Managing the Supply of Care

The editors of the Wall Street Journal observe:

Since 1965 Medicare has funded the vast majority of residency positions at hospitals, which are essentially apprenticeships for medical school graduates. During the early 1990s economists and physician groups sounded alarms about a physician glut—their theory being that more doctors would result in needless treatments and health spending.

Congress responded in the Balanced Budget Act of 1997 by capping Medicare-funded residency positions at 1996 levels and paying hospitals to eliminate positions. Health-maintenance organizations were supposed to limit health-care utilization and spending while the population and demand increased.

Yet introductory economics teaches that prices will rise when demand increases and supply stays the same. This has happened in health care. Government has kept a lid on physician fees for Medicare and Medicaid, but doctors increased rates charged to private insurers to compensate. Hospitals have also discovered they can generate more revenue if in-house doctors perform more treatments. So hospitals have acquired independent physician practices, which has reduced competition and driven up health spending. ObamaCare’s payment models accelerated these trends.

Another problem Congress overlooked is the aging U.S. population and physician workforce. A third of the 906,000 or so practicing doctors in the U.S. are over age 60, and the Association of American Medical Colleges (AAMC) forecasts a physician shortage of 54,100 to 139,000 physicians by 2033. Shortages will be especially acute in geriatrics, primary and emergency care.

Medical schools are expanding enrollment, but graduates face a bottleneck because there are too few GME positions—only 120,000 or so, and each lasts about three to five years. Some hospitals fund residencies from their own budgets—e.g., charging more to privately insured patients—but rural and low-income hospitals are less able to do so.

Some health economists say technology and nurses can substitute for fewer doctors. We support relaxing state licensing regimes to let physician assistants and registered nurses provide more care, but the pandemic has highlighted the limits of this strategy and the U.S. faces a nurse shortage too.

Over the last 60 years we have made up for the shortfall in doctors by importing internationally-trained professionals. In that we are in competition with every other developed country. Additionally, the number of nurse-practitioners and physician assistants is growing at roughly the rate at which the population is increasing. Translation: on their own they can’t make up for a shortfall in physicians.

The problem goes all the way back to 1965. Funding medical residencies through Medicare was part of the devil’s bargain that enabled the Congress to enact Medicare and Medicaid at all. Attempting to manage supply centrally routinely produces alternating surpluses and shortages. Attempting to control costs means that shortages are far more likely than surpluses. An additional complication is that the training takes a very long time and the pool of candidates is fairly small. In econ-speak the supply of physicians, nurse-practitioners, and physician assistants is relatively inelastic.

Technology could, indeed, help to fill the gap but that in turn would require changes in regulations and fundamental changes in how care is delivered that are deeply opposed by present practitioners.