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Cost Control in France

T.R. Reid's "The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care" is, at base, a tour of the world's leading medical systems. There's a chapter on France, and on Japan, and on Germany, and on Britain, and on Canada. And Reid, to his credit, does not hide from the hard realization of his reporting: A less expensive health-care system is a health-care system with less money in it. You cannot seriously cut costs while maintaining profits for every industry player and salaries for every health-care practitioner. The chapter on the French medical system explains this quite clearly:

It's hard to imagine any private general practitioner in the United States charging just $27 for an office visit, or any specialist willing to settle for $34 for a normal consultation. Most of the fixed prices set by the health ministry amount to one third, and sometimes one quarter, of what the same treatment would cost in the United States. Not surprisingly, the cut-rate prices are reflected in doctors' cut-rate incomes. Dr. Bonnaud said he works about sixty hours per week (although he does take the standard five weeks of vacation per year), and his net income has been about 40,000 Euros ($52,000) per annum...That's roughly the average income for French general practitioner...the average French doctor is making about a quarter of what his counterparts in the United States would earn.

This year's health-care reform effort has explicitly been based on the principle that individuals will not lose what they have. But it has been implicitly based on the principle that industries will not lose what they make. There have been some deals around the edges -- cutting Medicare Advantage, say, or saving $80 billion from Pharma -- but the reason those were voluntary deals was that they weren't particularly onerous for the industry players, particularly with the influx of new customers that might accompany health-care reform.

This is very good politics. Indeed, the relative quiet from the health-care industry is an impressive achievement, and one of the central reasons to be optimistic about health-care reform right now. But it's also a reason that we're not bending the curve. Spending less money on health care means changing either the number of people who make their living providing health-care services or changing the amount of money they make.

By Ezra Klein  |  July 27, 2009; 4:34 PM ET
Categories:  Health Economics , Health of Nations  
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Yet if we are to reduce the income of doctors by such substantial levels we would also have to heavily subsidize medical schools. Otherwise it would be impossible to pay off a 150,000 - 200,000 dollar debt that many young doctors accumulate.

Posted by: Guildsman | July 27, 2009 4:51 PM | Report abuse

While I agree with the qualitative idea expressed in Reid's example, it's not quite the doctor working hard and earning what $50k in the US means. He's making quite a bit more than the median french worker, and since general equilibrium effects and societal standing tends to be based more on relative income, that matters. Also, my understanding is that GPs used to earn a lot more in France 20 years ago, when you control for inflation. General practioners' inflation-adjusted pay has gone down quite a bit.

Posted by: GrandArch | July 27, 2009 4:52 PM | Report abuse

This is the elephant in the room. Only in the U.S. is the medical profession a privileged class, with high end incomes. It's why most doctors are in the profession. They get rich that way. Until that gets confronted, we are nowhere. I suspect we will deal with this by outsourcing primary care to P.A.s and NHPs increasingly.

Posted by: cmpnwtr | July 27, 2009 4:58 PM | Report abuse

Once you are ready to talk about greatly expanding the nurse practitioner system in the US then I will believe you are serious about bending the curve on healthcare. We have the best nurses in the world- we should be leveraging that into giving exceptional preventative care to our citizens.

Posted by: spotatl | July 27, 2009 5:06 PM | Report abuse

Has anyone done a study on how the drug price disparities impact the total spending by countries?

For example, let's assume that all countries that purchase drugs from US manufacturers paid an identical rate such that the manufacturers bring in the same amount of money. If my understanding is correct, that would be result in drops in the US prices and increases elsewhere.

I wonder how far that would go in closing the cost gaps between health care expenditures. It would be interesting to see the numbers on that.

Posted by: SteveCA1 | July 27, 2009 5:29 PM | Report abuse

Do you want doctors motivated to take care of people or to make money?

This comparison of incomes lacks context. Guildsman is correct: medical education in France is subsidized - in fact, like most higher education, it is free to the student. This way your prospects aren't limited by your parent's income. But the student has to prove ability and motivation, passing the competitive exams to get into the leading schools. It's called a meritocracy, in French terms egalite' and fraternite'.

So French doctors aren't paying back huge college loans out of their earnings. Having a less letigious culture, they haven't the same burden of malpractice. Also, they get to be their own bosses. They don't have to join large practices or provider networks to get access to patients with health insurance. They don't have to track and manage the forms and requirements of a dozen different insurers, so they can focus on patient care.

Hospitals are state-run and owned. I'm told they are somewhat drab and utilitarian - none of the expensive room ammenities profit-oriented hospitals add to attract customers. No CEOs and boards expecting hundreds of thousands in compensation each year. Fewer frills, lower costs.

The French system has continual problems with maintaining solvency; the contradictory pressures of expanding care versus restricting costs is simply part of health care at whatever level it is organized and managed. There are no panaceas. But it is an viable alternative to the systems of Canada and Britain, preserving physician independence and the patient-doctor relationship. As such, it is closer to the American model or ideal. I've always been surprised it is not more widely discussed.

Posted by: j2hess | July 27, 2009 6:08 PM | Report abuse

Just a few points of follow-up:

SteveCA1: There are a few studies out there. Try a MedLine search. The problem is that the drug mix is somewhat different, so it's hard to compare differences. France (and most of the world, I believe) has lower average prices.

j2hess: Your points are prescient. I would add a simple correction that not all hospitals are state-run: they have private non-profits and religious charity hospitals. The private hospitals all pretty much accept rates and reimbursement from Assurance Maladie. Cliniques are different, in that they're smaller hospitals where you pay substantial sums out of pocket (sometimes a little less if you have a really good secondary insurance). I also disagree that they're all drab and utilitarian - the older ones certainly, but the same is true in the US. Newer wings - for example L'hopital St Louis in the 11eme, which is renowned for its cancer department, was one of the prettiest and most state-of-art hospitals I've seen. But, the French system certainly has issues of solvency.

And it's only recently that coverage has been fully extended to those who have no link to the working population (neither unemployed in the past several years nor married/dependents). Similarly, the extent of coverage on dental work is pretty bad and has only recently been extended to that same population.

Posted by: GrandArch | July 27, 2009 6:38 PM | Report abuse

French incomes in all fields are substantially less than the the U.S. In addition, French medical personnel get a huge tax break. While the average French citizen pays 40% of his income for sécurité sociale, French docs get 2/3 of that tax rebated, which gives them an effective income that is substantially higher. The French are the outliers in western Europe which is why Ezra likes to compare French physician income to U.S. income rather than, oh, say Dutch physician income.

The OECD's data on physician income:

Posted by: J_Bean | July 27, 2009 6:52 PM | Report abuse

There are good arguments for changing doctors’ incomes in the US, or at least for re-arranging incomes to improve incomes for primary care at the expense of specialties.

However, it is important to realize that in the big picture doctors’ personal net incomes account for only about 7-8% of health care costs. Doctors are paid about 20% of health care spending, but that payment then goes to pay overhead items, including real estate costs, employee costs including billing employees or services, equipment costs, malpractice premiums, and so on. These average 55-65% of doctors’ collections.

In fact, the personal income of doctors amounts to only about 16 months of health care cost inflation, so reducing doctors’ incomes to zero would be canceled out in less than two years.

What doctors’ do that effects health care costs in a much bigger way is what they ORDER for their patients. Doctors control an overwhelming part of health care costs, and there is good evidence that we are not doing a good job of it.

There are good estimates showing that between one third and one half of US health costs – over $800 billion a year – goes to pay for procedures and costs that are ineffective, no more effective than much cheaper alternatives, or downright harmful. There are many high quality US studies showing that this is true in many areas of medicine, and European studies make the case even more dramatically. The article about heart care in the Ezra’s Tab Dump for today highlights just one area of medical care where tens of billions are wasted each year, and there are dozens of others.

The reasons for this are complex, but the solution is obvious: the payment system, both private and public must be changed to encourage better, more effective, and more efficient care. That is the goal Obama is getting at with the IMAC proposal.

If we do not want health care to be priced out of the reach of the US middle class and working class as well as the reasonable reach of taxpayer financed programs, this issue must be addressed before it is too late. Changes involving doctors’ incomes, malpractice reforms, drug prices, Medicare Advantage, insurance overhead, and so on are all valuable, but the big pot of gold is here, and anyone who understands health care as an issue knows that. We need to watch the donut, not the hole.

Posted by: PatS2 | July 27, 2009 7:20 PM | Report abuse

Great comments in this thread.

JBean-- you've linked to this report a few times. While it does provide an assessment that this situation for US docs isn't as bad as suggested here, it does suggest that modest cuts of 5-10% for PCPs and slightly more for specialists are in order. More importantly, better practice management, moving away from the physician-owner concept, would accrue significantly more savings. As a whole, physician services cost $700 billion annually. This is gross, before expenses which are frequently sub-scale in most practices which are solo or a few providers. Altogether, 50-100 billion in annual savings from both physician income level to peer OECD countries and practice synergies is feasible.

SteveCA1-- the best numbers I've seen suggest a $60 billion cross-Atlantic transfer from differences in drug prices. Meaning, if we had similar systems in place, we'd save $30B and they'd pay $30B more, keep overall expenditures the same.

On Ezra's general point, I'd soften it a bit. There is a difference between "cost-savings" and "bending the curve." The current curve suggests health care, across most subsectors to be a high growth area of the future. Bending the curve mostly impacts the rate of growth-- i.e. taking income from future health professionals or profits not yet realized in industry. Cost-savings, on the other hand, impacts today's practitioners and companies. That's why the latter isn't even on the table. Bending the cost curve is much less of a political challenge.

Posted by: wisewon | July 27, 2009 7:39 PM | Report abuse

wisewon - Drug prices are not a zero sum game. Drug companies spend about $100 Billion a year on marketing which serves two purposes. One is to get us to ask for drugs we do not need, and the other is to get physicians to prescribe new expensive drugs even in cases where older cheaper drugs are more effective. We would be better off without such marketing which includes not only the odius ads we see everywhere (Canada is the only other country that allows advertising of prescription drugs), but also the pushers who haunt doctors' offices and payments to physicians for marketing purposes. If we got rid of such marketing, we could lower drug prices in the US by a third and save the wasted $100 Billion a year.

Posted by: lensch | July 27, 2009 8:55 PM | Report abuse

While there would be some savings in making medical education free and then lowering the income of physicians, as pointed out above this would not be huge and would be extremely hard to do as it will be strongly resisted by physicians. The wonderful reforms to medical practice a la Mayo et al will also be resisted.

The low hanging fruit is the $400 Billion a year we waste on the high overhead and high physician and patient compliance costs of for profit insurance companies. Combined withe the $100 Billion a year from drug company marketing, we would have $500 Billion to extend Medicare to everyone and to begin to get physicians to change medical practice.

Posted by: lensch | July 27, 2009 9:15 PM | Report abuse

The question is a simple one- why does some treatment cost $1000? The answer is simple, because some party, I is willing to pay some provider P $1000 for X on behalf of consumer C. If provider P2 is willing to offer the service for $800, the consumer C would ordinarily be expected to choose provider P2. However, since consumer C is simply paying a flat fee to party I, or getting care for free from party I, they have no reason to choose provider P2. So P2 decides to charge $1000 too.

Consumers normally shop around to find the best value. Third party payer kills the health care market by removing any incentive to do that. There are two ways around this. One is to pay poor people in health stamps. It seems to work well for food, which is even more critical to life than visits to the psychiatrist. The other way is to go the VA route and expand government hospitals. You get the typical cost controls of the government there, and you can keep salaries on the GS scale.

We don't have enough money for Medicare as it is. That was the original health crisis. Why don't we kick the rich out of Medicare?

Posted by: staticvars | July 28, 2009 12:08 AM | Report abuse

So, let me understand this. U.S. provider income is going down slowly while total health care costs climb rather rapidly and that is because providers order too many tests and procedures because that allows them to make a lot of money. Um, I'm just not getting the connection. I'm slow.

Posted by: J_Bean | July 28, 2009 2:08 AM | Report abuse

Here is Uwe Reinhardt on the economic sustainability of Medicare:

"If "economic sustainability," then exactly what do people have in mind with that phrase? During the past 4 decades or so, the long-run, smoothed average annual growth rate in real (inflation-adjusted) GDP per capita has been about 2%. Suppose that fell to only 1.5% for the next four decades. The current average real GDP per capita of about $40,000 would then grow to about $72,500 by 2050 in constant-dollar terms. Medicare now absorbs about 3% of GDP, leaving a non-Medicare real per capita GDP of $38,800. It was estimated by the CBO about a year ago that Medicare will absorb about 9% of GDP by 2050. Let’s make that 10%. At these numbers, the non-Medicare real GDP per capita available to today’s little critters who will run America in 2050 will still be close to 70% larger than is our current non-Medicare GDP per capita."

Posted by: lensch | July 28, 2009 7:19 AM | Report abuse

I think that people who invest six figures on their education deserve to make more than $52,000 a year. I WANT my physician to be someone who is bright and well compensated for the hard work of treating patients. It's not rote work - it's not simple work - not just anyone can do it.

Physicians save lives. In a culture that pays bankers astronomical fees to rip people off, we should at least pay docs well for saving lives.

On the other hand, I think docs should be paid a salary, not "fee-for-service," which translates into "fee-for-ordering-tests." Which leaves them scrambling around, checking off whatever box that could possibly apply on the invoice to the insurance company, in the hopes of covering expenses and salaries in the office.

If you look at ANY EOB your insurance company sends you, you'll realize that costs for tests and treatment are ephemeral numbers, determined for God knows what reason, discounted to "prove" to the consumer that they're getting such a deal.

Posted by: anne3 | July 28, 2009 7:23 AM | Report abuse

It shouldn't take 10 years of school to do primary care. Expand the Nurse Practitioner program and let the routine stuff be taken care of by someone who is trained to just take care of the routine stuff and recognize when it needs to be referred to someone with more expertise. THe nurses in this country are an incredible asset that we do not fully take advantage of because of the AMA's desire to limit competition.

Posted by: spotatl | July 28, 2009 7:30 AM | Report abuse

anne3, doctors do not make money from ordering tests. Testing companies do. Doctors make money from providing treatment. Spending on tests costs the consumers and the system money but doesn't pad the bottom line of the doctors.

One can argue that the fee-for-service model incentivizes doctors *overtreat*-- making more money on opting for a surgical procedure that could be treated with drugs -- but the incentives for overtesting are usually malpractice-related.

Also: primary care does not take 10 years of training. Family Practice and Internal Medicine residencies are 3-4 years after med school. And even then: anyone who's shown up at a hospital for treatment gets treated by a low-cost resident.

Wow, though: $52,000 as a doctor-- I made more than that as a young software developer. And I got stock options. I know nurse practitioners and physician's assistants who make double that. $52,000 is what the surgical tech makes, who needs 2 years of training (no college required). As other people have pointed out, of course, France is an outlier in that they have unusually low salaries compared to other western countries.

Posted by: tyromania | July 28, 2009 8:43 AM | Report abuse

"I think that people who invest six figures on their education deserve to make more than $52,000 a year."

The problem's at the front end of that equation. No-one begrudges physicians a very comfortable salary; there are questions at the side about the influence of tuition debt on specializations, given the disparity. And as Atul Gawande notes, the moment you pay that first tuition bill at med school, you're starting to think about the role of money in your career.

The postgraduate med school dates to the start of the 20th century, when qualifications were much less strict. It might be time for the US to look at the British training model that begins at the undergraduate level, and work towards transforming the existing pre-med undergraduate degree into something closer to the pre-clinical element of a 5 or 6-year course.

Posted by: pseudonymousinnc | July 28, 2009 12:22 PM | Report abuse

"It might be time for the US to look at the British training model that begins at the undergraduate level, and work towards transforming the existing pre-med undergraduate degree into something closer to the pre-clinical element of a 5 or 6-year course."

Uhh newsflash guy. The UK medical training system is LONGER than the USA. It takes on average about 3-5 years longer to become an attending physician relative to the united states.

Posted by: platon201 | July 28, 2009 8:22 PM | Report abuse

"It shouldn't take 10 years of school to do primary care. Expand the Nurse Practitioner program and let the routine stuff be taken care of by someone who is trained to just take care of the routine stuff and recognize when it needs to be referred to someone with more expertise. THe nurses in this country are an incredible asset that we do not fully take advantage of because of the AMA's desire to limit competition."

Studies have shown that nurse practitioners dont lower costs because the total number of providers in those networks goes up. In other words, NPs arent replacing doctors, even in states where they are allowed to work solo with no doctor oversight (which already happens in over 20 states). It turns out that NPs make more money working for doctors than they get working for themselves. Opening up your own clinic as a Nurse Practitioner means you pay sky high malpractice premiums. In states that allow 100% independent NP practice, less than 1% choose the solo route.

Adding more PAs and NPs = more total people billing Medicare.

Another thing you forget is that NPs and PAs make DOUBLE the money working in specialties like neurosurgery compared to primary care. Imagine that, NPs and PAs are running as far away from primary care as they can, just like the MDs. It turns out they would rather work in subspecialties and make more money.

Posted by: platon201 | July 28, 2009 8:27 PM | Report abuse

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