Specialist Salaries Come Under Scrutiny, But There is No Easy Answer to Reduce Costs

A New York Times article published this weekend takes aim at the increase in specialist salaries in the United States, suggesting the increasing pay specialists receive contributes to the high healthcare costs facing our nation.

According to the article, written by Elisabeth Rosenthal:

"The incomes of dermatologists, gastroenterologists and oncologists rose 50 percent or more between 1995 and 2012, even when adjusted for inflation, while those for primary care physicians rose only 10 percent and lag far behind, since insurers pay far less for traditional doctoring tasks like listening for a heart murmur or prescribing the right antibiotic."

The report also takes on the income gap among primary care physicians and specialists:

"Specialists earn an average of two and often four times as much as primary care physicians in the United States, a differential that far surpasses that in all other developed countries, according to Miriam Laugesen, a professor at Columbia University’s Mailman School of Public Health. That earnings gap has deleterious effects: Only an estimated 25 percent of new physicians end up in primary care, at the very time that health policy experts say front-line doctors are badly needed, according to Dr. Christine Sinsky, an Iowa internist who studies physician satisfaction."

The article takes aim at the high cost of what it argues are relatively simple procedures, and it certainly brings attention to some of the forces that influence how medical services are priced. For example, something as simple as a lesion removal becomes costly, when you must factor in the services of a dermatologist, who has undergone years of advanced training to identify and treat complex skin conditions; the anesthesiologist, who likewise has undergone years of advanced training; and the facility fee, which if the facility is a hospital is priced to help absorb the costs of operating an emergency room and other advanced services.

I don't think anyone would argue specialists shouldn't be paid more than PCPs — they go through longer training in order to treat more complex conditions, and should be compensated for that. However, is a three- or four-fold income gap, over a 30 to 40 year career, commensurate with an extra three to five years of training?

If not — which is the camp I lean toward — how can healthcare services be priced more appropriately?
The quick response is to point to capitated payments, but Paul Levy, former CEO of Beth Israel Deaconess Medical Center in Boston, wrote on his blog in response to theTimes article, that capitated payments aren't a cure-all. According to Mr. Levy:

"You see, even under a capitated system of care, someone has to decide how to pay the various kinds of doctors within a health care system for their work.  That internal transfer pricing is what matters most, not some global payment that the provider organization collects per month per patient. To calculate the physicians' compensation, most organizations use a fee schedule based in some way on the Medicare fee schedule."

And how is the fee schedule determined? By a panel of physicians, among which primary care providers make up just 12 percent.

One physician interviewed for the Times article explained being part of the American Medical Association's Relative Value Scale Update Committee as '"Everybody sits around a table and tries to strip money away from another specialty… It’s like '26 sharks in a tank with nothing to eat but each other.'"

In his post, Mr. Levy quotes Tom Scully, former CMS administrator, who has called the decision to put the RVU committee under the purview of the AMA "one of the biggest mistakes we made."

Capitated payments can work, but distributions to physicians must be determined in a way that benefits primary care providers without under-paying specialists for the additional investment they make to provide more complex care. As Mr. Levy explains:

"Unless that allocation is skewed heavily towards primary care doctors, decisions about the level of care given will not change. But, if the allocation is skewed too heavily towards the PCPs, there is no real income signal for the specialists, leading to a danger that they will not feel invested in the end result. Unless the system is accompanied by intensive, real-time reporting, along with clear penalties for excessive care, it will not work."

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