Explaining Differences in Medical Service Cost: Do American Doctors Just Charge More?

Do doctors’ salaries account for the higher price of American physician services? That’s the question two Columbia University researchers set out to tackle in a recent article published recently in Health Affairs, a leading health policy journal. Their findings weren’t surprising: Assessing differences in the fees charged by general practitioners for office visits and orthopedic surgeons for routine hip replacement surgeries across several countries with similar economic profiles, they found that American physicians charged higher fees to both privately and publicly (i.e., Medicaid and Medicare) insured patients as compared to their counterparts in other countries. The problem was particularly acute in orthopedics, where American surgeons charged privately insured patients over two times as much per hip replacement surgery as surgeons in other countries.

What’s most compelling about these findings is that the researchers controlled for differences in the costs of medical education and day-to-day practice that are higher in the US than in other countries. These costs had previously been thought to explain the difference in the cost of medical services in the US relative to other countries. To the contrary, the authors concluded that higher fees charged by doctors, rather than ancillary costs, were the most important drivers of the cost difference in doctors’ services in the US when compared to other countries.

These findings also shed light on another important public health question: why are a dwindling number of new medical grads in the US choosing to pursue careers in primary care? A possible answer? American primary care doctors in the study made only 42% of their orthopedic counterparts. This 58% pay gap was the highest of all countries considered. The uneven financial incentives created by this pay chasm are likely, in part, to blame for the growing disinterest in primary care and the mass migration of young doctors to higher paying specialties. What’s the upshot of this trend? Physicians in these specialties care for smaller populations, often with very specific pathologies—this means that their influence on the most important population health measures, like infant mortality and life expectancy, is minimal.

Ultimately, these finding demonstrate the degree to which financial incentives in for-profit health systems can distort the best intentions of doctors to practice for the wellbeing of the populations they serve. Instead, doctors in these systems are incentivized to charge more for equal services (and a comparison of American health outcomes to those from the other countries in the study suggest that American doctors do not, despite their beliefs to the contrary, deliver better service) and to go where the money is—into high paying specialties that make little impact on public health characteristics that matter.