I believe that health care providers aren’t paid anything close to what they are worth to society. I don’t mean this in the sappy emotional sense in which the “value of any human’s life is infinite,” or any other subjective standard. I am talking about real world, measurable economic impacts. Using the entrepreneurs’ 10% reward as a guide, health care providers create astronomical value for which they are paid a small token.
In 2016, self-made billionaire Naveen Jain asked and answered: “If you want to make $1 billion, all you have to do is solve a $10 billion problem.” That 10% reward for an entrepreneur’s creation is a useful rule of thumb: Jeff Bezos is worth $100 billion because he created a $1 trillion solution to retail sales.
I applied this scale to a hand surgeon using a real-world patient — me — and was surprised by the results.
In 2017, I fell off a ladder and sustained a comminuted intra-articular distal radius fracture in my dominant arm — OK, I broke my right wrist. Without a functioning right wrist, my career as a pediatric orthopedic surgeon was over. No more slinging mallets, turning screwdrivers, operating drills, and the like. The result of a permanently nonfunctioning right wrist would be instant retirement.
I got lucky. One of my partners, an incredibly skilled hand surgeon, stopped his Saturday afternoon bike ride, met me at the hospital, and spent three hours putting everything back where it belonged with a plate and 11 screws. I healed in about five weeks and actually didn’t miss a day of work, even though I couldn’t operate until my cast was off.
Let’s look at the total compounded cost to society if my injury hadn’t been treated or was mistreated. Each year, the work I do generates about $1.5 million in revenue for my practice. Ignoring the effects of inflation and assuming that I work at my current pace for another 15 years, the total earnings for my practice until retirement at age 65 would be $22.5 million. With an untreated wrist fracture, my fall would have given me a $22.5 million problem. But my hand surgeon completely solved it.
Had he been paid at the entrepreneurial scale of 10% of the value he created, he should have been paid $2.25 million to fix my wrist. Instead, after coding and processing the surgery, his bill was about $2,250, which would have generated a payment to him of about $1,000, or 0.0044% of the value of his work. How is that for being underpaid?
But it actually goes further, because that’s just the value of my work to my practice. What if I take into consideration the value of my work to society?
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I fix clubfeet, hip dysplasia, and other problems. I help turn potentially disabled infants and children into healthy, productive adults with entire careers of productivity ahead of them. On average, they can expect to earn nearly $1.9 million each over a 40-year work life. Then there’s a disability cost associated with not fixing these problems: Assume a cost to society of $20,000 per year for 75 years, and that’s another $1.5 million. So for each patient I treat in infancy with an otherwise totally disabling condition, I save society more than $3 million. Multiply that by the 1,000 or so patients I operate on each year, and multiply that by 15 years, and my future work has a total economic impact of $45 billion.
According to the entrepreneurial pay scale, my hand surgeon should have been paid $4.5 billion. But he was paid only $1,000, meaning his work was undervalued by a factor of 99.999978%.
I know there are limitations to this argument, including the difference between calculated and actual market value; assigning all of the value to the surgeon while ignoring the contribution of other entities, like the anesthesiologist, the hospital, and the implant maker, to name just a few; and not including other medical specialties. I recognize and at least partially concede all of these points, but have ignored them for brevity and simplicity. I look forward to seeing these points discussed in the comments.
Of course, there’s another way to look at the issue. Maybe the entrepreneurial pay scale is what’s completely out of whack, and my hand surgeon’s payment for fixing my wrist is the right way to look at things. Through that lens, Jeff Bezos would be worth $22,222 for creating Amazon (AMZN), not $100 billion.
It is hard to imagine that Amazon would exist if that were the limit of the reward for creating it. Instead, it seems to me that health care is highly undervalued. While popular media focus on advancements in industrial capability when assigning credit for economic growth, it is important to remember that per capita gross domestic product in the U.S. grew from $8,342 to an inflation adjusted $52,591 between 1916 to 2016. During the same period, Americans’ average lifespan increased from 54.2 years to 79.1 years. A 46% increase in lifespan attributed to improved health care certainly deserves a large share of the credit for a 530% increase in per capita productivity — maybe even enough to justify the current health care cost of nearly 18% of gross domestic product — about $3.5 trillion per year.
My fall off a ladder had a profound influence on my understanding of value in health care. There is simply no doubt that I (and society) made out like a bandit in the exchange of goods and services between my hand surgeon and me. I try to make things up to him whenever we are out by buying him a drink and letting him know how much I appreciate what he did for me and for the thousands of kids I treat. His other patients, and society at large, should also show their gratitude. But they largely don’t.
In fact, not only was he not paid the $4.5 billion that my math shows he earned, he wasn’t even paid the $1,000: He never turned it in to billing. How’s that for professional courtesy?
Jay Crawford, M.D., is a pediatric orthopedic surgeon and the founder and CEO of a software company that optimizes scheduling for surgical practices and hospitals. He no longer climbs ladders and is grateful for the dedicated work of health care providers, but is particularly grateful for the work of hand surgeons.