By Jill Horwitz and Austin Nichols
The Biden administration is off to a roaring start. It is expanding and maintaining coverage during the pandemic by shoring up subsidies, paying premiums for laid-off workers, and otherwise working to reverse the growth in the uninsured (and underinsured) population caused by the last administration. Now it’s time to tackle another, cost.
Not only are health expenditures a large and growing share of GDP, crowding out other spending, costs have been increasingly shifted to patients in the form of premiums and ever-growing deductibles, which together have grown much faster than wages over the past decade. Moreover, out-of-pocket spending often hits all at once; about a third of high-spending patients incur half of their annual out-of-pocket spending in a single day. Increasingly, even people with insurance cannot afford to use it, so high cost is undercutting access even for the insured
We can tackle the primary drivers of cost, prices, by dismantling market power. The most salient case is cartel prices charged by physicians, and the natural solution is expanding the supply of physicians. Congress has taken some steps in this direction by expanding Medicare graduate medical education (GME) by 1,000 positions last December. The administration can unilaterally increase supply by via immigration. As others have suggested, increasing immigration of physicians who would accept somewhat lower compensation than current market rates would put “downward pressure on” physician pay.
These steps are important because expenditures for physician and clinical services are key drivers of spending and spending growth. In 2019 they accounted for $772.1 billion or 20% of total health care expenditures, representing a growth rate of 4.6% over 2018. Overuse drives some of these cost increases, but prices are the main story.
Private and public payers both pay higher fees to physicians in the U.S. than elsewhere, and these fees are not driven by higher costs, volume, or training. Importantly, there is enormous variation in physician prices — both between and within specialties — reflecting market power and markups. The 20% differential between the highest- and lowest-price internists among commercially insured adults do not correspond to differences in treatment outcomes.
Over many years and different interventions, we have failed to contain physician fees. Capitated rates, value-based-pricing, service bundling, and other approaches have led to modest, often short-lived price reductions. Attempts at price transparency haven’t succeeded. We’ve repeatedly demonstrated the implausibility of simply paying doctors less; see the payment reductions through the Sustainable Growth Rate formula, which never happened.
Reducing prices presents many challenges. Although U.S. physician earnings are outliers compared to earnings elsewhere, they are comparable to foreign doctors’ earnings in terms of where they fall within their countries’ income distributions.
Nonetheless, there are many highly-trained physicians in the world who would be happy to work in the U.S., making an excellent living even if doing so places them somewhere lower on the U.S. income distribution than the average American-born physician.
Why not let them in and introduce some free-market competition?
Immigrants already account for a high percentage of health care workers, particularly lower-level workers, caring for the elderly. Foreign trained physicians are about a quarter of U.S. doctors, and immigrants disproportionately fill shortages, particularly in rural areas. The GME expansions also focus on addressing shortages. Let’s admit enough doctors to not just fill shortages, but also to enter other markets and limit wage growth at the top.
The Biden administration has already declined to finalize a proposed rule that would have required certain categories of physicians (J-1) to apply for visa extensions annually through a cumbersome and lengthy process (I-539), but it can do more. It could expand access to the H-1B visa for high-skilled workers, a common immigration path for foreign-trained doctors, but one that limits foreign nationals up to six years in the U.S., including extensions. It could allow other pathways to immigration and revisit rules that require employers to show that no qualified U.S. doctors could fill the position. It could expand the definition of “national interest,” a designation that currently allows employers to forego the labor certification process for physicians who will work in a medically-underserved area or at a Veterans Health Administration medical center for at least five years. Even the American Medical Association supports allowing more immigrant physicians to enter.
Immigration is only the start. To practice medicine, a physician must be licensed. States showed remarkable flexibility in response to the pandemic by recalling retired doctors, allowing supervised practice, and relaxing cross-border treatment through telemedicine. The White House could use work with states to make similar changes for immigrant doctors, including reducing residency requirements for foreign-trained physicians.
American physicians’ market power has prevented any reduction in fees, contributing to the cost crisis facing the U.S. health care system. Now is the right time to provide some competition from abroad.
Jill Horwitz is Vice Dean for Faculty and Intellectual Life and David Sanders Professor of Law and Medicine at UCLA School of Law.
Austin Nichols is a Principal Associate at Abt Associates.