Getting what you don't pay for is costly

0 Comments | Insight on the News, March 31, 1997 | by Merril Matthews, Jr.

Many Americans still are baffled about why the federal government intends to pay 41 New York teaching hospitals some $400 million during the next six years not to teach aspiring doctors. "Why," they ask, "are we paying hospitals not to train doctors when just a few years ago President Clinton said that the country had a shortage of primary-care physicians?"

Answer: The government says there is an oversupply of doctors, based upon an imbalance in both the distribution of physicians and the services they provide. But is this true? Although the number of doctors in the United States is known -- 720,325 as of Dec. 31, 1995 -- we don't know whether that is tot/many or too few. We also know that the number has been increasing rapidly: four times faster than the population since 1960. In 1980 there were 142 physicians per 100,000 population; by 1995 we had 274 per 100,000 population.

But that fact doesn't tell us we have too many physicians. Doctors can provide a wider variety of services today than they could in the past. Thus the increased numbers may be justified. So, if we don't know if we have too many doctors, why should taxpayers be paying to reduce their numbers?

Currently 88 percent of physicians practice in metropolitan areas, meaning that only 12 percent practice in rural areas. There have been several attempts on the part of organized medicine to get more physicians practicing in "underserved areas," but with little success. For example, a medical school may offer free or reduced tuition to students who contract to serve, say, five years in a rural area after graduation. But when their time is up, those physicians usually move back to the city -- and often specialize -- because the financial rewards are much greater.

Under normal market rules, the overconcentration of providers in one area would benefit consumers, because competition would force providers to cut prices to attract customers. That doesn't typically happen in medicine, however. The government grants the medical industry a monopoly by prohibiting nonlicensed individuals from practicing medicine. And medical societies generally oppose or restrict competitive practices, such as advertising prices of medical procedures.

Many health-care experts argue that as the supply of physicians increases and, as the patient base for each doctor goes down, doctors tend to prescribe greater numbers of services to each client -- often to patients who may not really need these procedures performed. Thus, the medical community thinks that decreasing the number of physicians in practice will lower total health-care costs -- i.e., physicians will stop prescribing unnecessary services.

The medical community has considered other ways to reduce the perceived oversupply of physicians. Some have argued for eliminating the subsidy to foreign students, obligating them to pay the entire cost of their training. (Currently, foreign students get the same federal subsidy -- about $100,000 a year -- to help finance their medical-school costs.) But critics of this idea charge that it might be considered discriminatory.

Proponents of the recently revealed proposal think they have discovered a win-win solution. Teaching hospitals, like public schools, get paid on a per-student basis. Therefore, giving them a subsidy for not training doctors helps the hospitals financially. The government is phasing down its reimbursements over six years, ultimately paying only about half of what it would have, had the schools really been training doctors, so the government saves money. In addition, fewer doctors in the semimonopolized world of medicine might result in fewer procedures, meaning that the health-care system as a whole could save money.

If all this seems a little convoluted, that's because it is. But the imposition of one government policy (e.g., limiting who can practice medicine, subsidizing medical students, etc.) usually leads to the need for another convoluted policy to correct the distortions created by the first. The best solution probably would be to cut the federal subsidies to teaching hospitals, but that probably won't happen. Indeed, the Clinton administration has proposed an additional $14 million in the recently released budget.

If we know anything in public policy it is that you get more of what you subsidize. The government has been rewarding hospitals for training doctors. Result: We got more doctors. If it makes it more lucrative not to train doctors, we will have fewer doctors, but the casual observer could be forgiven for not seeing why this won't result in medical care becoming scarcer and cost-lier. However, if the program works, we may want to expand it to areas that might really do some social good. Anyone for paying law schools not to train lawyers?

Merrill Matthews Jr. is vice president of domestic policy for the National Center for Policy Analysis, a nonpartisan, nonprofit research institute based in Dallas.