chooses to accept no insurance. They charge what they consider the rates they feel they are deserved. For the purposes of this thought experiment, assume that the quality of the surgery and the diagnosis and treatment as compared to our hypothetical practice are completely equal.
11. One major procedure that this group does is a hip replacement. They do a full range of Orthopaedic procedures, though.
12. The surgeon you go to is Dr. SmithJones. You are going for a hip replacement.

Here is the experiment -- a survey which I want all of you to take. Answer the questions in order. At the end of the question group are the real answers and then we let the sparks fly.

Questions:

1. How much to you think Dr. SmithJones receives from Medicare/HMO to perform a total hip replacement? This fee includes the pre-operative evaluation and ninety (90) days of post-operative care rolled into a single fee.
2. Dr. SmithJones has another surgeon there as a first assistant (assume this is a required and important role). How much does the assistant surgeon, Dr. Surgical Assistant, receive to assist a total hip replacement?
3. Dr. SmithJones has an assistant, Dr. Patient Assistant, who shares in daily visits to the patients every other day. How much does Dr. Patient Assistant receive for this service each time he visits the patient?

(Theme from Jeopardy... Da da da da da da da, da da da da DA da da da da da, da da da da da da da, da da da da da da da.)

Write your answers on a paper. No cheating, now!

Here are the results of my straw poll when I asked a bunch of people the answers to this question. See if your answers compare to what the people I asked told me what they thought. Compare what you wrote to what people I asked told me. They probably are quite similar.

1. In answer to the question: How much do you think Dr. SmithJones actually receives for the surgery? One person came in with the lowest number at $3,000.00. The next lowest was $5,000.00. The majority had numbers ranging from $8,000.00 to $12,000.00.
2. In answer to the question: How much do you think Dr. Surgical Assistant receives for assisting in the surgery? The numbers ranged from $500.00 to $2,000.00
3. In answer to the question: How much do you think Dr. Patient Assistant gets for seeing the patient in the hospital after the surgery (per day/per visit). The numbers ranged from $50.00 to $150.00.

Okay. Now answer the following multiple choice questions.

I will give you an answer (not necessarily the real answer) to the above questions. You answer each with one of the following choices:

1. That amount is too little
2. That amount is too much
3. That amount is just right

Answer the following three questions:

1. Dr. SmithJones received $3,000.00 from Medicare/HMOs to perform a total hip replacement. This fee includes the pre-operative evaluation and ninety (90) days of post-operative care rolled into a single fee.
   1. That amount is too little
   2. That amount is too much
   3. That amount is just right
   
   
2. 2. Dr. Surgical Assistant receives $500.00 to assist in the hip replacement surgery.
1. That amount is too little
2. That amount is too much
3. That amount is just right


3. Dr. Patient Assistant receives $50.00 for each day he visits the patient in the hospital after surgery.
1. That amount is too little
2. That amount is too much
3. That amount is just right

Write your answers down. I will give you some time.

Da da da da da da da, da da da da DA da da da da da, da da da da da da da, da da da da da da da. Repeat once. Extra credit fill-in: I am singing the ??????? Theme?

Based on what you wrote and what I supplied you from my survey, you have an idea of not only what the public perceives what Dr. SmithJones gets for the hip replacement but also, based on the lowest amount mentioned on the first survey you learned whether you thought this was too low, high, or just right. Pretty good information. Remember, this is the free market in action.

One last question and then we put it all together.

Make the following assumption: There is some type of insurance plan that pays 100% for the hospital, hospital physicians like anesthesiologists and pathologists, equipment, blood transfusions and all other institutional type services (often as high as $25,000.00). You, therefore, pay none of these pills under the DRK Universal Health Plan (DRK- Doctor K). You are, though, responsible to pay only for the doctor's fee (like you may pay for a plumber, for example).

Answer the following questions:

1. I need to pay Dr. SmithJones $3,000.00 for the hip replacement. I can pay in a single payment or over a one-year period at 0% interest. This would work out to $250.00/month for 12 months. The payments are fully tax-deductible.
   1. I think this is fair and reasonable and I would pay this.
   2. I think this is too high for this service.
2. I need to pay Dr. Surgical Assistant $500.00 for his role in assisting Dr. SmithJones for the hip replacement. I can pay this in a single payment or over a one year period at 0% interest. This would work out to $41.67/month for 12 months. The payments are fully tax-deductible.
   1. I think this is fair and reasonable and I would pay this.
   2. I think this is too high for this service.
3. I need to pay Dr. Patient Assistant $150.00 ($50.00/day for three days) for his role in seeing me in the hospital after the surgery. I can pay this in a single payment or over a one year period at 0% interest This would work out to $12.50/month for 12 months. The payments are fully tax-deductible.
   1. I think this is fair and reasonable and I would pay this.
   2. I think this is too high for this service.

When I conducted the survey, a near 100% answered section 2 either that the made up numbers (for example $3000.00 for the hip replacement) was either "Just Right" or "Low." No one thought the amount was too much. Needless to say, considering one does not get a hip replacement often, the yearly pay-off of this reasonable fee seemed to all an interesting and realistic idea.

What are the real numbers?

Doctor Procedure Minimum - Acceptable Free-Market Fee - Actual reimbursement

• Dr. SmithJones Total Hip Replacement $3000.00 - $1347.86 - 42%
• Dr. Surgical Assistant Assisting Surgery 500.00 - $183.31 - 37%
• Dr. Patient Assistant 3 days of post-op visits $150.00 - $00.00 - 0%

The current reimbursement going to this group of 3 surgeons is severely and artificially depressed as compared to lowest the free market would accept to pay. Based on the lowest the public would be willing to pay a doctor for services, doctors are receiving less than 50%.

What happened to the free market?

After all, there are few industries in which people choose to work where the salaries are artificially depressed to below-market rates.

Keep in mind that doctors are not a single group of workers. Each doctor or doctor group is an independent business so medicine as an industry cannot be viewed as though the doctors are employed by others. If that was the case, then doctors would legally be allowed to unionize and act in concert in negotiations with insurance companies. Currently, even this is illegal.

It is illegal for physicians to collectively bargain or organize as any single group because the government views them as separate businesses organizing to influence the market and this is considered against antitrust statutes. It is amazing that the government uses one law that tries to assure free trade and protect a fair market while the same law actually prevents competition with the insurance companies and inhibits the free market!

The artificial depression and selective destruction of free markets in medicine continues in medical programs like Medicare. Many patients are unaware of the gross inconsistency of Medicare regulations as compared with regulations in other industries. For example, if a physician chooses to be part of the Medicare program, that physician cannot charge higher than allowable Medicare rates. That, of course, I believe, is fair. If you choose to be part of a program then you need to accept the provisions.

Did you know, though, that if a physician chooses NOT to be part of the Medicare program, the physician is legally not allowed to charge the more than the allowable Medicare rate? This means that when Bill Gates turns 65 and has Medicare for insurance the doctor can only charge him 15% above the allowable $33.10 for that follow-up visit for his high blood pressure visit.

When did we give the government permission to dictate the amount of money a person in private business is allowed to charge? Are there national dry cleaner rates for people over 65? Are there national designer clothing rates that a department store must charge? The only industry I know of that does anything close to this are gas and electric utilities.

Medicine is not a public utility -- yet. Whether it becomes one is neither the issue nor scope of this entry. This issue is that in when physicians pay vendors for services such as supplies and employee wages, they live in the free market. When it comes to reimbursement, current government programs coupled with the inconsistent regulation of the industry prevents doctors from living in a free market.

Here's what a true free market would be like: Dr. SmithJones would earn anywhere from twice to six times what he currently earns. The reason for the large range is because if the reimbursement will be increased and expenses will remain fixed.

Once Dr. SmithJones starts getting paid even the lowest market rate he will probably stop trying to squeeze in 100 patients a day in the office, spend more time with each patient. This will lower the raw number of patients he sees and possibly improve patient satisfaction and treatment which is yet another benefit of following the free market.

Is the fair-market price too high or too low?

Wrong question. This is the real life answer representing the free market for services rendered. The free market does not lie. The free market is not emotional. Is $25,000 too high or too low for a new car? Also wrong question - the cost is based on the free market. The rest of the country functions on free market principles; your business probably does as well. Pharmaceutical companies and insurance certainly do. If the doctor went to market, the numbers presented show what he would get.

Health care in the United States is reimbursed at below-bargain basement rates. In businesses in this country where you pay bargain basement prices you get bargain basement quality and service. It is only through the ethical nature and dedication of a majority of doctors in this country, who choose to practice blind to the reimbursement and treat individual patients equally and fairly, that this does not happen and medical delivery remains of the highest quality.

Unlike a piggy going to market, doctors are lambs to the slaughter of the business and political agendas at work in this country.

I will see you later; I have an errand to run. I am definitely going to the market...how about you?

QED

Next installment: This Piggy Stayed Home- What happens to the future of health care when the best and the brightest choose not to go into health care but into corporate Wall Street type jobs?

Related Topics:

• Survey Picks Top 41 Hospitals in the US
• Health Care: 20% Spending in 2016

Technorati Tags: health care, doctors, money, medicare

Doctors, Money, Salaries, and Similar Unspoken Topics

This little piggy went to market.
This little piggy stayed home.
This little piggy had roast beef.
This little piggy had none.
This little piggy cried "Wee! Wee! Wee!" all the way home.

I sat here listening to the Fourth movement of Beethoven's 9th Symphony in attempt to see if I can muster the energy to even start this highly charged topic. It didn't help but the music is great anyway. Probably more inspiration from Eminem on the topic of doctors and money..

There is probably no topic I know of that brings more spirited discussion than the payment of doctors. I tried to figure this out. It seems, first of all that insurance companies are really not people, they are nameless and faceless companies. At least a doctor is someone you can actually touch (even though we are God-like :-))

I know no better way to understand the complex economics of doctor reimbursement than the statistically significant analysis using the above nursery rhyme.

This is the first blog entry in the series The Piggy and Medical Reimbursement. The five parts are:

1. This Piggy Went to Market: What doctors would make of market forces-determined doctor payment


2. This Piggy Stayed Home: The consequences to medicine when talented men and women choose not to go into medicine due to financial and lifestyle problems in the profession.


3. This Piggy Had Roast Beef: The private world of high-priced fee-for service medicine with "doctors to the stars" and others who charge huge fees for even the simplest procedure.


4. This Piggy Had None: The problems of practices going out of business or being forced to join large impersonal medical groups that supply cookbook medicine because they economically can't make it in this environment or simply leave a town leaving it without medical care.


5. This Piggy Cried "Wee! Wee! Wee!" All the Way Home: Recommendations for a health care payment system that properly rewards doctors for doing the right thing for patients that makes us all happy.

Related Topics:

• Doctors and Money: The Rising Cost of Cancer Care
• U.S. Health Care: Pay More, Get Less?

Technorati Tags: health care, reform, doctors, medical costs