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More Examples of Why Health Care Costs Are High

By June 1, 2023Commentary

A couple of quick pieces of research on my core policy interest–health care spending, utilization, costs and treatment advances.  In the first the Employee Benefits Research Institute puts out a paper that buttresses other data showing that there is big difference in the price charged for a service depending on the location of the service–specifically a doctor’s office versus a hospital outpatient center.   The example used was specialty drugs and on average hospital outpatient centers charged 75% more than a doctor’s office for the same drug and administration.  And the share of patients treated in these much more expensive locations rose to over 60%, which is more bad news for payers.  The difference can vary significantly by state, depending on policies.  Medicare and Medicaid need to lead the way to stop paying hospital outpatients more than doctor’s offices.  The savings across the system would be tens of billions of dollars.  (EBRI Brief)

The Medical Group Management Association represents large physician groups and regularly publishes compensation information.  Physician compensation drives a lot of health care costs.  Doctors experience inflation and expect their compensation to at least keep pace and according to the report, it isn’t.  The current report measured changes from 2021 to 2022.  In this period primary care doctors total compensation rose 4.41% to an average of $300,000, surgical specialists compensation rose 2.54% to around $520,000, other specialists grew by 2.36% to $415,000 and nurse practitioners and physician assistants increased by 3.7% to around $115,000, while the general inflation as measured by CPI was up 6.5%.  So you can see that physicians and other clinicians will perceive they are falling behind and will need bigger increases, although they are clearly all very highly paid, far more highly than in other developed countries.

Practices have a number of issues, including intense and expensive regulatory requirements.  But the number one issue facing medical groups is staffing.  When it is hard to find employees you typically have to pay more for them, leading to an increase in costs for the group, which can dent doctor pay.  Independent physician practices reported higher productivity than did hospital-associated ones, likely due to more bureaucracy at hospitals.  A good trend is that primary care doctor pay is increasing faster than specialist compensation.  As the system focuses on the value of good primary care, it is important to incentivize doctors to do primary care.  Although there is a lot of talk about paying for quality, just under half of medical practices include quality measures in their compensation plans for physicians.  (MGMA)

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