Josh Gottlieb
Subject: Fixing Our Healthcare System
Bio: Professor of Economics at University of Chicago’s Harris School of Public Health and Co-Director of The Becker Friedman Institute’s Health Economics Initiative
Transcript:
Larry Bernstein:
Welcome to What Happens Next. My name is Larry Bernstein. What Happens Next is a podcast that covers economics, politics, and history. Today’s episode is Fixing Our Healthcare System.
Our speaker is Josh Gottlieb who is a professor of Economics at the University of Chicago’s Harris School of Public Health and Co-Director of the Becker Friedman Institute’s Health Economics Initiative.
I want to learn from Josh about what the barriers are to getting more doctors and what we can do to solve seemingly intractable problems to increase the quality and productivity of our healthcare.
Josh, can you please begin with six minutes of opening remarks.
Josh Gottlieb:
As the U.S. population has gotten older and new technologies have expanded for what medicine can do, there’s increasing demand for doctors and for healthcare. From 1980 to 2025, the U.S. population above age 64 grew by 140% and above age 80 tripled and these are the groups that use the most healthcare. Over this period, the number of MD degrees awarded by US institutions grew by 34%. That leaves the U.S. with substantially fewer doctors relative to its population. As you might expect from a basic supply and demand, when you have an increase in demand and restrictions on supply, this leads to higher earnings for doctors.
If entry barriers were not a problem, we would see growth in the number of physicians being trained. We’d see increases in medical schools and residencies that would allow more people to become physicians in the U.S., but those have been restricted.
You can’t just say, “I want to open a new residency program.” Congress cut back on how much they fund these residencies in the late ‘90s and the specialty residency review committees have some control. The entry barriers are substantial and the pressure for healthcare has shown up with other professions.
There are not enough doctors to meet that demand and so we’ve seen mid-level or advanced nurse practitioners, physician assistants, certified registered nurse anesthetists do work that doctors traditionally would have done. We’re seeing massive growth in these substitutes and that reflects the demand for care when physician entry is restricted.
Larry Bernstein:
My grandfather was a tenured professor in the medical school at the University of Vienna. In 1938 days after the Anschluss, all the Jews were fired from the University of Vienna.
My grandfather was both a psychoanalyst at the Freud Institute and an internist. He escaped to Paris, but the French limited foreign doctor’s ability to practice. Even though he had been a professor at one of the top medical schools in Europe, France would not let him practice medicine.
When my grandfather arrived in Chicago in 1943, he was allowed to work immediately and had to repeat some of his residency requirements.
In your paper, you show that doctors in America make double than their peers in the G-7 and four times doctors in Sweden. Should the US be more amenable to hiring doctors who are trained at accredited foreign hospitals in the most advanced countries?
Josh Gottlieb:
We don’t make it easy for international docs to come to the US. The inference you’re drawing from that international comparison is right that if you’re a doc and trained, you’re making a lot less than you could in the US, there’s probably a lot who would like to work in the US, but it’s not easy. So first you must repeat a lot of residency training. There are some exceptions for some Canadian residencies that can count in the US, but in general, international residencies don’t count. Imagine coming to the US after having had a career somewhere else and then being told you must be the lowest trainee and work very long hours.
This means that when people look at data on international medical school graduates and what we do in our paper is we have to distinguish between U.S. citizens who go abroad for medical school, usually because they couldn’t get into a medical school in the U.S. versus people who are not U.S. citizens who are coming from abroad and trying to get in. Remember residency is the real bottleneck for practicing.
Larry Bernstein:
We had Stan Goldfarb from the organization called Do No Harm speak on the podcast a week ago. Stan was the Dean of Curriculum at the University of Pennsylvania Medical School. There are 40,000 residency spots available to be filled each year and US medical schools only graduate 25,000, leaving a 15,000 gap. What’s happened is that there’s been increasing numbers of residents offered, but medical schools have not grown. Instead, they’re filling it with 15,000 international students. And the problem with that is that oftentimes they come from medical schools which haven’t been accredited, the ones in Pakistan and Ghana may not be as good as those in the United States.
It’s the exact opposite of the story we have for university education. In the university, we have an excess supply of educational institutions and as a result, we import large numbers of foreigners who attend these high-quality American institutions. And so, when it comes to medical school, there’s a shortage of education and a glut of students in the supply/demand balance. How do you explain the inability of medical schools to expand?
My economics training suggests that markets should respond when there is demand for medical schools. Why haven’t schools opened more spots?
Josh Gottlieb:
Central planning is hard. There have been efforts at the federal level back more than a quarter century, but there were efforts to reduce the number of trainees based on the theory that doctors are expensive. The logic in the ‘80s, healthcare costs are growing. You need doctors to provide healthcare. Doctors are the ones writing prescriptions and doing the surgeries and spending all this money so we can reduce our healthcare cost growth by avoiding an oversupply of doctors. It was a centrally planned effort to restrict the number of medical school slots. I would dispute your characterization that the market was failing to respond to price signals. In fact, what we’ve seen with the rise of mid-levels are precisely the market forces saying there is demand here. But the med schools were told not to expand.
Larry Bernstein:
Bright students are ready to pay for a medical school education, but the schools refuse to accept more students.
Josh, I don’t know what you’re doing for the rest of the day, but why don’t we open our own medical school and profit from this failure? Let’s apply for accreditation, let’s figure this thing out. Why can’t entrepreneurs solve this problem?
Josh Gottlieb:
You buried the punchline, which is the accreditation. I agree with you. We don’t need a federal subsidy to open our med school this afternoon. The big deal is who controls the accreditation? This is like the old guild system. The incumbents are represented on the residency review commissions, and they impose a ton of requirements all in the name of maintaining quality and preventing oversupply and controlling costs. They’re not going to make it easy.
Residency is the real bottleneck less in primary care and more in the specialties. There’s a huge demand for orthopedic surgery residencies that are not expanding. The hypothetical Bernstein-Gottlieb med school is not going to change the number of orthopedic surgeons.
Specialists we are training that’s being restricted by the residency review commission.
Larry Bernstein:
In your paper you showed that the compensation for dermatologists and ophthalmologists was nearly as high as the workhorse surgeons even though they have much better hours and rarely have emergency procedures.
Josh Gottlieb:
I agree with you that it seems like in dermatology you would expect these rents competed away. It’s got some attractive features and so the question is why it is not compensated. One is Medicare. We have a couple of big government purchasers of healthcare, Medicare and Medicaid, and they have rules about how much they pay for different services, how much they pay hospitals, how much they pay doctors, how much they pay for each specific service, and those rules pass through into physician’s incomes in a sizeable way.
So, part of it is we’re trying to explain with market forces are also heavily influenced by payment policy, by public policy choices.
Dermatology is a special case because it’s got a sizable share that is outside of insurance. People are doing cosmetic stuff and paying privately and so that increases the dermatologists outside option whereas most other specialties Medicare plays a big role and then private insurance copies a lot of what Medicare does. So, you get a lot of comparable relative pricing driven by the public policy choices here. The other thing is we just must come back to the specialty level entry barriers, right? The dermatology association has no incentive to let people enter.
Larry Bernstein:
How do the medical schools ration dermatology residency programs?
Josh Gottlieb:
To get into dermatology requires a ton of pre-residency effort. If we’re not letting the market clear with prices, it’s going to clear with some other form of rationing. We’re seeing this with a ton of investment in research that people do when they’re med students so they can look good and get into the residency they want.
There are differences between the US and the international grads. The US grads want to go into dermatology and are much less eager to go into primary care and so we’re seeing sorting on proxies for quality that do reflect that dermatology is paid more than what you would expect based on the work hours and the training length.
Larry Bernstein:
Last week on the podcast with Stan Goldfarb, the topic was his desire to return science to the classroom. 25 years ago, there were two years of science required in medical school education and it’s been cut to one. Stan thinks that this is hugely problematic, that without a broad understanding of science and medicine, it’s going to limit the medical student to become a scientist. That doctor is trained as a technician and thus will be limited to best practices at the time they were taught in school. Biostatistics at the University of Pennsylvania Medical School is taught as a one-week program.
Josh, no one can read one of your economic papers with only a week of statistics that would be impossible.
How do you feel about the diminution of science in medical school education? And do you think that with rapidly changing medical science that the upcoming doctors need to be trained as scientists and not technicians.
Josh Gottlieb:
There’s lots of debates in the economic community about whether we’re using the right tools in PhD admissions. There’s a lot of debates over, are we asking for too much math? I don’t think economics has a unified answer on what we should be doing. I agree with you that a week of statistics would probably not prepare you to do a PhD with me.
The big question we haven’t touched on is what do we need in the AI era? What do we need the doctors to be able to do? Do they all need to be scientists or do we need a wider range of people who are good at using AI tools to figure out what the patient needs.
You probably need some basic training to critically evaluate what the AI is telling you, but I don’t know if it’s the same as what it was a generation ago. It’s currently under flux.
Larry Bernstein:
I did a podcast on applying AI to medical care with Dr. Ari Cement from Mount Sinai.
The case I gave him was that my daughter had a cough that wouldn’t go away for nine months and he said, “I’ve seen this a thousand times, here’s the top three things we should look at.”
I said, “Let’s ask AI.” And AI asked, “Has Hannah visited any nations in the last year where TB is common?” And he goes, “Wow, I hadn’t even thought of even asking that question.” Has she?
“No.”
Ari said, “That’s a less than 1% chance. It wouldn’t be on my top 20 questions, but I love the out of the box question.”
Another example, I said, “Do you think I should get another COVID vaccine?” AI said, “get the vaccine.”
This special purpose medical AI allows the user to review the medical journal articles for how AI came to its conclusion.
Ari said, “A lot of these papers are old from the beginning of COVID, and we’ve learned a lot as COVID has mutated and become less dangerous. We don’t see anybody in the ICU with COVID anymore. You were sick with COVID four times and taken four vaccine shots, COVID has mutated.”
I said, “Well, when do you change your mind?”
“Well, if you’re 85 with a history of pulmonology disease, but for you, forget it.”
AI is the best thing ever, but it can’t look in your ear. It’s making guesses based on the average and not considering the distribution. It’s a tool to be used in conjunction with a medical professional that is smart, educated, thoughtful, analytical, and emotive who can make judgments.
That said, if you’re going to read a medical journal having taken one week of biostatistics, you are not that helpful.
Josh Gottlieb:
Look, the statistics in medical journals are always mediocre. They are Crap.
I’m in favor of training doctors in statistics. I’m also in favor of training doctors in economics. You see so much bad statistics and bad public policy coming out of medical journals. There’s a lot that I would love to teach doctors. There’s a trade-off of the length of medical school. The larger we raise the entry barriers. We are back to the problem that we started with.
I find it natural to ask a question about the frictions, about are the barriers appropriate than to judge an equilibrium outcome. What economics teaches you is you don’t say, “Is the price too high?” We ask, is there some barrier that’s inhibiting entry? Is there some policy that we have that is making it harder to compete or raising the costs? It’s not that New York subways are too costly because they cost a billion dollars a mile. It’s because we know that they’re inflated by adding rules and prevailing wage union buyouts that drive the cost to be 10X European levels.
I’m not going to take a view on what is the right percentage of international grads. We should say, are these barriers useful? They’re saying, “the science in the first two years of medical schools would be a useful barrier.”
They require a certain number of English classes in undergrad before you can apply to medical school. That’s hard to believe that an extra undergraduate English literature class is making a difference for whether you’re going to be a good doctor. You would want to justify them or get rid of them.
On the technician thing, the question is what is the right level of general education that you need to let someone play with robots in your brain? In lots of examples, we send you to the generalist and then if something gets complicated, we have the specialist ready. That’s the normal approach that’s you can have a midwife supervise a birth and then if there’s a problem, they call in the obstetrician.
You can have an NP be the first line point of contact if your kid is sick and then if there’s a problem, you go to the pediatrician and if they can’t handle it, you go to the specialist. It relates to the AI point because maybe the first line of defense is someone with less training augmented with an AI and then they can call on someone more specialized.
Larry Bernstein:
Heart transplants used to be done in specialist hospitals in Houston. Should we move to a model where the best doctors in specific procedures are in a few select locations, and patients should travel to them so that our society can enjoy the benefits of scale?
Josh Gottlieb:
Having the ability to go see the right specialists wherever they are or see the person with more experience in that procedure seems valuable. In Medicare right now we allow people to go to a doctor anywhere in the country. The government doesn’t subsidize travel, but it will pay for medical care.
We have lots of subsidies to get doctors to locate in rural areas. Is that the most efficient way to take care of people, or should we just help them travel?
What we find is that you’d get a bigger bang for your buck by providing travel subsidies at least for people to the right doctor more effectively than trying to get the doctor to go locate in this smaller market.
Larry Bernstein:
I end each podcast on a note of optimism.
Josh Gottlieb:
US society is adaptable. People and organizations are entrepreneurial and not willing to accept the restrictions as they are, but it might be more efficient to relax the restrictions. We have a society that tries to work around things.
There’s so much bad healthcare out there. AI should make it easier for people to get the diagnosis and the treatment right.
Larry Bernstein:
Thanks to Josh for joining us.
If you missed our previous podcast, it was entitled Can Anyone Predict What Happens Next?
Our speaker was Phil Tetlock who is a Professor at Wharton and the author of a book entitled Superforecasting. Often, we get our news and analysis from experts who make predictions that are terribly wrong. Phil analyzed methods of forecasting and found individuals and groups who are fantastic predictors of politics, war, and sports.
Phil discussed how AI and superforecasters work together that will revolutionize the prediction process.
You can find our previous episodes and transcripts on our website. Please follow us on Apple Podcasts or Spotify.
I am Larry Bernstein with the podcast What Happens Next.
Check out our previous episode, Can Anyone Predict What Happens Next?, here.
