Super Committee and GME Funding....

SO, about that super committee. Surely you remember, the gang of 12 that was created by the showdown over the debt ceiling this summer. Well, they’re hard at work but among the proposals out there, is one that is causing some grave concerns.

As a health workforce researcher, I understand implicitly the difficulties that lie ahead and the underlying shortage of physicians that will worsen dramatically by 2025. Current estimates suggest a shortage of over a 130,000 physicians by that time. Many, if not most, do not realize that physician training, at least the post graduate residency phase, is paid for by CMS (Center for Medicare Services).

Currently, as we all know, if the super committee does nothing, there will be an across the board 2% cut to all federal discretionary spending. Some of the other proposals are a little more concerning. In 2010, direct GME expenses totaled 9.5 billion. IME or Indirect Medical Education expenses totaled an additional 6 billion.
IME represents an additional 5.5 % payment to teaching hospitals, as it is understood that they not only teach other health professionals, but that there may be extra costs associated with education. Current proposals are to cut that rate in half (first proposed by Simpson-Bowles) to 2.2%. Among other proposals which include Home Health Co-Pays, SNF (skilled nursing facility) shared payments, raising Medicare eligibility to the age of 67, lies a proposal by the House Ways and Means Committee to cut GME funding by 15 billion over the next ten years, or a 15.7% cut. It is unknown at this time if the Committee will pursue this, but this is problematic.

Adding to the problem is the current GME Cap placed in effect in 1997, when several organizations were predicting an oversupply of physicians. This is not our current concern. This cap is problematic, and with the current budgetary concerns has no chance of changing. By 2015, we will have had over a 30% increase in medical school graduates from 2000. There is significant concern that also by 2015, we will not have enough GME residency slots for all US graduates, without even mentioning the several thousand US citizens who go to foreign medical schools every year.

States have already reduced the amount of money in the GME system, with only 41 states participating, and contributing a little over 3 billion annually. Nine additional states are now likely to opt out as well.

We need a serious look at discretionary spending, but this will only compound and weaken an already distressed healthcare system. I hope that the Super Committee strongly considers this, and looks to other alternatives.

Free Market Mechanics and Healthcare

Now, I hear something all the time in my work in the health policy realm, and that is that the “free market” could lower prices.

I even recently had someone approach me after I mentioned that the PPACA had resulted in an extra million people aged 18-25 having health coverage this year. His statement? “That’s exactly the wrong direction, we need to have less people, far less people with health insurance.” I asked him his reasoning…of course, already knowing what his response would be. He reasoned that it would force people to compare prices, shop around, and would dramatically lower prices through the mythical, magical “free market”….

Of course, this ignores some rather real problems with this line of thinking. For starters, healthcare does not behave like normal commodities for a variety of reasons.

To start with, healthcare does not lend itself to price comparisons, and comparison shopping. The high costs are often related to trauma and emergency care/hospitalizations. It is simply not practical to ask which hospital in the area offers the best rates on cardiac catheterizations while you are being rushed to the hospital in the midst of an MI.


This impracticality also lends itself to probably the biggest problem. That is irrational behavior. Any of us who have taken even undergraduate economics remember the discussions of rational actors, and how prices were sensitive to rational behavior. Much of health care involves emotionally charged, heated, and oftentimes difficult decisions. Most patients and families can hardly be expected to act in a rational fashion about receiving the news of a terrible diagnosis such as cancer. Real world experience reveals this to be true. I wish I could count how many times I have presented various treatment options to patients, only to hear “Do whatever it takes”.

Hayek once wrote that spontaneous order was a result of market economies, and that it was “a more efficient allocation of societal resources than any design could achieve.” This of course, assumes rational behavior, and assumes that a market can be symmetric.

Because of this behavior, and because people view healthcare not as optional, but as a necessity, price elasticity scores generally trend around 0 or -1. This indicates an inelastic market.

Of course, the next time I have a 21 year old kid who comes in after a farm accident without insurance, and is badly injured, I’ll make sure to tell him that perhaps he should have shopped around.