Paying doctors

Back in 2011-12, when I was about to go freelance, a friend told me about a simple formula on how I should price my services. “Take your expected annual income and divide it by 1000. That will be your hourly rate”, he said. I followed this policy fairly well, with reasonable success (though I think I shortchanged myself in some situations by massively underestimating how long a task would take – but that story is for another day).

The longer term effect of that has been that every time I see someone’s hourly rate, I multiply it by 1000 to guess that person’s approximate annual income (the basis being that as a full time worker, you “bill” for 2000 hours a year. As a freelancer you have “50% utilisation” and so you work 1000 hours).

And one set of people who have fairly transparent hourly rates are doctors – you know the number of appointments they give per hour, and what you paid for that, and you can back calculate their annual income based on that. The interesting thing is, for most doctors I’ve seen, based on this metric, what they earn for their level of eduction and years of experience seems rather low.

“So how do doctors earn?”, I wonder. Why is it still a prized profession while you might have a much better life being an engineer, for example?

Now you should remember that consultations are only one income stream for doctors. Those that practice surgery as well have a more lucrative stream – the hourly rates for surgeries far exceeds hourly rates of consultation. And so surgeons make far more than what I impute from what I’ve paid them for a consultation.

One possible reason for this arbitrage is the way insurance deals are structured – at least in India, out patient care is seldom paid for by insurance. As a consequence, hospitals and doctors cross-subsidise consultations with surgeries. They are able to get away with higher rates for surgeries because insurers are bearing the cost. Consultations, where patients generally pay out of their own pockets, are far more elastic.

This, however, leads to a problem for doctors who don’t do surgeries. Psychiatrists, for example. If they have to make money solely through consultations, their hourly rate must be far higher than that of doctors who also do surgeries. But then, is the market willing to bear this cost?

Now, I’m getting into conspiracy theory mode. If the amount non-surgeon doctors make is limited (thanks to market dynamics), the only way they can make sure they earn a decent living is by limiting supply. Could this be one reason India is under-supplied in a lot of non-surgical doctors? Again this is pure pure speculation, and not based in any fact.

Continuing with conspiracy theories, even for doctors who are surgeons, the only way to make a certain income is to have a threshold on the ratio of surgeries to consultations. And if this ratio (surgeries / consultations) goes too low, the doctors’ income suffers. Again, hippocratic oath aside, do hospitals try to game this metric, based on the current incentives?

On a more serious note, this distortion in the hourly earnings for surgeries versus consultations is one reason that India is also undersupplied with good general practitioners (GPs). Because GPs don’t do surgeries (though the Indian system means they are all licensed to perform surgeries, to the best of my knowledge), their earning potential is naturally capped. So the better doctors don’t want to be GPs.

How can we fix this distortion? How can we make sure we have better GPs? Insurance cover for outpatient care is one thing, but I’m not sure it is the silver bullet I’ve been making it out to be (and it will come with its own set of market distortions).

This entire post is me shooting from my hip. So please feel free to correct me iff I’m wrong.