Reflection Paper on these two chapters

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CHAPTER 5
THE PHYSICIAN LABOR MARKET

Bhattacharya, Hyde and Tu – Health Economics

Outline

  • The training of physicians
  • Medical school & residency
  • Returns to medical training
  • Work hours
  • Barriers to entry
  • Physician agency
  • Physician-induced demand
  • Discrimination

The training of physicians

Bhattacharya, Hyde and Tu – Health Economics

Medical school

  • Entry into med school is competitive and selective worldwide
  • In the US, average 50% of applicants are accepted into at least one school
  • Length of medical school varies across country
  • US & Canada applicants must first get a bachelor’s degree
  • European applicants go directly from high school
  • Medical school can be super-expensive
  • US: $140k -- $225k for four years
  • European medical training often heavily subsidized

Bhattacharya, Hyde and Tu – Health Economics

Residency

  • In addition to classroom work, physicians-in-training must also gain hospital experience
  • Residency is a period of on-the-job training following medical school

  • New residents lack experience, and when new residents arrive at a hospital, empirical evidence that medical errors go up
  • “July effect” in the US
  • “August killing season” in the UK

Bhattacharya, Hyde and Tu – Health Economics

Physician work-hours

  • Work hours
  • Over 60 hours a week
  • On call residents could work up to 30 consecutive hours

  • In 2003, implementation to limit number of hours/week for US doctors
  • No more than 80 hours a week
  • No change in patient mortality
  • Many residents still work over 80 hours a week, but report only 80 hours

Bhattacharya, Hyde and Tu – Health Economics

Work-hour tradeoffs

  • Longer work-hours
  • Fatigue may impair physicians’ cognitive abilities and in turn may affect patient health

  • Shorter work-hours
  • Requires more hand-offs by physicians and thus greater chance for error

  • Empirical question which effect dominates

Bhattacharya, Hyde and Tu – Health Economics

Shorter hours leads to fewer errors

  • Randomized experiment at Brigham and Woman’s ICU at Harvard (2004)
  • 2 groups: traditional hours (80 hours/week) & short work week (60 hours/week)

  • Traditional hour group
  • Committed 36% more serious medical errors
  • 21% more medication errors
  • 5.6 times more diagnostic errors
  • Senior physicians intercepted most serious errors

Returns to medical training

Bhattacharya, Hyde and Tu – Health Economics

Returns to medical training

  • Unlike most occupations, returns to medical training are very back-loaded
  • Medical school & residency expensive in direct costs and opportunity costs
  • So those who choose being physician are patient enough to value future returns

Bhattacharya, Hyde and Tu – Health Economics

Net present value

  • Net present value is a way of calculating value of all future streams of income (from today’s perspective)

  • Discount factor δ is a measure of how much less an individual values future income over present income
  • δ lies between 0 and 1; small if impatient and large if patient
  • Those with high δ have high NPV from being a physician
  • Those with low δ have low NPV (and maybe even negative NPV)

Bhattacharya, Hyde and Tu – Health Economics

Discount factor

  • Another way of expressing discount factor is:

  • Where r is the discount rate, analogous to the market interest rate that would make a person with discount factor δ indifferent between saving for tomorrow and spending today
  • Ex: δ = 0.90 corresponds with r = 0.11
  • Very patient have high discount factors δ and low discount rates r

δ = 1/(1+r)

Bhattacharya, Hyde and Tu – Health Economics

Internal rate of return (IRR)

  • Consider two possible career choices P and C with incomes paths Ip and Ic
  • Internal rate of return r* is the discount rate which equalizes the NPV of both careers (or the difference between NPV(p) – NPV(c) = 0 )

  • Someone with IRR of r* values career P and career C exactly equally

Bhattacharya, Hyde and Tu – Health Economics

Internal rate of return

  • IRR in medicine is typically between 11% and 14%!
  • Significantly higher than market interest rate
  • This is true for dentists and lawyers too
  • IRR may be even higher for medical specialists like neurosurgeons and immunologists

  • The fact that the IRR has stayed high is curious
  • Suggests that being a physician is highly lucrative
  • Why hasn’t that attracted more physicians, which would have pushed the IRR back down to market levels?

Bhattacharya, Hyde and Tu – Health Economics

Barriers to entry

Barriers to entry may explain the high IRR

  • In 19th century, becoming a doctor was simple
  • Anyone could do it, no regulation about training

  • American Medical Association (1847)
  • Pre-req’s for medical school
  • 4 years medical school
  • Require doctors to have a license to practice
  • 1910 Flexner Report helped shut down low-quality med schools

  • Result: less med schools and less med students

Bhattacharya, Hyde and Tu – Health Economics

More barriers to entry

  • Caps on medical school class size
  • Doctors need license to practice on their own
  • International med graduates
  • Long and arduous process to practice in the US
  • Nurses and Physician Assistants
  • Limited in scope of practice
  • Alternative medicine
  • Chiropractors, acupuncturists, etc. need licensure too

Bhattacharya, Hyde and Tu – Health Economics

Tradeoffs from barriers to entry

  • Because of barriers to entry, consumers have to pay above the competitive price
  • Physicians therefore earn monopoly rents
  • Def. wages above the competitive price due to artificial constraint of the market

  • Barriers to entry ensure that physicians are qualified

Physician agents

Bhattacharya, Hyde and Tu – Health Economics

Physicians as agents

  • Patients trust physicians to act as perfect agents for their health
  • Doctors’ foremost concern should be patients’ well-being
  • Not their own financial status or reputation

  • Are doctors always perfect agents for their patients?

Bhattacharya, Hyde and Tu – Health Economics

Physician-induced demand (PID)

  • Information asymmetry between doctor and patient
  • Patients cannot assess whether an extra test or procedure ordered by doctor is necessary

  • Financial incentive for doctors to prescribe more services than needed

  • Empirical evidence that when reimbursement rates for various procedures change, doctors prescription practices also change

Bhattacharya, Hyde and Tu – Health Economics

Defensive medicine

  • Defensive medicine
  • Overutilization of testing and services
  • Protects against malpractice lawsuits

  • Doctors fearful of lawsuit may overprescribe (and overcharge) for only marginally-useful procedures

  • Mello et al. (2010) estimate that medical liability system in the US costs $55.6 billion annually

Bhattacharya, Hyde and Tu – Health Economics

Racial discrimination

  • Types of discrimination
  • Taste-based
  • Preferential treatment for certain groups of patients
  • Conscious or unconscious
  • Statistical
  • Stereotypes on biology or behavioral tendencies
  • Discrimination can be efficient or inefficient
  • Some discrimination may harm patients, but others may benefit them

Bhattacharya, Hyde and Tu – Health Economics

Evidence of discrimination

  • Audit study (Shulman et al. 1999)
  • Fictional patient histories
  • Black and white actors
  • Patients told doctors same script, background, and hand motions
  • Only difference was the race of “patient”/actor
  • Results
  • Physicians less likely to recommend standard treatment if patient was black
  • Taste-based or statistical discrimination?
  • Efficient of inefficient discrimination?

Bhattacharya, Hyde and Tu – Health Economics

Efficient discrimination

  • Taste-based is always inefficient
  • Statistical may be efficient
  • Efficient if medical evidence to treat racial groups differently
  • Ex: optimal hypertension treatment is different for blacks than for whites

Bhattacharya, Hyde and Tu – Health Economics

Conclusion

  • Physician supply highly regulated
  • Leads to a shortage of doctors
  • Hard for other health care providers to fill the void

  • Investment returns to being a doctor and specializing is very high

  • Physicians are not always perfect agents of care
  • Overutilization of care
  • Physician-induced demand and defensive medicine
  • Racial discrimination