Why do specialists get paid so much and does something need to be done about it?

This week the Medical Journal of Australia published a paper and commentary that highlighted the huge variation in specialists’ fees and the associated out-of-pocket costs for patients. High specialist fees in this country, and what they mean for Australians’ access to healthcare, have been of concern for some time.

The inevitable questions about what can and could be done to address this can only be answered by looking at what fees are reasonable and why they have been allowed to grow at such disproportionately high rates.

The pay gap between specialists and GPs

Australia is not the only country with these problems. A working paper produced by the Organisation for Economic Co-operation and Development (OECD) in 2008 found the remuneration of specialists was greater than that of general practitioners (GPs) by more than 50% in half of the 14 countries studied (Australia was not included).

But other countries have done more to investigate and understand the factors that underpin what doctors charge for their services and whether these charges are appropriate given the skills involved. These involve both technical skills (such as surgical) and cognitive skills (such as diagnosis and patient communication).

A 2007 US study attempted to compare the compensation for specialists and GPs across a number of countries. The average compensation for specialists was 3.7 times the average national income, and for GPs it was 2.8 times greater.

For Australia, specialist compensation was a shocking 7.6 times the average national income, higher than any other country, including the US (5.7) Canada (5.1) and the United Kingdom (4.9). In contrast, Australian GP compensation was 2.8 times the average national income, lower than the US (4.1), Canada (3.4) and the United Kingdom (3.9).

Why such high pay?

Doctors are valued and highly trained: they are deserving of an income that reflects this. And arguably, as a country’s health and wealth rises, so should doctors’ pay. But Australian doctors are paid at thousands of dollars more than would be predicted on the basis of the national Gross Domestic Product (GDP).

Regrettably, much of the data is not current, but the trends are likely to have worsened rather than improved over time. This is supported by recent (2016) data from the Australian Taxation Office showing medical specialists are the highest paid professionals in Australia, and a neurosurgeon can earn over three times more than a GP.

So what are the likely causes of variations in doctors’ incomes?

The OECD paper found the variations seen were not completely explained by roles in the healthcare system (such as the “gatekeeper role” for GPs), supply factors such as doctor/population ratios, or differences in the length of training for GPs and specialists. It did find self-employed specialists and GPs earn substantially more than those on salary, even where they work side by side.

In Australia the situation has been aggravated by government policies. General practitioners’ income growth has been restricted because practice incentive payments (where doctors were paid for meeting specific patient care targets - for example with immunisation) have been cut, because of the recent impact of the Medicare reimbursement freeze and because there is a continual focus on their bulk billing rates.

Specialists, on the other hand, have faced little government or public scrutiny over their charging practices except where these have been truly outrageous. This was the case with the inflationary impact of the Extended Medicare Safety Net, which attempted to limit out-of-pocket costs once an annual expenditure threshold was reached. And many specialists have simply moved the majority of their work into the private sector where it is easier to charge large fees.

What are the consequences?

If potential income influences the career choices of those interested in medicine, then recruitment to general practice (which is rightly viewed as a central component of the health-care system) will be negatively affected. So too will the salaried positions in community health and public hospitals (where the skill levels required are the same as for the private sector), with serious consequences for the delivery of health-care services.

The growing costs of medical education will aggravate this as newly qualified doctors look to quickly pay off their education debts. That is certainly the case in the US.

The exorbitant fees of the highest charging specialists stand in contrast to the public spiritedness of their colleagues who bulk bill and charge more modestly.

It is often overlooked that significant numbers of specialists do bulk bill for both outpatient and inpatient services. And there is no evidence those specialists who charge higher fees deliver better care.

But simply condemning geriatricians for only bulk billing 17% of services when haematologists bulk bill 60% may be simplistic. It’s possible the Medicare reimbursement rates are seen as inadequate for the work geriatricians do.

What’s the solution?

It’s clear that how doctors are paid is a major factor for how medicine is practised. Everyone knows about the perverse incentives of fee-for-service medicine, but there has been little interest from Medicare policymakers to change that in the face of some stiff opposition from doctors’ groups.

The current system arguably warps the way medicine is practised and devalues essential components of coordinated, patient-centred care. But the solution is not straightforward.

The perception is that fee-for-service pays for doing as much as possible, capitation (where doctors are paid for the number of patients they service regardless of how often they see them) pays for doing as little as possible, and pay-for-performance skews medical services to what can be measured.

The goal is to pay for the “best care possible”. This involves finding that “sweet spot” where Medicare (or the private insurer) is paying for the right utilisation and the right quality.

Doctors worry about being appropriately rewarded for their skills and meeting their expenses and overheads. They need to learn to understand and pay attention to the costs of their services and to their patients instead. Self-regulation is unlikely to change this, so the Australian government needs to pay attention to these issues which undermine the equity of the health-care system.

There should be mechanisms to encourage and reward those specialists who bulk bill - and some teeth should be given to proposed efforts to name and shame the price-gouging outliers.

Lesley Russell does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.