Monday, March 29, 2010

The $64 Billion Physician Cartel Got a Free Ride

1. According to a 2007 study by McKinsey Global Institute: "U.S. physicians are more highly paid than their counterparts in other developed countries. U.S. generalists make 4.1 times per capita GDP, compared with 2.8 times per capita GDP in other OECD countries. Across all U.S. physicians, higher earnings add $64 billion in costs to the U.S. system."

2. "How has the American Medical Association managed to get away with such princely remuneration that ordinary mortals in other professions—even ones such as law and engineering that also require arduous training—can only dream of? After all, in a functioning market, a profession offering such handsome returns would become a magnet for more people who, over time, would bid down "excess" wages.

But that's not how it has worked in medicine since 1910 when the Flexner report, commissioned by the AMA, declared that a surplus of substandard medical schools in the country were producing a surplus of substandard doctors. The AMA convinced lawmakers to shut down "deficient" medical schools, drastically paring back the supply of doctors almost 30 percent over 30 years. Few new medical schools have been allowed to open since the 1980s.

Shikha Dalmia

3. There are 131 medical schools in the U.S. (
data here), which is 21% fewer than the number of medical schools 100 years ago (166 medical schools, source), even though the U.S. population has increased by 300%.

By restricting the supply of medical schools and physicians, the AMA has "
enforced cartel-like restrictions on entry that benefit physicians at the expense of consumers, and which have created significant barriers to effective, cost efficient health care."

4. Here's one recent example of the "AMA Cartel's" attempt to restrict competition:

NASHVILLE -- St. Jude Children's Research Hospital won unanimous state legislative approval to bring foreign-trained physicians onto its Memphis staff without the one- to three-year U.S. medical residencies required for a Tennessee medical license.

The bill won 97-0 approval in the House Thursday and it passed the Senate 33-0. Although it won unanimous approval, the Board of Medical Examiners voted in January to voice its opposition, out of concern it will open the door for other institutions to seek exemptions.

"While the board acknowledges and fully appreciates the wonderful work done at St. Jude, we are gravely concerned about the precedent-setting nature of the bill and thus unanimously oppose it. It is the board's view that should this well-intentioned legislation become law, it would open the door for any institution whose physicians cannot otherwise qualify for licensure ... (to) seek legislation that would create similar special licensure," the examiners' letter said.

5. And the AMA Cartel doesn't just want to restrict the supply of physicians, it also wants to restrict competition from other health care providers, like retail health clinics. For example:

MedPage Today -- Retail clinics first came on the scene in the middle of the last decade, and there are now some 1,200 of them operating in 32 states, according to the Convenient Care Association, a retail clinic trade association founded in 2006.

Not surprisingly, retail clinics have been targeted nearly from their inception by physician organizations, which charge that the clinics disrupt continuity of care and provide lower-quality care than physicians' offices or hospitals. In a 2006 policy statement, the American Academy of Pediatrics (AAP) said flatly, "The AAP opposes [retail clinics] as an appropriate source of medical care for infants, children, and adolescents and strongly discourages their use, because the AAP is committed to the medical home model."

Another example: "Midwifery, once a robust industry in this country, has been virtually destroyed, thanks to the intense lobbying against it by the medical industry. In 1995, 36 states restricted or outright banned midwifery, even though studies have found that it delivers equally safe care at far lower prices than standard hospital births."

MP: The $64 billion estimate of higher health care costs resulting from excessive physician compensation in the U.S. is just part of the story. The AMA's aggressive turf-protection against competition from retail clinics, midwives, pharmacists, and chiropractors have added additional medical costs that go way beyond just the $64 billion. In all of the discussions about health care costs and health care reform over the last year, the cartel power of physicians and their excessive compensation was barely mentioned.


At 3/29/2010 9:21 PM, Blogger Bruce Hall said...

This comment has been removed by the author.

At 3/29/2010 9:25 PM, Blogger Bruce Hall said...

Subtract the liability insurance from the income in all of the countries and then what is the comparison?

Are you comparing family doctors to family doctors? Heart surgeons to heart surgeons? And then there is the nasty "mix" issue.

Finally, what are the mortality rates versus the income levels of the patients?

It seems more like a case of fruit salad than comparing apples to apples. The question really is whether we'd have more doctors or more qualified doctors. Or don't any of the students fail medical school which then argues for more schools.

Still, if you are really confident that doctors from third world countries are equivalent to U.S. trained doctors, maybe we can see if the UM medical system can get together with the UM business school of consultants and re-form the UM medical system.


Consider the effect of physician assistants which are becoming ubiquitous. They work under the physician's supervision and certainly leverage the knowledge and skills of medical school more efficiently and cheaply than adding more expensive doctors.

At 3/29/2010 10:08 PM, Anonymous Lyle said...

Agreed that we probably have over skilled physicians for a lot of what they do. In particular as we move to checklist oriented medicine where procedures are centrally dictated. Recall that 50 years ago most "family doctors" did not go thru a long residency, which they do now. One bright spot is the emergency of hospitalists, who treat only in hospitals, implying that outpatient physicians don't need to know as much about in hospital procedures, and can concentrate on outpatient issues.
Another Item is of course the house mortgage equivalent size of debt most carry upon graduation from medical school, in other countries the state pays so there is no debt to pay off.

At 3/30/2010 1:53 AM, Anonymous Asia Competitiveness Forum said...

competitiveness = productivity = prosperity.

Competitiveness is basically a measure of productivity, that is, returns per rupee invested. GDP is a measure of productivity as it reflects prosperity of the state. Factors that determine or affect the same have been taken into consideration to capture the idea of competitiveness...

IFC, TCI, Harvard Business Publishing, CII and ICAI present the Asia Competitiveness Forum at The Hilton, New Delhi | Apr 28-29, 2010. 75 speakers-500 Delegates: 6 chief ministers, 6 young parliamentarians, CEO’s and Academia from across the world.

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At 3/30/2010 3:21 AM, Anonymous Dave Pinsen said...

"Still, if you are really confident that doctors from third world countries are equivalent to U.S. trained doctors..."

The obvious solution would be to limit the acceptance of foreign physicians to those trained in countries with high quality medical care and education. Even if we only imported physicians from first world countries, we'd be able to increase the supply of physicians here and lower our medical costs.

That said, your concern about the education of third world physicians raises a question: what about third world educated engineers? There are plenty of them working in the U.S., and lives are often at stake when engineers work as well.

At 3/30/2010 10:54 AM, Anonymous Anonymous said...

How about the costs associated with the tenured staff cabals at institutions of higher learning? WOW! Talk about FREE RIDES!!!

At 3/30/2010 3:48 PM, Anonymous Anonymous said...

Open the US gates to all doctors who want to come. They can pass an exam to get a license like every other doctor. Then leave them alone to either get a job OR start their own clinics accepting cash or insurance or whatever.
Supply and demand in everything is the most efficient solution.

At 3/30/2010 4:43 PM, Anonymous Anonymous said...

If we subsidized medical schools like we subsidize real estate, we'd be drowning in doctors....

At 3/30/2010 7:50 PM, Blogger bix1951 said...

thanks for bringing this up.
I am tired of hearing that the problem is insurance companies when it is obviously the entire medical establishment

At 3/30/2010 9:38 PM, Anonymous Anonymous said...

Medical care is very expensive in the US because the consumer does not pay the cost directly. It is not a free market system. Tell me though, if you are going to spend $2.3 trillion, is $0.064 trillion too much to pay for the doctors who make the most important decisions in the system? What percentage of the pie should the doctors get who go into debt for 4 years of medical school and 3-8 years of residency and fellowship training? It makes sense to have financial rewards for important jobs. Very few doctors belong to the AMA and opening dozens of new medical schools is just fine with many doctors.

At 3/30/2010 9:50 PM, Blogger Mark J. Perry said...


The $64 billion is NOT the total compensation paid to physicians, it is the EXCESS COMPENSATION due to the excessively high salaries here compared to Europe/OECD, etc.

Or, if U.S. physicians were compensated similar to other advanced countries, we would SAVE $64 billion.

At 3/31/2010 7:35 AM, Anonymous Anonymous said...

How about the excessively high tuition costs med students have to pay to insure the excessively high salaries of the tenured staff cabals???

They do have a moral obligation to pay off those loans...don't they professor?

How do you justify your salary, Professor Perry?

At 3/31/2010 7:51 AM, Anonymous Anonymous said...

81% increase in salary over 5 years isn't a bad deal should lighten up on the Docs!


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