The Mythical Primary Care Doctor Shortage

I’m a little leery about proclamations in the media about shortages. Shortages occur when supply cannot keep up with demand, and in a free market true shortages are brief. Remember the Wii shortages a few years back? People were snapping the video games up and selling for a tidy profit on eBay. But the shortage lasted only a few weeks. After Christmas 2006 Nintendo had produced enough to meet demand and now one can find the console just about anywhere, often for a discount.

In a free market anything that is experiencing a shortage becomes more expensive because demand outstrips supply. Ask Debeers. They control an entire industry by keeping supply below demand. As individuals try to get am item experiencing a shortage, they are willing to pay more for it. Others do the same, and the price rises. A shortage only ends when the supply outstrips demand: either the supply is increased or the demand is decreased. Oil at $140/barrel won’t last because oil substitutes like ethanol and oil-from-shale become viable at that price point. They siphon off demand for oil which then leads to an overhang of supply. The scramble by buyers to pay more than others becomes a scramble by sellers to sell for less than other sellers, and the price falls.

Although labor is not a commodity like oil, gold or bushels of corn, it is subject to free market principles. In autumn 2001 in the depths of the 9-11 Recession, a lobbyist group for the tech industry convinced Congress that there was a labor shortage in IT workers. They did this to encourage Congress to allow in foreign workers on the H-1b visa. Because visa stipulations made it difficult to switch jobs while on the H-1b, employers were able to hire foreign workers at a fraction of Americans.

Since the Internet Bubble burst in 2000, IT salaries were declining naturally because there were fewer positions open for qualified candidates. In addition many technical staff had gotten into IT to meet the demand for the Y2K Bug and had lost their jobs after the work dried up in early 2000. Add in the offshoring boom which further decreased the number of open positions, and you have a “perfect storm” that changed the IT sector in the United States forever. IT salaries have yet to stabilize and won’t until the number of people leaving the field outnumber those entering it on visas or through graduation from CompSci programs. The IT industry got what it wanted: an underpaid overqualified labor pool.

We are hearing the same drumbeat of shortages when it comes to Primary Care Physicians. “Experts warn there won’t be enough doctors to treat the millions of people newly insured under the law. At current graduation and training rates, the nation could face a shortage of as many as 150,000 doctors in the next 15 years, according to the Association of American Medical Colleges,” an article in the Wall Street Journal reports. Yet in the same paper, former Clinton Labor Secretary Robert Reich reports “Among those with jobs, more and more have accepted lower pay and benefits as a condition for keeping them. Or they have lost higher-paying jobs and are now in new ones that pay less. Or new hires are paid far lower wages than the old.” Interestingly, Reich was one who accurately predicted the collapse in tech wages and the danger posed by labor importation as early as 1995.

Allied Physicians, a doctor placement firm, lists average salaries for doctors by specialty. After residency training is complete, Family Practice primary care physicians without obstetrics earn the second lowest of the salaries surveyed. Even when obstetrics is included, the bump in pay does not match the skyrocketing malpractice claims which can drive up premiums from an average of $6000 a year to $64,000 or more. Add in the average medical school debt of $156,000 and one can see why doctors are voting with their feet to move from low paying, high malpractice insurance coverage specialties to high paying relatively low cost malpractice insurance specialties.

So where is the shortage in primary care physicians if their salaries are so low? If demand for their service outstrips supply, prices should rise, right? Based on the salaries, there is no primary care doctor shortage. Pumping out more med school graduates or worse, importing physicians from abroad by relaxing training standards, will simply force more primary care physicians into other specialties faster. It will not expand the pool of primary care physicians.

If primary care physicians are so important, they should be paid better. That means increasing Medicare and Medicaid reimbursements for primary care physicians to match those of the better paying specialties. Since private insurance follows Medicare’s lead, and reimbursement rates are set by Congress, then the solution lays with our elected representatives.

Unfortunately for doctors, they don’t have the same pull as the unions or the ABA, so the mythical shortage may become a reality unless they take action. Or start visiting SEIU union halls for their health care.

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7 Comments

  1. Vanessa:

    This issue goes beyond doctors. It impacts a wide array of professions across the entire health care industry. Julian Alssid with the Workforce Strategy Center wrote a piece in Huffington about the problem and what can be done to address it…

    http://www.huffingtonpost.com/julian-l-alssid/finding-a-cure-for-the-he_b_503774.html

  2. Watcher of Weasels » Watcher Council Nominations April 14, 2010:

    [...]  The Razor - The Mythical Primary Care Physician Shortage [...]

  3. Watcher of Weasels » The Council has Spoken 041610:

    [...] Third place t with 1 2/3 votes – The Razor - The Mythical Primary Care Physician Shortage [...]

  4. Bookworm Room » Watcher’s council’s winners, both last week and this week:

    [...] Third place t with 1 2/3 votes – The Razor - The Mythical Primary Care Physician Shortage [...]

  5. Gregory Wlodarski:

    “...and reimbursement rates are set by Congress, then the solution lays with our elected representatives.”

    Actually the law states that Medicare must be budget neutral, ie have a balanced budget, a budget that is funded by a 2.9% flat tax (for employed person’s 1/2 is paid by the employee and 1/2 by the employer). Thus for the solution to be approached by “our elected representatives”, and reimbursement to be increased, there has to be an increase in the Medicare tax. All in favor, say aye!

  6. Layton Lang:

    .Your article is somewhat off base. First you are describing an industry that does not follow typical free- market cycles. This industry is heavily subsidized (Government 50%) by the government and private insurance companies. Second, the government has been steering financial incentives to primary care physicians in the form of higher payments. Many of the E/M billing codes , primary care physicians bill have experienced rate increases as opposed to specialty billing codes being reduced. Third, many of the physicians are not strapped with debt coming out of school because hospitals pay off their education obligations when they hire them (employment package).
    Moreover, I do agree with your comparison to the IT field. This is exactly what is happening in the medical industry today. The deficit of primary physician graduating from medical school is being corrected by foreign born- foreign trained physicians, use of mid-level providers, physicians learning to be increasingly productive in seeing more patients, and patients being treated in foreign markets through medical tourism. In sum, the healthcare field will continue to adapt to the changes in physician labor just like the IT sector did. All of the rhetoric about physician shortages is untrue. The basic issue is that the physicians are not geographically distributed across the country evenly.
    Consequently, in the urban markets, the surplus of physicians is so great, it is the number one reason the country is experiencing high healthcare inflation. Physicians competing for fewer patients cause them to over treat patients to increase net income margins per visit.

  7. Scott Kirwin:

    Layton

    You are correct that the industry does not follow typical free market cycles. There are three tiers of payment: Medicaid, Medicare and Private Pay (private insurance). According to this link, Medicaid reimbursement compared to Medicare varies from 36% in New York to 140% in Alaska for primary care. Medicare also determines what private insurers pay because insurance companies base physician payments on Medicare calculations (the resource based relative value scale (RVU)) using a base unit set by Congress. In effect Medicare sets reimbursement rates for both Medicaid and private insurance.

    This base unit has been criticized for favoring specialty procedures over primary care. While the proposed Affordable Care Act (known lovingly here as Obamacare) promises to increase Medicaid reimbursement rates up to Medicare rates, it does not specify changes to the RVU that favors specialty codes over primary health codes, nor does it rule out lowering Medicare payments to “lower the bar” to allow medicaid to reach parity. Since Obamacare promises to trim physician reimbursement (Medicare Part B) by $187 billion over the first 10 years, Medicare will be cut and I suspect the “bar lowered.” Obamacare sweetened the deal (although it didn’t have to – the AMA supported the legislation) by allowing temporary rate increases reimbursements to primary care physicians, but a 10% increase only means bumping New York to 40% of Medicare – and private payers still trump all.

    My Wife is a primary care physician in an area designated as HPSA. She has received a very generous debt repayment package by all standards. But this package is taxable and lasts for 5 years – roughly a third of the time it will take to pay off her loans. Debt repayment is not the same as debt forgiveness; the principle decreases with forgiveness – not so with repayment – so repayment is the norm. The only groups that provide debt forgiveness are the Indian Health Service and the US Military, and IHS opportunities are limited. Is the debt manageable? Perhaps but it does what debt always does: it limits options. My wife would like to volunteer her services for more than the 3 weeks vacation she gets per year, but cannot afford to due to the debt.

    I worry about the use of midlevels. I have heard stories of nurses making decisions about care and medications that would make a malpractice attorney salivate. 90% of the time the midlevels get away with it, but 10% of time an error is made and someone suffers. Of that 10% a only a tiny sliver becomes a malpractice case, but my guess is that the number of these cases will grow as health care providers push more work onto the shoulders of midlevels. Having received spaghetti code from India that took my team months to unscramble, eating the cost of the predicted savings of sending the code abroad and then some, I shiver when I consider what would happen if my son was treated by a lightly-trained RN or PA. No one is killed by bad code, but people die from bad medical decisions.

    The rest of what you say should work in theory – that the better compensation in health professional shortage areas should draw physicians away from the cities where the reimbursements are lower, but after 2 years here I can see that this is not the case. The main problem is that these HPSA areas have a higher Medicaid percentage than the urban areas, and physician practices have a higher Medicaid mix than their urban counterparts. Add in the fact that rural life isn’t desirable for most young people, and it will take pumping a lot more money into the system to encourage residents to pursue primary care in rural areas.

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