Arnold Kling  

Are American Doctors Overpaid?

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Sherry Glied, Ashwin Prabhu, and Norman Edelman do not think so.


The value of physicians' underlying human capital is estimated by forecasting an age-earnings profile for doctors based on the characteristics in youth of NLSY cohort participants who subsequently became doctors. Published estimates are used to measure the total cost (wherever paid) of investments in physician training. These data are combined to compute the societal cost per primary care physician visit. The estimated societal cost per primary care physician visit is much higher than the average co-payment per primary care service and generally higher than the current Medicare compensation rate per service unit

What I think they are saying is that Americans with the talent to be doctors but who choose other careers do at least as well financially, if not better, than those who become primary care doctors.

They are certainly going about answering the question in a more economically sensible way than just looking at doctor salaries compared to average salaries and contrasting this with other countries.



COMMENTS (31 to date)
baconbacon writes:

Us doctors are certainly overpaid. The AMA has a monopoly on certifying doctors in the US and unless they are the first monopoly to over supply the good they control in history we can presume they are under supplying it-> driving up the cost of doctors.

luispedro writes:

The important question is whether you need someone that smart and qualified to tell you it's not the swine flu.

kebko writes:

I had the same thought that luispedro had. If the system was rigged so that cashiers made as much as computer engineers, we'd have really smart cashiers & the "training" to become a cashier would be very difficult. Isn't there a lot of this going on in the labor market for physicians?

John writes:

Certainly most of what doctors do does not require the schooling they have -- surgeons excepted. And the cost of schooling for doctors is one reason they're overpaid -- they have to be highly paid in order to compensate them for spending hundreds of thousands of dollars and losing ten years of their lives (and ten years of high earnings in some other field). If the supply of doctors weren't artificially lowered by the rigors of certification, they would probably make much less.

Anna writes:

Hmmm. Spend years studying while your friends are partying. Start your career and age 30-35 about $150,000-$300,000 in debt. Have the government dictate how much you will earn. Yeah, that works. Hope y'all are comfortable with a moron for your personal physician, because in a few years, only morons will be going to medical school. Anyone with half a brain will go into anything BUT medicine.

"Certainly most of what doctors do does not require the schooling they have"????!!!! John, you are obviously not a doctor.

And bacon, the AMA does not certify doctors. The NBME does. Google it and learn something. Only 18% of US docs belong to the AMA, and many of those are residents who get a free membership.

Jim writes:

Of course doctors are overpaid. It can not be otherwise given the pseudo monopoly of the industry provided by regulation.

Two comparisons alone make the case. In a free market, information would provide consumers an enlightened choice on prices and effectiveness. Studies show even relatively simple procedures vary by hundreds of percentage points within a small geographic region, free of any connection to efficacy. There is probably $1 trillion right there.

If it were not for regulation, there would be a burst of specialization of labor and technology in diagnosis and treatment, with a corresponding increase in quality and effectiveness of care. No free market comparison can argue otherwise.

Contrarians may argue that regulation eats up the exorbitant prices. The response is that free markets would put pressure on every cost variable, especially the highest ones.

This is not an insult to doctors. It is a truism of free markets. By any calculation, health care costs roughly twice as much as it would in a free market. It would be interesting to see in such a situation how much of their current wages doctors would keep. I suspect that within 5-10 years, there would be at least a temporary surplus of them.

steve writes:

I love all the comments from people who obviously have no idea what physicians do, or what the training process entails. "I think NASA rocket propulsion physicists are overpaid." Granted, I have no idea what they do, and I saw one on TV onetime, but my opinion matters. Medicine is probably worse than college sports as far as an arena where people with limited knowledge and even less first hand experience love to give their opinions as if they're well informed. Nothing like a fat guy in his 50's who spent his 'football playin' days as the 3rd team deep snapper bloviate, "Yep, I would have ran the power option there on fourth and short."

Here, you've got baconbacon talking about the AMA and certification, which have absolutely NOTHING to do with each other. Strong work there buddy.

And luispedro, no, you don't need someone that qualified to tell you if you have swine flu or not. If you to the doctor for flu-like symptoms, that was your choice. If you feel you're qualified enough to make the diagnosis, cheers to you. And, that's why there has been an explosion in the number of PA's, nurse practitioners, and other such 'physician extenders' who can do the easy stuff, and leave the tough things like reading MRI's and doing brain surgeon to the people that DO NEED to be that qualified to do their job.

And John, "if the supply of doctors weren't artificially lowered by the rigors of certification, they would probably make much less", -- and 1. No intelligent person would put in the years of training, and take on the personal liability associated with being a physician if they could make as much managing The Gap and 2. The same could be said of any profession. I'm sure engineers would make less if they didn't need degrees, but having some guy with a high-school education and a TI-83 design my bridges isn't really appealing. 3. Yeah, because I'm sure having no certification necessary to practice medicine would 'allow market forces' to work. Nothing like little old ladies sitting around saying, "Watch out for Dr. Smith, he spent two weeks in his garage operating on cats before starting his 'I'm a surgeon' business".

There's a reason wealth Europeans and Asians come to the US for medical care, and it's not because their doctors are overpaid. Of course, the host of you wouldn't being to understand that, since you get your medical information from watching House.

gnat writes:

"...more economically sensible way than just looking at doctor salaries compared to average salaries and [saleries in] other countries."

Is it sensible? I would look at supply in those other countries. It is likely that non financial characteristics are more more important.

ajb writes:

The real point is why can't what doctors do be unbundled so that people with less training do more of the work? And why shouldn't doctors be subject to the supply and demand effects of other industries? I would state that good physicists are at least as hard-working as doctors, but they don't earn salaries that are as high.

And there are countries with good medicine where doctors earn less. Shouldn't the market get to decide which mix of docs should be permitted?

This doesn't deny that the average doctor is smart and hardworking. But an equilibrium in which the average doctor did less, earned less, but with far more doctors might be better for society.

We need a less restrictive AMA and a broader range of options for nurse practitioners and doctor substitutes.

fundamentalist writes:

"Americans with the talent to be doctors but who choose other careers do at least as well financially, if not better, than those who become primary care doctors."

Do they consider the fact that highly intelligent people are drawn to professions that operate like guilds with severe restrictions on entry. Doctors, lawyers and CPA's are among the highest paying professions and the net profit margins at their offices are huge. But all have been able to erect artificial barriers to entry that keep the supply of those professionals artificially low. So comparing one with the other doesn't mean much.

The real question is how much would doctors earn in a free market?

Anna and Steve, you're splitting hairs. Of course the AMA does not personally fill out the certification papers of doctors. But how much control over the NBME does the AMA have? How much control over the certification of medical schools does the AMA have? How much control over politicians through campaign contributions does the AMA have? The AMA is a medieval guild that dominates healthcare in the US. All of our current problems and high costs can be attributed to the AMA, including the ridiculously high cost of a medical education.

richard writes:

The interesting thing is not that primary care physicians/GPS are overpaid but how little their take home is in the end. Consider you average doctor sees 5-10 patients an hour. The copay alone is worth several hundred grand on an annualized basis. But you talk to any gp and they are bringing home around $150k and that is before taxes. That is piss poor when you consider the debt and years out of the work force. That tells you that the overhead costs are astronomical. Part of this is obviously malpractice premiums but I think a larger part of this has to do with the inefficency of the insurance reimbursement process.

baconbacon writes:

"I love all the comments from people who obviously have no idea what physicians do, or what the training process entails. "I think NASA rocket propulsion physicists are overpaid." Granted, I have no idea what they do, and I saw one on TV onetime, but my opinion matters. Medicine is probably worse than college sports as far as an arena where people with limited knowledge and even less first hand experience love to give their opinions as if they're well informed. Nothing like a fat guy in his 50's who spent his 'football playin' days as the 3rd team deep snapper bloviate, "Yep, I would have ran the power option there on fourth and short.""

This is just silly- we don't need to know medical principles, or how much training to apply economics to the situation. When a monopoly has control of the supply of X- IT DOESN'T MATTER WHAT X IS- X will be more expensive than it would otherwise be. We KNOW that there is a monopoly certification for doctors as well as doctors having a monopoly on certain activities (or near monopoly). Therefor we can state- with a very, very high degree of confidence- that doctors are currently paid more on average than they would be under market conditions.

john writes:

I am shocked at how so many people have answers to thinks they know nothing about. I am a solo family doctor. I owe almost 1 millon dollars for my office and my medical school loans. I work 70 hours a week and holidays. My student loan payment is 150% of my mortgage payment. I and my wife a nurse practitioner work together and make about 150k a year minus the the 20 thousand a year for loan payments for school for me.now we are left with 130 thousand sounds good huh. well I am taxed at 48% after paying all my taxes and that is based on the 150$. so that is now 78 thousand minus 20 thousand student loans so the two of us together earn 58 thousand net.I work 70 hours a week and my wife works 40 for a total of 5720 hours a year. I take one week of vaction to do cme. when you add up the numbers this translates in to 10$ an hour post tax take home. Wow I am so rich. This year the insuracne industry decieded the did not want to pay us for several months and I had to barrow 70k to pay my office staff. I did not start to work until 29 years of age and sacrificed my youth to get where I am. Now maybe you will understand why we have a shortage of primary care physicians. The AMA is the evil organization that allowed this to happen since the never stood up for family docs. Medicare has price fixed our reimbursement for years. recently I gave money to a pediatrician to pay his electric bill since mcd had cut reimbursements so low that he was out of money and no bank would loan him money. Damn I am so glad I am overpaid. Swine flu and many other illness are easy to dx but when things go wrong you need someone experienced to take care of the problems. I recently saw a patient who went to an urgent care and saw a midlevel. the pt was vomiting and was dx with gastroenteritis and given phenergan. The pt felt so bad she saw me several hours later. During her exam we discovered that she had no bowel sounds and got a ct showing that she had a ruptured divericuli. she was admitted to the hospital and is alive today. I bet she was glad that family doctors still exsist. So spend you money on your movies and football games and enjoy your youth because there will not be any doctors left to take care of you when Obama is done

Ryan Vann writes:

Compared to a free market, the wages of doctors are almost certainly high, as there are constraints imposed on the labor supply.

As many have mentioned, there are many tasks, which doctors perform, that could be done by lesser trained specialists (think RNs at walk-in clinics). This would probably be the approach taken by healthcare providers if there were not so many barriers to entry in the field.

ajb writes:

john constantly misses the point about earning in equilibrium. To take a different example. There were lots of tech specialists during the 90s bubble who invested far more of their time, effort and cash than most doctors do even at their best. Millions were spent by people with high training, hard work, and good outside prospects. For many of them, the reward was not even a loss of vacations. It was not even minimum wage. They went bankrupt or lost most of what they invested.

So what? That's the market at work.

Even in academia. How many well trained PhDs cannot even find a job teaching at a wage that NO DOCTOR would ever accept? So what? Many academics make a tolerable wage. Some earn very little. A few get high pay and cushy conditions. Many more drop out entirely. Why shouldn't the market decide?

Why should the AMA have such say in how many medical schools can be created and how many students can be admitted?

Let it be more like engineering, where there is certification but companies are still free to hire engineers without certification if they wish to take the risks.

Why not have walk in clinics with NON-Ama certified, lower wage doctors and let the buyer beware?

john does not understand that it is the very system of monopoly with limited entry which guarantees that the doctors who do succeed MUST be overworked. You are not allowed to have a career where you say, "I will agree to work for company X as a doctor at low pay (say $65,000 per year with help paying off your loans) with little risk and a lot less overtime." Supply and demand and regulations make such deals almost impossible. But because competition still exists, higher paid doctors will be squeezed so that they earn a lot but do a lot more.

Please read something about "rent dissipation."

Peter writes:

John:

Nobody makes you work seventy hours a week nor are you required to have a private office with a staff because you are so special every doctor feels the need to be a small business independent contractor ... go work for Cleveland Clinic or its like, get paid a salary and work normal hours like the rest of the high qualified non-medical mere mortals; it will do wonders to your overhead and cut things that you VOLUNTARILY want for your independence like a higher self employment tax rate or medical malpractice insurance (because Cleveland Clinic will cover both those also).

Mark writes:

Haven't read the study, but I would think that it would be very important to control for the very low variability that we seen in doctor earnings.

Doctors might earn similar pay when compared with "smart" people who choose other professions, but I would guess (emphasize guess) that the variability or of those earnings goes up. I think licensure has particularly shielded doctors in this regard in relation to other professions.

In other words, it is very difficult to find an unemployed doctor. It is also difficult to find a "bad" doctor who makes less than a "good" doctor...

R. Richard Schweitzer writes:

Just what is "OVER" in overpaid?

Are lawyers OVERpaid; post secondary academics OVERpaid, etc.??

Hectors - betcha there's a lot of OVERpaids.

Now, if this were a discussion about relative or comparative levels of compensation for various forms of services we might discuss the effects of differing kinds of monopolistic conditions (say teaching admissions to post-secondary academe) on the various types of "work" and related "contributions" or perceived (by prices)"benefits" the pay levels puportedly represent.

What all this rings of is the same old effort to appear "scientific" by attempting to quantify quality - just because one can measure the former.

guthrie writes:

Slightly off-topic question for John...

Since you figured out your 'rate' is about $10/hr, if I, an uninsured patient, paid you $50 cash for a 1/2hr checkup (barring further testing), would you accept it?

JB McMunn writes:

In reality, doctors have very little control over their fees. The doctors do not have the monopoly. The insurance companies do. They basically run health care in this country.

The insurance companies, Medicare, and Medicaid set the fees, which have been DECREASING for years - in absolute terms for private insurance and relative to inflation for Medicare and Medicaid.

If a doctor tries to negotiate fees with an insurance company, or even the terms of a contract, they are told to take it or leave it. With Medicare and Medicaid, the government sets the fees and the rules. The only doctors who are not held captive by this system are the few who can survive as cash-only, which means most people can't afford them.

The AMA does not control the number of doctors produced, nor does it certify doctors. The AMA is little more than a glorified trade association that is NOT supported by 80% of physicians. Membership has been declining for decades.

There are nurse anesthetists who make far more than your family doctor or pediatrician, and 25-year-olds on Wall Street driving Ferraris. You have no problem with a moron like John Travolta parking his private jet at his house, but the person who you turn to in the middle of the night when you have chest pain makes too much money.

You people are so ignorant it makes my head hurt just reading your idiotic comments.

Dr. T writes:

baconbacon writes: "US doctors are certainly overpaid. The AMA has a monopoly on certifying doctors in the US and unless they are the first monopoly to over supply the good they control in history we can presume they are under supplying it-> driving up the cost of doctors."

Why does such bullcrap reappear again and again? The AMA has absolutely no certification powers. It is a professional organization and political lobbying group that represents less than 25% of practicing physicians.

Medical Board Examinations are given by the American Board of Medicine. Specialty board examinations are under a variety of groups. Mine is the American Board of Pathology. None of these board exam groups is controlled by the AMA.

Licensure of physicians is by the individual states. Requirements for getting and renewing licenses vary from state to state. The AMA does not control the state licensing processes.

The supply of physicians is not restricted by the AMA. The federal government assumed that role many decades ago. Through a combination of funding control and other pressures, the federal government has blocked construction of new or expansion of existing medical schools. In the early 1990s, the federal government started to control the mix of medical specialties by eliminating Medicare-based residency training monies for some medical specialties and increasing it for primary care fields such as internal medicine and pediatrics. Most individual physicians, the AMA, and other physician groups opposed this funding change without success.

Private practice physician earnings correlate with their specialty, their mix of payors, and the number of hours they work. (The typical physician works over 60 hours a week.) Medicaid reimburses badly (below costs). Medicare reimburses a bit better. Insurer reimbursements are quite variable, with HMO reimbursements often being at or below average costs. Proceduralists (surgeons, endoscopists, cardiac interventionalists, oncologists, etc.) generally make more money than physicians who treat by talking and prescribing. The AMA has nothing to do with any of this except to provide the diagnosis and billing coding system for Medicare. (Congress sets the reimbursement rates for these codes.)

I recently worked as a full-time physician for a VA medical center. I was a GS 15 division director who oversaw ~50 lab employees, and my total salary and benefits were $150,000. This is after a bachelor's degree in chemistry, four years of medical school, four years of residency training, two years of fellowship training, and nearly 20 years of experience (including numerous publications and a text book). I don't believe that I was overpaid.

stevem writes:

I think doctors are overpaid but not because they couldn't aquire similiar salaries in other professions with similiar amounts of training. Rather I think doctors are largely overtrained.

I see no reason a doctor (assistant doctor maybe) couldn't specialize solely in one task. Say prescribing medications to treat kidney stones and cut out quit a few years of general training.

All she would really need to know is all about kidney stones and "That doesn't look normal better send you to someone else."

Anna writes:

I don't either, Dr T. This is a forum full of economists who have absolutely NO CLUE what medicine is all about. The trouble is, our health care system is in the process of being overhauled by a bunch of politicians who have even less of a clue that these economists, and we will all regret that.

Dr T, a third grade teacher in an affluent suburb near here recently retired with a final salary of $130,000. That's BEFORE benefits, and, of course, for only 9 months of work.

Peter writes:

Dr. T:

You don't fit in this argument because you get paid both a salary and you chose to go into civil service knowing full well the pay scale. I am a GS-14 in an engineering field and also make well below my private sector counterparts ... that is a choice you and I consciously made for the fringe benefits of working civil service.

Troy Camplin writes:

Doctors are paid the correct amount based on their scarcity. The AMA creates artificial scarcity. Thus, doctors are overpaid.

John writes:

Pretty much anyone in any field can use that kind of reasoning to argue that their field is underpaid.

Wages are set by the market, not by looking at other fields...

floccina writes:

I love all the comments from people who obviously have no idea what physicians do, or what the training process entails. "I think NASA rocket propulsion physicists are overpaid." Granted, I have no idea what they do, and I saw one on TV onetime, but my opinion matters. Medicine is probably worse than college sports as far as an arena where people with limited knowledge and even less first hand experience love to give their opinions as if they're well informed. Nothing like a fat guy in his 50's who spent his 'football playin' days as the 3rd team deep snapper bloviate, "Yep, I would have ran the power option there on fourth and short."

I bet that they said that in the leech period too.

What makes one think that we have the prefect level of doctor qualification now/

Roberta12 writes:

To All,

I'm really surprised at the tone of these postings.

Doctors work an average 80 hour/week. Keep that in mind when evaluating income. The highest paid work longer (except cosmetic dermatology, cosmetic surgeons and cosmetic dentists).

There is NO Monopoly on doctor certification. Where in the world this that bit of mis-information come from?

The issue isn't when it's "swine flu" it's when the patient thinks it's swine flu and it's not! That's what the doctor is there for.

Physician extenders do not have the same training and experience as doctors. As noted in a prior post that difference in training can be life saving.

As Americans let's not forget what we have. Check out Lancet Oncology, August 2008. We have the best cancer survival rates in the world. For instance in England 5 year survival for prostate cancer is 52% in the US its 92%. Breast cancer patients also survive longer in the US, as does those with heart attacks etc. Wake up America! we pay a lot but we get a lot.

We need health Insurance (private) reform but let's not throw the baby out with the bath water.
Most doctors work long, hard and earnestly for their patients.

Of course there's a monopoly on doctor certification. It is imposed by the government. There are also plenty of things that by law only a doctor can do that in reality a nurse practitioner could do. Or a medic. Government imposes all sorts of monopoly-creating laws on us on behalf of doctors. Naturally, doctors, looking out for their own self-interest, have lobbied to get such laws passed. naturally, politicians, loving graft, passed it for them. There could be competition among doctors, if insurance didn't distort prices -- but there could also be competition with doctors, if such competition weren't illegal.

Pamela Baines writes:

Very interesting thread here . . .What I would like to ask of the bloggers is this: Do you know what your healthcare costs? I doubt that you do, since the public has been kept in the dark for most of the last 50 years. Physicians are not allowed to discuss their fees with other physicians, nor are they permitted to discuss their insurance contracts with each other. Fees are not posted for comparison-shopping, so you don't know if your CT scan at ABC radiology is more or less than it would be at St. Elsewhere. Insurance companies are exempt from antitrust legislation (thanks to Glass-Steagal) and use Medicare rates and coverage policies as a baseline to set their own rates, which they do share with each other. Since those of us with insurance have "assignment of benefits", meaning that we have the insurance payments directly assigned to the physician, or hospital, or whatever, we never get to see what the charges were and how much actually got paid, unless we sit down and pore over the explanation of benefits, which is designed not to be understood by laymen. In my opinion, talk about physicians being underpaid or overpaid requires looking at the healthcare costs attributed to physician payment vs. hospital payment vs. technology, etc. If you don't even know what those costs are, the conversation is meaningless. By the way, if we all had to confront the reality of the cost of medical treatment as individuals, cost control would be easily achieved, particularly where there is good data for one treatment vs. another.

Mark writes:

I have been involved in similar threads before, and doctors always come in with similar arguments – as have been put for the here – (public safety, why doctors deserve it, etc) to try to justify the licensure requirements. And they tend to get angry, which makes a lot of sense, because it is personal. But the basic facts that all of the economists have posted remain accurate.

Read this...
Medical miscalculation creates doctor shortage
http://www.usatoday.com/news/health/2005-03-02-doctor-shortage_x.htm

and this...
How I got well in India for $50
http://www.salon.com/news/feature/2009/09/03/india/index.html

We could probably immigrate (or emigrate..I always mess that one up) 100K doctors into the US from other countries and give them all a house, and solve both the Healthcare crisis and housing crisis all in one shot…

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