A Revolutionary Idea: Bringing Private Enterprise to Medicine
During World War, an American woman pediatrician served in the U.S. Navy. She met an Admiral, and the two fell in love and married. After the War, he went into business, where he was extremely successful. The woman had children and served as a stay-at-home mom. However, she did keep her medical license, updating her skills.
Her children began to grow up, and she decided she'd like to practice medicine part-time. So, she started serving children, mainly those in her own relatively isolated neighborhood. Because her husband was engaged in getting very rich, she didn't need more money, so she didn't charge for office visits. Basically, she invented truly free care.
The local medical association was appalled. What did the pediatrician have in mind with charging nothing for her services? How dare she do such a thing? She wasn't really stealing customers -- well, at least not many -- from other doctors, but her price structure -- that is, no price -- received a great deal of criticism from her peers. The critics didn't demand that she charge a "going rate," but they did strongly request that she charge something.
Finally, she gave in. For the rest of her medical career, she charged a fee of one dollar. Frankly, her husband was rich enough, powerful enough, and supportive enough that she could get away with something few doctors would even attempt.
What does a doctor's visit -- just a normal visit to have some basic tests (blood pressure, pulse rate, chest activity, etc.) cost? Although there are a few exceptions, in the Pittsburgh area it costs right around $75. Isn't there some significant variation in that price? Not really -- if you're paying cash.
If you have insurance, private or through Medicare or Medicaid, the rates will be somewhat lower.
If you don't have insurance, can you shop around for a lower price? Possibly you can, but apparently few people do. As you may never have noticed, physicians don't advertise their prices. Oh, and they don't really advertise their services.
In other words, you probably pay a set price for an uncertain amount of care.
But aren't there some young and hungry -- or even old and hungry -- doctors charging, say, $60.00, or even $50.00? If so, I've never heard of them. At the same time, many physicians are "not taking any more Medicaid or Medicare patients," because they don't want to settle for lower fees.
In some places, especially those with few physicians, it's hard to get an appointment with a doctor. If you ask for an appointment in August, you might get one before Thanksgiving. In such areas, when people get sick -- or think they might be -- the tendency is to go to a hospital emergency room.
In economics, there's something called "the price elasticity of demand." It means that price brings supply into balance with demand. We saw that happen in recent years with gasoline.
However, in medicine, the supply of doctors is controlled by the AMA, medical schools, and state regulatory boards. They really aren't making more medical schools, even where universities like Robert Morris (Pittsburgh area) would like to, because the start-up costs are so high.
In western PA, there are several dozen college and universities. But there's only one medical school, at the University of Pittsburgh. It gets many good applicants, but it accepts only a tiny fraction. We have less chance of getting another medical school than we do of grabbing a Super Bowl game.
The U.S. population is growing rapidly, especially when one considers the influx of immigrants. At the same time, the supply of doctors is growing hardly at all. In some specialties, such as OB/GYN, many sections of the country confront a shortage. Other factors, such as the high cost of medical malpractice insurance, are inclining many doctors to "elect early retirement."
It's a situation where the cost of a visit to the doctor is going to continue rising. You can reduce the number of people seeking to visit the doctor by raising his or her prices.
Are doctors underpaid, as some of them assert? Also, what does a patient get for the $75.00?
The doctors are not underpaid in any rational sense of that term. As Jaynie C. Smith notes in Creating Competitive Advantage, "The average primary-care doctor [what we used to call a family physician] makes $153,000 [2005 figures] a year."
What about the time you get from the average doctor on the average visit? For your $75.00, you get 10.6 minutes of The Great Man's (or Great Woman's) time. That computes to almost $425.00 an hour, not bad money if you can get it.
Yes, doctors aren't always going to have 5 1/2 patients every hour of an 8-hour day. And yes, they do have expenses, such as office rent, receptionists, and nurses. But a doctor that's not netting $250-$350 an hour isn't trying very hard. How many of their patients make those kind of numnbers? Two percent? Five percent in Beverly Hills or Fox Chapel?
Some doctors -- primary-care people -- are making a lot more than $153,000 a year. Jaynie Smith talks about a new franchise approach called MDVIP, with the emphasis perhaps on V-I-P.
Doctors in MDVIP have fewer patients, and see them for longer periods -- approximately 30 minutes per visit. They offer some bells and whistles, including same-day or next-day appointments, an annual comprehensive physicial, and physician availability 24X7.
For these augmented services, a patient pays an additional $1500.00 annually. As Smith explains, "Insurance or Medicare typically covers additional medical bills, other than the annual wellness exam."
To my skeptical eye, it's a case of paying a lot for a little extra service. However, it's a wonderful deal for doctors lucky enough to get access to the MDVIP money-machine.
The average doctor in it see fewer than the half the patients treated by a non-MDVIP physician. The average income for a doctor in this program? $400,000-plus annually. Lamborghini, anyone?
MDVIP does something that would once have seemed impossible: to raise significantly the already Brobdinagian costs of American health care. (Note: Of course it shouldn't be outlawed -- just made fun of as I've done.)
At its worst, this effort is an exercise in back-to-the-future. It may mark the return of a phrase that has alsmost disappeared from the lexicon: "bedside manner.' Most of the extra 18.4 minutes patients get per vist for their additional $1500.00 seems to consist of hand-holding ("wellness planning" and the like)
The U.S. needs more doctors, a lot more. It needs to lower -- not raise to stratospheric levels -- the average compensation of physicians. For basic care, it needs to make much more use of Physician Assistants, people with more training than nurses, but less than doctors.
In other words, it's necessary to introduce America's physicians to the private enterprise system, the one that governs the behavior and the prices of those of us who don't have M.D. licenses.
Very few professionals in America make as much money as the average family doctor. But that's largely because, unlike the situation with doctors, there aren't major restrictions on entry into their professions.
If, say, a college professor has a MDVIP-level income of $400,000 a year, he or she is not "average." In fact, such a person is probably in line for a Nobel Prize.
The U.S. will never control health care costs -- and never be able to provide care to many of those who need it most -- if we don't face these issues.
There are wonderful family doctors in America. I've mentioned two of them in Bridgeville, PA (MacFarland and Chiesa) and three in Ambridge, PA (Osten, Craig, and Karp), and they deserve to be very well paid. (Although since they're in Bridgeville and Ambridge, I have a sense money is not their primary concern.)
Yet the fact remains: the average doctor is, well, average. They shouldn't be paid in the top 1%-2% or so of American wage-earners. After all, with few exceptions, it isn't brain surgery.