Healthcare Economics – Understanding the Effects of Payment Increase

Healthcare Economics – Understanding the Effects of Payment Increase
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May 4, 2022
Understanding the relationship between healthcare and economics is essential for every stakeholder in the field. With sufficient knowledge and information about how economic policies could affect care delivery, and vice-versa, healthcare improvements could continuously be achieved while minimizing the associated costs. In this article, the author would like to focus on the relationship between legislative policies that affect the pay of physicians and the delivery of care. Notably, the author would like to use some general concepts and principles under the Labor Market for Physicians Theory to understand how a decrease/increase in physician pay could benefit care delivery. This is in line with the proposed healthcare policy of reducing Medicare’s cut from Physician’s payments, increasing their net pay by 3% in 2022. Overall, the author believes that increasing the ‘net income’ for physicians would also increase the number of specialized physicians, improving the overall quality of care.
The Labor Market for Physicians
The COVID-19 Pandemic has caused a severe disruption in the national and international economies. Due to the consistent and frequent lockdowns, increase in healthcare protocols, and rise in the number of pandemic-related deaths, the economy suffered drastically. Nonetheless, one of the most affected individuals is the physicians due to the reduced number of patients, increased costs for Personal Protection Equipment (PPEs), and other protocols they need to comply with to maintain their practice. This could affect individuals’ decision-making, especially those planning to pursue medicine or are in their pre-residency courses.
The Paradigm
In the book by Bhattacharya et al. (2013), the authors noted how the demand for physician specialization is driven by the long-term returns, which means that the returns should equal or outweigh the short- and medium-term benefits of taking another profession. Notably, as shown in Figure 1 below, other courses would allow an individual to gain, improve, and increase his salary quickly even after graduation. In contrast, physicians who want to specialize would have to take up additional four years of medical school and additional years of residency training, all of which are low- to average-paying in character. This is apparent from the figure below, which shows that physician salaries (solid line) would be significantly less than a surfer’s salary before the former completes his residency training. Thus, while graduates of other courses would have already gained significant salary increases, physicians would have to spend many resources to pass through medical school and residency training in hospitals.
Figure SEQ Figure \* ARABIC 1 - Return on Income for a (1) Physician and (2) Surfer in the US and the International Setting | Photo taken from Bhattacharya et al. (2013)
However, one of the main economic reasons why there are a lot of individuals who want to go to med school was because of the ‘spike’ in average income after residency training. As stated by Bhattacharya et al. (2013), one of the essential determinations that prospective medical students and specialized physic...