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News & Press: Government Affairs News

New Study Links Physician Salaries and High Healthcare Spending

Wednesday, March 14, 2018   (0 Comments)
Posted by: Bradley Coffey, MA, AAOE Government Affairs
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Chicago, IL - The Journal of the American Medical Association (JAMA) published an article  (log-in required) linking high health spending in the United States to the prices of labor and goods in the healthcare market.

Background: The study compared healthcare spending in the United States and 10 other "high-income" countries across seven domains related to healthcare spending. The goal of the study was to compare potential drivers of spending in the US with those of the United Kingdom, Canada, Germany, Australia, Japan, Sweden, France, the Netherlands, Switzerland, and Denmark.

Why it Matters: The study finds that historical understandings of cost drivers in the United States (namely, spending on social services and healthcare utilization) did not explain the high healthcare costs seen in the United States compared to other countries. Instead, the article argues, high spending is linked to the cost of labor (physician and nurse salaries), the cost of services (including pharmaceuticals and devices), and administrative costs (such as the costs of complying with increased government regulation).

The study implies that current efforts to reduce costs by reducing utilization through value-based payment models are unlikely to have a strong effect on overall spending unless a "concerted effort to reduce prices and administrative costs" is undertaken. While academic articles are unlikely to have an effect on current policies, this article could provide a boost to claims that further reforms of the healthcare landscape are necessary.

Talking Points:

  • The article attempts to compare spending in countries with very different healthcare systems. In single-payer systems, the government typically controls the number of providers in the system at any given time and actively works to set prices. The United States uses a market-based approach to reimbursing for the costs of medical goods and services making any comparison between the two systems specious.
  • The authors freely admit that data needed to show causality is not available and is a severe limitation of the study. Any conclusions made in this article should be made cautiously so as not to rule out other variables (such as the health of the population under study) that could be impacting healthcare spending.
  • The authors consider, but fail to factor it into their analysis, that the number of providers per 1,000 residents in the United States is comparatively low to the other countries in the study. The US has approximately 2.6 physicians per 1,000 residents whereas Germany has approximately 4.1/1,000 and Sweden has 4.2/1,000. The higher salaries paid to physicians in the US is the market's way of maintaining the supply of physicians whereas in Germany and Sweden, the market values physicians less because there is a greater supply per 1,000 people; therefore, the lower price paid to Swiss and German physicians is the market's way (either through the state or the principles of supply and demand) of limiting the supply of physicians. If the ratios were equal in Germany and the US, the per capita costs attributable to paying physicians would be almost identical ($263 per capita for specialists in the United States and $279 per capita in Germany).

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