Surgeon Supply and Demand: The Future of Orthopaedics
Abstract & Commentary
Synopsis: Managed care pressures will create orthopaedic physician shortages despite increasing demands for care as baby boomers reach retirement.
Source: Clark R, Thurston NK. The future of orthopaedics in the United States: An analysis of the effects of managed care in the face of an excess supply of orthopaedic surgeons. Arthroscopy 2000;16:116-120.
This special report is a useful historical review of the financial changes occurring in orthopaedics and medicine over the past two decades. Beginning with the standard concept of fee for service, physicians routinely charged a customary prevailing rate (CPR) with an initial Medicare discount of 10% in 1965 that has grown to 50% and greater currently. With such financial pressures, cost shifting to the private sector occurred, creating an increase in health care costs twice the overall rate of inflation such that the cost of medical care rose to 14% of the gross national product in 1994. The insurance industry responded with the introduction of preferred provider organizations (PPO), followed by the introduction of the health maintenance organization (HMO), with cost and risk shifting to the clinician with capitated budgets. Results of such limitations created some contracts that did not even cover out-of-pocket expenses.
Clark and Thurston describe these new medical care organizations (MCO) as imperfect competition. In contrast to the normal supply and demand scenario, imperfect competition with MCOs creates two changes: 1) the consumer does not have full information regarding the nature of the product, including its quality and marginal value; and 2) the consumer does not face the full marginal cost of purchasing the goods being consumed. From the patient’s perspective, there is much uncertainty about the value or quality of care. With the control of price from the insurance industry, there is little sensitivity to price in relation to the type of care provided. Because of the high penetration of MCO contracts for patient care, orthopaedic surgeon income will continue to decrease. Such economic pressures will result in fewer orthopaedic surgeons willing to practice due to increasing retirement and retraining, as well as decreasing medical student interest in a specialty with the required time commitments and financial investments. Clark and Thurston also interestingly argue the effects of financial restraints on innovation. The creation of imperfect competition dampens the incentive to perform research or create innovative techniques.
Under current antitrust guidelines, Clark and Thurston note, physicians are prohibited from entering into meaningful collective bargaining negotiations with payers. As MCOs have eroded the market power of surgeons, government agencies have also reduced orthopaedic fees. Clark and Thurston note that any state would not want to give providers bargaining powers with MCOs or for any government-controlled reimbursement rate. Clark and Thurston note the limitations of any collective bargaining under current federal antitrust laws and predict an eventual decline in the number of orthopaedic surgeons with a concomitant slowdown of technological innovations.
Comment by Robert C. Schenck, Jr., MD
Although this review may be considered gloom and doom, the past decade of decreasing revenue streams and increasing pressures on the physician give much credence to Clark and Thurston’s concerns. From the supply side of orthopaedic surgeons, my experience with such financial pressures does affect medical student career preferences. Although orthopaedic surgery residencies continue to command a competitive field of medical student applicants, in my opinion, the financial pressures noted by Clark and Thurston has had an effect on student preferences. This effect could increase with time. As an aside, Clark and Thurston don’t comment on other pressures of the supply side of orthopaedic surgeons. Medical training facilities suffer from increasing financial pressures as well. Academic medical centers routinely care for the sickest and poorest patients in the process of training tomorrow’s physicians.1 Edward D. Miller, MD, dean/CEO of Johns Hopkins School of Medicine, recently noted five issues that must be addressed by our nation:
• The United States must introduce some type of universal health coverage. Uninsured patients have increased from 38 million to 44 million (16% of all Americans) over the past few years.
• The overhead for delivering care in this country must be reduced. Dealing with insurance companies is an expensive waste.
• Funding of graduate medical education (residency programs based at teaching hospitals) must be safeguarded.
• The nation’s most advanced hospitals must be additionally reimbursed for the treatment they provide to the most severely ill patients.
• Reimbursement must include the cost of innovative technology and testing new drugs.
As physicians, we must not give up or give in. The problems of medical finances are complex and despite the gloom and doom, we must act. We need to educate our patients and politicians about the risks that current MCOs present for medical care. As Dr. Miller concludes, "The nation must decide if it is willing to pay the price for our institutions to maintain their positions as leaders in world medicine."
Reference
1. Miller ED. A distress call from academic medical centers. Hopkins Medical News Winter 2000:56.
Imperfect competition is created by:
a. MCOs and physician inability to collectively bargain.
b. patients not knowing the value or quality of care.
c. patient insulation of medical cost by third-party carriers.
d. All of the above
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