A couple of Wall Street Journal articles of interest.

First, an article about consolidation in the health care industry:

Unlike Medicare and Medicaid, private reimbursement rates are determined by negotiations, often highly antagonistic. Insurers always attribute premium increases to the underlying cost of care, while doctors and hospitals always argue that there isn’t enough competition among health plans. Both claims are “true,” some of the time—but it depends on which side has more market power.

Insurers extract lower rates by steering patients and revenue to certain providers through their networks. Providers gain bargaining leverage when health plans can’t credibly threaten to exclude them, whether because their share of the market is too large or due to public demand for “must have” hospitals. Consolidation will increasingly feed off itself as providers and insurers vie to get the whip hand in rate negotiations.

Most neutral experts believe the balance of power has tipped toward providers over the last decade, though this isn’t always anticompetitive. Higher rates generally reflect investments in staffing, technology, specialization and sometimes consumer preferences. There is also the cost-shift to private insurance to offset Medicare’s price controls. However, most economic studies on hospital M&A over the last two decades show that consolidation increases unit prices, though there is significant disagreement over the magnitude.

If most neutral experts believe it, it’s probably true. A few factors are worth noting. If providers have increased leverage, it’s due in part because they’ve had to make sacrifices to get it. As the article copiously notes, consolidation in the health care industry is increasing. The local hospital bought up a number of the local doc practices and Clancy is an employee in the hospital. The job she interviewed in Gemini Falls was also part of a large, multi-practice group. Autonomy used to be one of the big plusses when it came to doctors but it’s no longer worth it. It’s sort of like an invading army forcing a local medieval town into the castle. Yeah, they residents have got the high ground, but only because they left where they want to be.

And I have to take this moment to point out that physician wages have, despite the leverage, been stagnant*. So where is this extra money going? I would guess it’s as the article said: infrastructure improvements. Probably increased administrative staffs, too. Clancy’s employer is building a new hospital, for instance (but they’ve also forced an essential wage-cut amongst at least some of the doctors). Another area of concern is that a lot of these infrastructure improvements can be geared towards things that will ultimately increase the costs of health care in the long run. Buying new machines that will perform expensive tests and the like**. Once you have these machines, you want to use them! So care and testing will probably become more aggressive and, hence, more expensive. There’s not much good to be said about the doctor shortage in this country, but in some ways it probably is keeping health care expenses down. You might pay doctors more than you otherwise would, but there are fewer doctors performing aggressive and ultimately unnecessary treatment***.

Also, did Medicare kill the family doctor?

Eventually, that disconnect (and subsequent program expansions) resulted in significant strain on the federal budget. In 1966, the House Ways and Means Committee estimated that by 1990 the Medicare budget would quadruple to $12 billion from $3 billion. In fact, by 1990 it was $107 billion.

To fix the cost problem, Medicare in 1992 began using the “resource based relative value system” (RBRVS), a way of evaluating doctors based on factors such as education, effort and specialized training. But the system didn’t consider factors such as outcomes, quality of service, severity or demand.

Today most insurance companies use the Medicare RBRVS because it is perceived as objective. As a result of RBRVS, specialists—especially those who perform a lot of procedures—do extremely well. Primary-care doctors do not.

The primary-care doctor has become a piece-rate worker focused on the volume of patients seen every day. As Medicare and insurers focused on trimming the costs of the most common procedures, the income and job satisfaction of primary-care doctors eroded.

If you wonder why it’s so hard to get much of a doctor’s time, this accounts for a lot of it. As mentioned before, doctorly pay has been stagnant. This is due to the fact that doctors have made up for what would be substantial losses by seeing patients in much more rapid succession. Due to the general nature of their work, there can simultaneously be a shortage in primary care (both in absolute terms and relative to specialists) and primary care physicians can be seen as “a dime a dozen” when it comes to negotiation. The result is fewer and fewer doctors going into primary care and more and more specialists which end up limiting what primary care physicians can do (for instance, Clancy can only perform cesarean sections because there are no obstetricians in town to object) which ends up making it so that primary care physicians get to do less of the things that might provide job satisfaction and pay boosts.

Specialization doesn’t have to be a bad thing, but at the very least you need a more complete “front line” to screen patients and refer them to specialists. This is an area where having mid-level providers may be more of a help. Or importing more doctors. I am skeptical of the notion that having more primary care docs (or docs in general) will lower health care costs without other substantive change, but it could help the front line problem. The only alternative to the supply-side is the demand-side, and it’s difficult to ask patience to triage themselves, determine that they don’t need care after all, or to seek the cheapest available option when their copay is the same no matter what they do.

One idea I have been toying around with is shifting more of the primary care to the government or insurance companies and let them worry about containing costs. I am not sure how much I trust the government to contain costs and I’m not sure how much I trust insurance companies to give patients a fair shake.

* – This isn’t a complaint. Doctors are still very well paid.

** – I don’t have any information on whether any of this is going on at Clancy’s hospital. But it’s an industry-wide issue.

*** – Some of this may be in the form of doctorly profiteering, but that’s not even what I am referring to here. Tests can be unnecessary but still be beneficial. Think of it like taking medicine to get over a cold two days earlier than you otherwise would have. It’s not necessary, but it’s nice. It’s nice, but it ultimately costs the system money. One of the peculiarities of the health care industry is that the two primary decision-makers, doctors and patients, often have little incentive to consider costs of treatment. Those whose job it is to consider costs, insurance companies and the government, face really bad publicity by stepping in and stopping payment on what a doctor thinks would be beneficial and a patient wants on the grounds that the substantial cost outweigh the smaller but potentially very real benefits.