Scott Sumner  

Inequality among doctors

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The following graph perked my interest:

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I notice that the inequality of Medicare payments mirrors the overall income inequality in American society. (Which is ironic as Medicare is a socialist program beloved by pundits like Paul Krugman.) I don't know the exact share of income earned by the top 2% of Americans, but if the top 1% earn 20%, then it must be about 25%. The top 25% of Americans actually earn much less than the 75% going to the top 25% of doctors reimbursed by Medicare. That made me wonder about income inequality among doctors. Here's my conjecture:

1. Income inequality is much less among doctors than among the general public, when measured conventionally.

2. Income inequality among doctors is comparable to income inequality among the public, when measured in the same way that the US government measures income inequality.

The first point reflects the fact that Medicare reimbursements are very different from income. They don't include costs, nor do they include non-Medicare income. Some doctors concentrate much more on elderly patients than others. Taking all those factors into account, it seems likely that overall doctor income inequality is less than inequality in Medicare payments.

The second point reflects the fact that official income inequality data glosses over life cycle issues. I spent 8 years in the bottom quintile (age 18-26) and I've probably spent at least 8 years in the top quintile. I've been in all the intermediate quintiles. Thus if one really wanted to compare doctor income inequality to overall American income inequality, the relevant measure would include the entire lifetime income profiles of people who spent part of their lives as doctors. Here's my conjecture:

1. Average lifetime incomes of doctors would be much higher than for average Americans. But that has no bearing on inequality.

2. The bottom quintile would be composed mostly of doctors as undergraduates or graduate students.

3. The second quintile would be doctors as residents (average of $45,000/year) or doctors as retirees.

4. The top three quintiles would reflect the various hierarchies such as general practitioners, small town docs, big city doctors, specialists, surgeons, etc.

I'd expect to see a lot of inequality, although I have no idea exactly how much. Of course this would not represent exactly the same social problem as the current income inequality in America, as it would be inequality around a much higher average. Thus even at their worst (bottom 20%) medical students would be doing no worse than the typical American college or university student. And at their best they'd do far better than average.

I read that 16% of the now infamous "one percent" are medical professionals. It also seems plausible that doctors are much less likely to reach the rarified levels of hedge fund managers. Putting all this together I'd expected doctor inequality to be even worse than average at the bottom (college students) and less extreme at the very top.

Does any of this matter? It's not clear. One could say it's an apple and oranges comparison, because doctors never do poorly compared to other Americans. Or one could argue exactly the opposite, that worrying about American inequality in a world with billions of Africans and South Asians (and billions of dead people from previous centuries) is as grotesquely offensive as worrying about doctor inequality in America.

I'm a humble utilitarian so I don't worry about how things look; rather I focus on policies that boost utility. I'm willing to support policies that help low income Americans, such as wage subsidies and progressive consumption taxes. But I'm also willing to entertain policies that would hurt poor Americans, such as (relatively) open borders.

Our current Congress seems uninterested in doing any sort of useful reforms, to benefit anyone.

PS. Believe or not there is a recent WaPo article on the "problem" of income inequality among doctors:

Understandably, income inequality among physicians may not engender too much sympathy among patients. Even primary-care doctors earn roughly four times more than the median household does. In fact, 16 percent of the country's sometimes scorned "1 percent" is made up of medical professionals.

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CATEGORIES: Income Distribution



COMMENTS (13 to date)
Brian Moore writes:

Check out how exactly resident physicians are paid, as well. direct yearly six figure subsidies from medicare, which the hospital/institution then gives that 40-50k (capped by law).

Hopaulius writes:

It’s a bit odd making broad generalizations about a group of professionals based on one of their sources of income. Isn’t it possible that some of the top grossing Medicare doctors (and these are gross, not net figures) specialize in elder care, and that for many in the lower rungs Medicare is a smaller share of their practice? To get a clear picture of income inequality among physicians one would need to examine tax returns, not Medicare payments.

Larry Willmore writes:

'Socialist' is a vague label. It is useful to specify exactly what is socialized. Medicare socializes health insurance, not medical care, which remains private and fee-for-service. The same is true of Medicare in Canada. The UK's beloved National Health Service, in contrast, socializes medical care. NHS doctors - like VA doctors in the USA - are government employees; they are not paid on a fee-for-service basis. 'Obamacare' does not even socialize health insurance, although it does mandate (and subsidize) its purchase.

MG writes:

How much of this inequality reflects the distribution of medical costs incurred by the patient population (which in the US is mostly paid by someone else)? A small percentage of patients incurs a disproportionate percentage of the costs.

This demand driver would have some peculiar manifestations on the data -- more changes at the top, geographic concentrations, specialty.

Scott Sumner writes:

Hopaulius, You said:

"It’s a bit odd making broad generalizations about a group of professionals based on one of their sources of income. Isn’t it possible that some of the top grossing Medicare doctors (and these are gross, not net figures) specialize in elder care, and that for many in the lower rungs Medicare is a smaller share of their practice?"

After I said:

"The first point reflects the fact that Medicare reimbursements are very different from income. They don't include costs, nor do they include non-Medicare income. Some doctors concentrate much more on elderly patients than others. Taking all those factors into account, it seems likely that overall doctor income inequality is less than inequality in Medicare payments."

It's really annoying when people comment before reading the entire post.

Larry, I agree.

MG, I can't answer that.

Glen Smith writes:

I have wondered why libertarians and conservatives seem to hate on the concept of income inequality so hard since the data shows that the policies they hate are the main reasons behind the severity of income inequality. One of the reasons I laughed at occupiers was because the policies they supported were primarily the types of policies that created the situation they were protesting.

Don Gibson writes:

Funny thing about doctors is that they can specialize and that can really skew the Medicare stats. Compare specialty in geriatric verse pediatric.

Another oddity of the stats is ownership in a medical practice. A doctor can own a practice that has 3 other doctors and 20 employees. The owner/doctor will have a greater income than the other doctors, but yet they are all in the same category.

MingoV writes:
In fact, 16 percent of the country's sometimes scorned "1 percent" is made up of medical professionals.

Physicians have the longest schooling and training times (and therefore the longest times from high school to work) of any profession. Physicians have the largest mean education debt. Physicians have the highest mean IQ of all professions. Physicians bear responsibility for the health and life of patients. Don't they deserve to be among the top 1%? Are only CEOs, money mangers, and bankers allowed to be in the top 1%?

Scott Sumner writes:

Glen, I can't speak for others, but I try to ignore income inequality because I'm more interested in economic inequality.

Don, That's right.

Mingo, No one deserves anything. We need to maximize aggregate utility.

vikingvista writes:

Given that it is illegal for a physician to charge a Medicare patient a higher fee than CMS dictates, price discrimination among physicians with a dominant Medicare patient base is effectively nil.

I would expect then that income inequality among such full time physicians within a particular specialty would be low, and that any differences would have little to do with experience, professional reputation, or reputation of medical school or residency training. Differences would instead be due to unique ways of increasing volume.

KLO writes:

Many of the top Medicare billers have either: (1) been credibly accused of committing fraud; or (2) have a billing arrangement with Medicare under which care provided by a large number of doctors is billed to them. Absent one of these two, I do not think that you can explain the outlier high billers. Lots of doctors have lots of Medicare patients and are seeking to maximize their incomes, sometimes at the expense of patients. It takes something special, like the doctor who allegedly gave patients erroneous cancer diagnoses so that he could give them treatment that were profitable for him, to among Medicare's top, top billers.

Chris Wegener writes:

KLO has it mostly right with one missing detail.
Medicare actually requires each provider to bill under their provider number, yet many practices continue to bill under the provider number of the primary physician, this distorts the income received by the primary physician and renders the other doctors in the practice invisible.
Secondly, the largest members of the top 2% are ophthalmologists and oncologists. They often provide patients with expensive services that come out of the income they receive from Medicare.
Finally, as KLO mentions there is fraud.
The joke is that if you understand medicare billing you can make any amount of money you want, with the understanding that though the mills of justice grind slow they grind exceedingly fine. (With apologies to Longfellow.)

Floccina writes:
Our current Congress seems uninterested in doing any sort of useful reforms, to benefit anyone.

Sadly true. As a rule the politicians act politically to maximize their chances of getting the votes a rationally ignorant voting population which often means running scams on the voters. (Like telling them that matching FICA is paid by the employers).

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