Microeconomic Analysis Project Part I

For ECON 545-Business Economics

On

March 23, 2014

SUPPLY-DEMAND DETERMINANTS AND MICROECONOMIC ANALYSIS FOR PHYSICIAN DEMAND

This paper is a microeconomic analysis of a career as a physician. I will begin my paper by defining what a physician is and giving a general overview of a physician and/or surgeons job description. The Bureau of Labor Statistics defines that a physician and surgeon diagnose and treat injuries or illnesses. Physicians examine patients; take medical histories; prescribe medications; and order, perform, and interpret diagnostic tests. They counsel patients on diet, hygiene, and preventive healthcare. Surgeons operate on patients to treat injuries, such as broken bones; diseases, such as cancerous tumors; and deformities, such as cleft palates. The purpose of this thesis is to describe the supply-demand of physicians and surgeons working in the healthcare market. A key characteristic of the complexity inherent in the labor market for physicians lies in the length of time involved in the training and production of physicians, which often involves individuals to make career decisions at least a decade prior to active participation. The average physician must complete four years of baccalaureate study, four years of medical school, and three to eight years of post-graduate training (residency and fellowship).

Demand Obamacare will bring about sweeping changes for physicians this year, when provisions in the Affordable Care Act from insuring all Americans to rewarding providers for better care will go into effect. How physicians and surgeons cope with these changes will govern whether they can continue to be successful in the field of medicine. In working in healthcare, Ive noticed a lot of physicians moving from private practice to larger practices. I also hear patients complaining about seeing a different provider each

time they visited the practice. This shift is occurring because of variations to valuebased health care models, in which health care providers have to exhibit that their services resulted in better health for their patients. Unless they do so, under Obamacare, their Medicare and Medicaid payments will be severely condensed. Definitely, confusing this entire issue is health insurance. Covering the cost of both expected and unexpected occurrences, the U.S. health insurance market often separates consumers and providers from the true costs of care. Although the use of copayments and deductibles, patients are generally isolated from the costs of the decisions which they make in regard to their own health care. As a result, health insurance may artificially increase purchasing power and thereby increase demand for health care services. The Affordable Care Act requires all Americans to purchase health insurance, so doctors need to be prepared for an influx of patients . The graph below illustrates that more primary care and specialist physicians will be needed through 2020 (Figure 1-1) .

Figure 1-1

Active Supply v. FTE Supply The supply component of my study starts with the number of active physicians characterized by age, gender, specialty, and education - graduates of U.S. schools of allopathic medicine, graduates of U.S. schools of osteopathic medicine, and international medical graduates. Active supply is the total number of physicians engaged in providing professional medical services. Full time equivalent (FTE) supply is calculated by multiplying total active physicians by the ratio of average patient care hours worked in each future year to average patient care hours worked in 2006. Patient care supply, active or FTE, is the number of physicians primarily engaged in patient care activities The key dynamic affecting the future demand for physician services (and thus the future demand for physicians) is the changing demographic composition of the U.S. population. Health care use is interpreted into the demand for physician services, and then into demand for physicians. There is broad acknowledgment of the central role of primary care in the nations health care distribution system. Until recently, though, health workforce forecasts have largely abandoned primary care. Projections yield a greater shortage in primary care than in any other specialty area. Physician retention should be a top priority for senior leaders and should be a focus of performance reviews and incentive compensation. For hospitals to thrive, retention must be every senior leaders business, not just the section chiefs or department chairs responsibility. A proactive physician retention strategy is critical to preventing attrition as a result of burnout, frustration, and other factors. In this section, we discuss three elements that are fundamental to a successful retention strategy: (1) learn the reason that physicians leave, (2) seek feedback and input from physician champions who

remain with the organization, and (3) encourage physician participation in co-mentoring (Colin, 2009). In detail, the projected shortage in primary care accounts for more than a third of the total projected shortage in 2025 (37% of the overall physician shortage, or about 46,000 FTE primary care doctors). This is constant with the primary care projections recently published by Colwill et al, where they expect a shortage of up to 44,000 generalists by 2025. In addition, physicians are categorized merely by their self-identified primary specialty. Yet many physicians have secondary specialties where they devote a fraction of their time, and the likelihood of practice commonalities for many of their specialties. These thoughts should be taken into justification when assessing the competence of supply for individual specialties. Although projections are stated for some specialty groups, the emphasis of my analysis is on the competence of the overall future physician resource and the policy repercussions of supply imbalances. Countries that face both demandbased and needs-based shortages may prefer a mixture of training and recruitment policies. Government and donor organizations should consider increasing financial support of health-care workers as a means of improving recruitment and retention (Scheffler, 2008).

Figure 1-2

Geographic Location The primary goal of this analysis is to discuss the national physician workforce, physician practice location even with the advent of telemedicine is a crucial element of access to care. The geographic misdistribution of physicians in the U.S. is inescapable. Finding ways to get physicians to practice in underserved areas remains an ongoing challenge to the nation and an ongoing priority. For instance, most rural areas are underserved, and most physician shortages are in rural areas. A physician service is produced through physician labor and human capital, combined with other labor and capital goods (office space, office staff, stethoscopes, nursing staff, etc.). The average cost of a physician service is the total cost of the physicians human capital and of all the other labor and capital goods used over the physicians career, divided by the number of patient-valued services delivered by the physician throughout his career (Glied, Prabhu, & Edelman, 2009)

My Recommendation It is fact that no hospital or health system provides 100% of the medical care required by the residents of the communities it serves. In my opinion learning how to determine primary care need by subarea would be an effective service population approach. What is important to families who are seeking medical care is to be able to geographically access general family doctors or internal medicine doctors. This will then result in the families being willing to travel from outlying communities to receive specialist care. In regards, to the physician shortage it is true that projected changes in physician supply will definitely depend of retirement of doctors which are currently active medical staff, physicians wanting to devote less of their time to patient care, new physicians who are still attempting to build their careers, and finally an increase or decrease in the FTE contribution of individual physicians who change the way they split their time between two facilities. From a human resources standpoint that if you build a quality organization and focus on physician retention and what the doctors want they will come. A healthy work-life balance is one of the most important factors to physicians who are considering employment. If physicians are unhappy with specified work hours and compensation that are not clearly outlined it is a possibility an organization will experience high turnover. Communication is very critical when recruitment and retention of physicians come into play, and organizations should involve physicians, when appropriate, in decision-making processes.

REFERENCES Colin, K. H. (2009). The Lifelong Iterative Process of Physician Retention. Journal Of Healthcare Management, 54(4), 220-22 Colwill, Jack M.; Cultice, James M.; and Robin L. Kruse. 2008. "Will Generalist Physician Supply Meet Demands Of An Increasing And Aging Population?" Health Affairs. April 29, 2008:w232-241 Glied, S., Prabhu, A. G., & Edelman, N. (2009). The Cost of Primary Care Doctors. Forum For Health Economics & Policy, 12(2), 1-24. doi:10.2202/1558-9544.1140 Pathman, Donald E.; Konrad, Thomas R.; & Thomas C. Ricketts III. 1994. Medical Education and the Retention of Rural Physicians. HSR: Health Services Research. 29(1): 39-58 Scheffler, R. R. (2008). Forecasting the global shortage of physicians: an economicand needs-based approach. Bulletin Of The World Health Organization, 86(7), 516-B.