Wednesday, June 24, 2009

Why are MD Salaries So High? The Medical Cartel

Greg Mankiw features the chart above on physicians' salaries in the U.S. vs. various European countries and Canada, showing that MDs in the U.S. make about $200,000, which is between 2 and 5 times as much as doctors make in other countries. How do we explain the significantly higher physician salaries in the U.S.?

One explanation is the restriction on the number of medical schools, and the subsequent restriction on the number of medical students, and ultimately the number of physicians. Consider the difference between law schools and medical schools.

In 1963, there were only 135 law schools in the U.S. (
data here), and now there are 200, which is almost a 50% increase over the last 45 years in the number of U.S. law schools. Unfortunately, we've witnessed exactly the opposite trend in the number of medical schools. There are 130 medical schools in the U.S. (data here), which is 22% fewer than the number of medical schools 100 years ago (166 medical schools, source), even though the U.S. population has increased by 300%. Consider also that the number of medical students in the U.S. has remained constant at 67,000 for at least the period between 1994 and 2005, according to this report, and perhaps much longer.

The charts below tell an interesting story (
data here):

The number of applicants to medical school keeps going up, by more than 21% between 2003 (34,786) and 2008 (42,231), despite the fact that the number of students admitted has gone up by only about 9% (from 16,538 to 18,036) over that period.


Because of the 21% increase in applicants since 2003 for only 9% more openings available in U.S. medical schools, the number of medical school applicants per available opening in medical schools increased from 2.1 in 2003 to 2.34 in 2008 (see chart below).

Because of the significant increase in applicants for a much smaller increase in available openings in medical school, the percent of medical school applicants accepted has decreased from 47.5% in 2003 to 42% in 2007, before increasing to 42.7% in 2008, see chart below.

Bottom Line: One reason we might have a "health care crisis" due to rising medical costs, and the world's highest physician salaries is that we turn away 57.3% of the applicants to medical schools. What we have is a form of a "medical cartel,: which significantly restricts the supply of physicians, and thereby gives its members monopoly power to charge above-market prices for their services.

In his classic book Capitalism and Freedom, Milton Friedman describes the American Medical Association (AMA) as the "strongest trade union in the United States" and documents the ways in which the AMA vigorously restricts competition. The Council on Medical Education and Hospitals of the AMA approves both medical schools and hospitals. By restricting the number of approved medical schools and the number of applicants to those schools, the AMA limits the supply of physicians. In the same way that OPEC was able to quadruple the price of oil in the 1970s by restricting output, the AMA has increased their fees by restricting the supply of physicians.

If we had 130 law schools (instead of 200) and 200 medical schools in the U.S. (instead of 130), it would probably go a long way to solving our "health care crisis." More MDs at much lower salaries along with fewer lawyers and lawsuits would be a good thing, wouldn't it? Can't breaking up the medical cartel, training more physicians, and lowering MD salaries be part of the discussion for health care reform?

65 Comments:

At 6/24/2009 1:25 PM, Anonymous Benny The Free Marketeer said...

Worse, why are lawyer hourly rates so high?
You get sued, you have no choice: You have to answer the complaint, no matter how groundless.
Try finding a lawyer for less than $400 an hour. I am not making this up.
I asked one lawyer just to find out the law pertaining to the placement of cell phone towers, and if there needed to be a setback from a private property line.
Immediately he said his fee was $450 an hour.

 
At 6/24/2009 1:25 PM, Blogger KJ said...

Great stuff...my folks tell me of their neurologist complaining to them of his poor reimbursement...I looked up to find that the average doc in that specialty makes more than $200K per year...

 
At 6/24/2009 1:29 PM, Anonymous Anonymous said...

http://www.mises.org/article.aspx?Id=1547

 
At 6/24/2009 1:31 PM, Blogger Mark J. Perry said...

Anonymous: I cited that article as one of my sources, and linked to it in the post.

 
At 6/24/2009 1:52 PM, Anonymous gettingrational said...

Based upon the chart for physicians pay in various countries perhaps we should make it as easy as possible to recruit in the U.K. U.S. healthcare providers should be given emergency immigration help for these english speaking doctors.

 
At 6/24/2009 1:58 PM, Anonymous Anonymous #2 said...

Why pick on lawyers? Who's going to handle the medical malpractice suits if we start letting all of these dummies into med schools?

 
At 6/24/2009 2:02 PM, Blogger Peter said...

1) Are you adjusting physician compensation by country based on differences between median income in the population?

2) How do you incentivize someone to take on 12 years of post-high school education, take on over $100,000 in education debt, work 80+ hour weeks, be responsible for life and death decisions for patients every day, pay for medical malpractice insurance, and work every day knowing that you can lose everything you worked for if the patient you are seeing right now sues you?

3) Do you think the best and brightest would still be interested in medicine if it paid $100,000 on average?

 
At 6/24/2009 2:11 PM, Blogger Robert Miller said...

This comment has been removed by the author.

 
At 6/24/2009 2:21 PM, Anonymous Anonymous said...

This is dead-on Mark, and NO one ever talks about this or even thinks about it this way. AMA consistently does things that are anti-competitive under the guise "public safety."

Peter, absolutely none of your questions or assumptions would hold if the ability to practice medicine were able to be done in a more free market environment, without the influence of the government or the AMA. None of us would even know what the market would look like, but I would bet my life savings that it would be more efficient, less costly, and save more lives.

The cost of medical education would drop; more specialization would be possible; the 80 hour work-week is a result of the artificial shortage of doctors; and many of us would sign away our ability to sue if given the option, and it meant we could be treated for a lower cost, etc. etc.

I’m being facetious now, but have you ever noticed that crises seemed to be confined to only the areas with the most government involvement or regulation. Healthcare crisis, financial crisis, etc. How is it that the world has never had a "lawnmowers" crisis? Even in the recent crisis of the financial system, more of the crisis came from the very heavily regulated commercial banks, while the lightly hedge funds that get slammed actually caused very little damage.

 
At 6/24/2009 2:35 PM, Anonymous Rand said...

Another factor to consider in the decrease in the number of medical schools is that the cost of operating a medical school is MUCH HIGHER than the cost of operating a law school. A medical school needs to be equipped like a hospital while a law school can be established with a few lecture rooms and a library.

Why does anyone think that there will be more physicians if we limit the potential earnings for physicians and other health care professionals, while the costs of obtaining the necessary education increase.

 
At 6/24/2009 2:43 PM, Blogger QT said...

Benny,

Next time, contact an engineer, your local cell phone company or all of the various government departments having jurisdiction. Put a bureaucrat to work!

Setbacks, height limitations, building codes, zoning, etc. are not the business of a lawyer. Chances are that he would likely have given you the wrong answer...and still overcharged you.

 
At 6/24/2009 2:44 PM, Blogger spencer said...

Are you sure Dr.'s incomes are out of line.

The $200,000 is about the same as the manager of your local Wal Mart or other big box retailer and they are frequently only a community college graduate.

By Wall Street standards doctors are pikers.

 
At 6/24/2009 3:05 PM, Anonymous Benny Crap Pants said...

On laywers, the solution is that all business disputes be compelled into binding arbitration, to be resolved without lawyers. I do not know why businesses do not use such contracts.
The securities industry does, with its customers. You must go into FINRA binding arbitration if you have a dispute with your brokerage.
I think if many contracts became subject to binding arbitration, the language and terms of such contracts would mercifully simplify.

 
At 6/24/2009 3:21 PM, Blogger rufus said...

Is that $200,000.00 before, or after, they've paid $50,000.00, or so, for Libility Insurance?

 
At 6/24/2009 3:36 PM, Blogger Robert Miller said...

This comment has been removed by the author.

 
At 6/24/2009 3:54 PM, Blogger Size said...

Who's going to handle the medical malpractice suits if we start letting all of these dummies into med schools?

If you're under the impression that we don't graduation rank morons from medical school every single year now, you are sadly misinformed.

By Wall Street standards doctors are pikers.

Not exactly. Doctors aren't forced to live in the most expensive American city nor is their employment as volatile as Wall Street employees. Doctors can always find a job most of my unemployed Wall Street friends will probably never find employment again - and if they do, it won't be at compensation levels that justify 100 hour work weeks so that they can stuff their families into 1,000 square feet for $6K per month and pay the highest taxes in the country. And that's another thing, outside of residency, doctors work fewer hours. Also, I think you have to look at the distribution. Most doctors don't make that much money, but neither to do most Wall Streeters. Wall Street comp resembles a pyramid with most people making much less than $200K and a few making a lot more. In the end, we all make what the market will bear with doctors probably making more than they otherwise would because there are larger barriers to entry for doctors than for Wall Streeters.

 
At 6/24/2009 4:04 PM, Blogger PrestoPundit said...

It's almost impossible to get an American schooled doctor in some part of the U.S. -- which is just the way the AMA likes it.

 
At 6/24/2009 4:05 PM, Blogger JimJinNJ said...

Anonymous #2 is obviously one of those "dummies." this for a minute..maybe if we re-structured the medical hierarchy we could privide a lot more healthcare for the same amount of $. E.g., nurse practitioners are a great innovation. they can treat many maladies as much less than gp. maybe there is room for other roles in between and combined with triage could work well. as it is dr's are apparently quite happy to create a self-serving bottleneck.

 
At 6/24/2009 4:08 PM, Anonymous Benny Crap Pants said...

CUTIE/QT;

I actually e-mailed relevant city agencies without result. I am in contact with my city councilman's office now. My phone to a lawyer "cell tower" expert was exploratory.

But the point stands: Lawyers charge a lot more than doctors. I was sued (thank goodness only once) in a toally groundless suit. To have it dismissed cost $5k. Then the plaintiff sued his broker, and somehow I was again served, and that cost another $5k.

A defendant has to answer the complaint, no matter how specious. It is not free enterprise, and as consumers we do not have a choice. You can rep yourself "pro per" but that is universally considered to be legal suicide.

The law business is something or a racket, shot through with fancy grifters, shake-down artists and paltroons.

I wonder why the free-market does not gravitate towards binding arbitration agreements. I guess lawyers crush any such movements--they usually make up our legislatures, and, of course, our judicial system.

Two out of three branches ain't bad, if you want to control a society or economy.

 
At 6/24/2009 4:39 PM, Anonymous Anonymous said...

You also have the government forcing hundreds of billions of dollars into the system through medicaide and medicare. If you take the over-supply of capital out, that may also help prices to go down, matching the supply of money in the system with the number of doctors. Much of the demand is fueled by the large amount of money put into the system. Consider what would happen if you gave every citizen $10,000 per year they could only spend on gasoline. This is what they are doing with medicare and medicaide. They give thousands and thousands to people that can only spent on medical services. which drives prices through the roof.

 
At 6/24/2009 4:43 PM, Anonymous Anonymous said...

Spencer, it's tough to ask a question if doctors pay is out of line? You are making a value judgment on what that profession is worth, which is a subjective question the way you are asking it. I probably have a different subjective answer to that question than you do.

The reason that you might think it has more value is in part based on the image of prestige for doctors. The reason that we likely hold doctors in such high esteem is at least in part a fabrication of the AMA that occurred over decades...almost like building a brand.

At any rate, it would be pure speculation on our parts in part because the question cannot be answered as the price of a doctor is not set by the market. It is not a market clearing price. If it were, then you would not see the application and acceptance rates that Mark just cited.

In my opinion, everything that I pay for related to Healthcare is over-priced, but there is really no market for me to find the low cost provider or even measure quality. The Healthcare system in the United States is not part of the free enterprise system.

 
At 6/24/2009 5:02 PM, Anonymous Anonymous said...

Brilliantly argued Robert Miller. Well done.

 
At 6/24/2009 5:30 PM, Blogger 1 said...

How many of us who read this blog could afford these kinds of premiums?

 
At 6/24/2009 5:51 PM, Anonymous Dr. T said...

I just hate ignorant posts that get spread by other ignorant people.

Here are a few key points:

1. There is no medical cartel. The American Medical Association, the largest physician organization, represents fewer than one-fourth of all physicians. It has a lobbying group that has only modest influence on the government. (The Milton Friedman quote was from long ago, and it was wrong even then.)

2. Medical licensure is controlled by each state, not the federal government. Almost no physician except those who committed felonies or many cases of malpractice is denied licenses.

3. The numbers of medical schools and the size of their classes are not controlled by Joe and Jane practicing physicians. The numbers are controlled by the federal government. The class sizes are indirectly controlled by the federal government because the schools are dependent on federal funding, and the feds decide how many students they will support at each school. The federal government thinks we have too many physicians, not too few. It thinks that we should eliminate almost all specialists in favor of family practice doctors. The field of medicine is so vast that it is hard to keep up with a single subspecialty. The belief that care will be better with 600,000 Marcus Welbys is worse than naive. If the US believes that we need many more doctors, all the federal government has to do is help fund the expansion of our existing schools and the creation of new schools.

4. We are experiencing a cyclical rise in medical school applications. So what. Most of the applicants are unqualified and/or unsuitable. Their advisors should have steered them into different careers.

5. US doctors earn more than in other countries because the vast majority of our pre-med and medical students don't get funding from the government. The average medical school graduate has accumulated over $120,000 in debt. She will spend the next 3-7 years as a low-paid resident or fellow, but will have to pay the interest on the loans throughout this training. When a doctor finishes training and joins a practice, she has no patients yet and no revenue stream. She has to acquire patients, pay student loans, and often pay a buy-in fee to the group. Is she supposed to do all this on $75,000 a year?

Never has an article on Carpe Diem angered me as much as this one. Greg Mankiew obviously didn't talk with physicians and medical educators. He just took some raw facts on numbers of schools, numbers of students, and numbers of applicants and started screaming about a price-gouging medical cartel.

Private note: I'm a pathologist who always had salaried positions and who still teaches medical school part-time. I know that there are plenty of greedy physicians. But, there are greedy people in every field (You should see the ridiculous home repair estimate I just got--the workers think they're worth $75 an hour.).

 
At 6/24/2009 6:08 PM, Anonymous Ryan said...

Dr. T

$75 an hour is too much??

What about the liability insurance, workers compensation insurance, advertising / marketing, gas, tools, vehicles, operations personnel, administrative staff, and site supervisors.

Why should you be able to determine what the true cost of your homeotologist (home repair specialist) is? Isn't your argument saying that we shouldn't be arguing the cost of a doctor?

These workers may have extensive training in what you need repaired. Many have attended endless hours of training to specialize in their craft and even taken on jobs in the past where they lost money because of being the low bid.

Go ahead and take the lowest bid. The old saying still holds true. “When you buy quality you only cry once.”

I’m sure you will end up with another one of those great contractor horror stories like I’ve heard so many times before.

Great article Mark!!

 
At 6/24/2009 6:20 PM, Anonymous Tom said...

This is spectacularly ill-informed, and I'm surprised you repeated these numbers. I can tell you, without any doubt, that the numbers for UK physicians are wrong. I have grave doubts about the German numbers as well, as they don't correspond with what I've seen published elsewhwere.

Regarding increasing the number of medical schools: why bother? The limiting factor in training medical students in the US is residencies available. That is a function of the US government. Almost all residencies made available are filled, whether by a US grad or by a foreign medical school grad. Want more doctors, increase residencies.

To Miller, I would say that I agree, up to a point, regarding a caring doctor being a better physician. I would point out that as supply increases (good, as seen by most commenters here) there corresponding decrease in salary (bad, as seen by most physicians), and when cost exceeds return, people leave the field. My point is that the market self-regulates to a point: if there is demand in a field, people seek training in it, and if there is not, people leave.

All seem to ignore the cost associated with becoming a doctor. Thus far, cost of school has been discussed. One should also note opportunity cost as well. If, for example, our bright young student had foregone medicine, taken an economics degree, and gone to work on Wall Street, our student will have been working for 7-11 years while his college buddy (not as bright, apparently) went to med school, then did a residency, and is just now done with his training. But that is probably insignificant, right?

 
At 6/24/2009 6:29 PM, Anonymous Anonymous said...

I'm glad Dr. T disclosed his conflict of interest at the end.

Dr. T, for you to imply that the AMA is just some small group of doctors with "modest influence" on policy, whether on the state or Federal level, is nothing short of ridiculous.

Correct me if I'm wrong, but I believe that the Federal government subsidizes residency, but they do not control the number of admissions into US medical schools. At any rate, what you are describing is NOT A FREE MARKET, not even close.

No one is arguing for the need for more doctors. We are arguing for more freedom, and I guarantee that it would work better than what you are telling me (so emphatically) is in my best interest, because you think that I am an idiot. (If that isn't elitist, I don't know what is.)

We are arguing for freedom, not more government or AMA prescriptions. We are saying that the government and the AMA have screwed this thing up enough, and we don't need any more of their "solutions."

None of us can know how the system would look if the AMA and the government weren't so involved and if employers weren't in the business of providing insurance to employees, but I can guarandamtee you that it will look better than what you can come up with even if you think that you know what is best.

The government should always err on the side of freedom when faced with a dilemna...

 
At 6/24/2009 6:33 PM, Blogger Robert Miller said...

This comment has been removed by the author.

 
At 6/24/2009 6:44 PM, Anonymous Anonymous said...

Tom,

Horrible arguments that you are making doing analysis in a vacuum.

They remind me of this quote from Thomas Watson of IBM back in 1943...
"I think there is a world market for maybe five computers."

Tom: Who decides how much medical school costs or should cost? Who decides that it should take all that time to become a doctor after getting a Bachelor's degree? Who makes those decisions? Who sets the opportunity cost?

I get absolutely p**sed off with medical professionals who claim to know what is in the best interest of the US healthcare system, when they have a vested interest in protecting the status quo. Ridiculous. Healthcare is the only thing in the world where they don't appear to give a care in the world about the quality of my service, competing on price, or anything else in the world that just about every other working person has to deal with everyday to put food on the table.

In my business, no one cares how many years of schooling or asks if the my opportunity costs were "fair." They care about my performance and how much my services cost. And they can measure it objectively. If they don't like it, they fire me.

None of these real world rules apply to anyone in the medical profession.

 
At 6/24/2009 6:53 PM, Anonymous Anonymous said...

Nice comments Ryan!

 
At 6/24/2009 7:13 PM, Anonymous Anonymous said...

According to Business Week, in 1975 the average atty made $61,000, and the average doctor made $63,000, in 1975 dollars; by 2000, the average lawyer made $63,000, and the average doctor about $170,000, in 2000 unadjusted dollars.

The truth is, the cost of lawyers to the economy has been dropping steadily since 1975. Ballparking the numbers, even though lawyers have increased in number by 50% since 1975, the salaries of individual lawyers, adjusted for inflation, have dropped about 50% over the last 30 years. That means, adjusted for inflation, the aggregate pay of ALL lawyers, combined, has dropped by about 25%. Meanwhile the economy eaked out an economic growth rate around 2% a year for that 25-years, meaning GDP grew about 2/3's adjusted for inflation, and as a percentage of GDP, aggregate lawyer income dropped by 55% relative to the economy. That mean the agrgegate cost of all lawyers in the United States has been shrinking continuoulsy, and is less than it's ever been in our lifetime.

Further, since 1993 we've had tort reform acts in about 46 states of the United States, capping attorney's fees and damages.

Tell me, which of your insurance or medical bills have gone down in that time?

Is it just possible there's some scapegoating going on regarding this issue?

 
At 6/24/2009 7:28 PM, Anonymous Cheech (in) Marin said...

@Dr. T

There is no medical cartel. The American Medical Association, the largest physician organization, represents fewer than one-fourth of all physicians.

I work in a bargaining unit position and am not a member of the union. Yet I do not deny that the union has significant influence over the economics and politics of my duty position in their dealings with my company.

It has a lobbying group that has only modest influence on the government.

By what statistic do you measure "modest influence?" I disagree entirely and assert that the AMA has tremendous influence over political decisions. My data is just as good as yours, so there!

We are experiencing a cyclical rise in medical school applications.

That could certainly be true, given the data. What evidence is there that it is true? Have you compared the growth rate in applications to the growth rate of the student population or, better yet, the growth rate of biology and/or chemistry majors?

So what. Most of the applicants are unqualified and/or unsuitable.

This statement is not falsifiable. "Unqualified" and "unsuitable" involve value-judgments and the main criteria for setting the bar is the limited number of seats in medical school classes.

If we had a surge of Straight A students pouring applications into medical schools because of the rational belief that demand for medical services will increase for the next three decades, you cannot claim that we are in a "cycle" - the trend is changing. You also cannot say that average quality of the applicants has declined.

You have come to plausible but fallacious conclusions.

 
At 6/24/2009 8:15 PM, Blogger PeakTrader said...

The data for 2008 show:

Number of applicants to U.S. medical schools is 42,000.

Percent of applicants accepted at U.S medical schools is 43%.

It's also important what percentage of the 42,000 applicants graduate (in contrast, roughly 800 economics Ph.Ds and 2,000 economics MAs are awarded in the U.S. each year).

Also, it seems, a 43% acceptance rate is high for such a high-skilled position (it seems a much smaller percentage is accepted in graduate economics).

There doesn't seem to be enough applicants to U.S. medical schools, given the health needs of the U.S. population.

 
At 6/24/2009 8:40 PM, Blogger DaveinHackensack said...

"Also, it seems, a 43% acceptance rate is high for such a high-skilled position"

Remember, though: applicants to medical school have already passed two terms each of college physics, biology, math, chemistry, and organic chemistry. Those prerequisites screen out anyone for whom a medical career was just a velleity.

 
At 6/24/2009 8:57 PM, Blogger Robert Miller said...

This comment has been removed by the author.

 
At 6/24/2009 9:53 PM, Blogger PeakTrader said...

Dave, I think, a large proportion of college students can pass those classes. Perhaps, many don't want to become MDs, because of the long hours. So, instead, they may become biochemists or microbiologists, etc.

 
At 6/24/2009 10:19 PM, Blogger PeakTrader said...

Peter said it best:

"How do you incentivize someone to take on 12 years of post-high school education, take on over $100,000 in education debt, work 80+ hour weeks, be responsible for life and death decisions for patients every day, pay for medical malpractice insurance, and work every day knowing that you can lose everything you worked for if the patient you are seeing right now sues you?"

 
At 6/24/2009 10:40 PM, Blogger QT said...

Thanks, Dr. T, for a real world perspective.

Benny,

It's pretty typical that you had no response from the city/state officials. The bureaucrats in CDA don't even return telephone calls.

Would prefer that you did not refer to yourself as "crap pants". There is a bit too much identity politics on the blog lately. I fail to understand why someone's political beliefs are at issue every time one attempts to discuss a subject.

We all have different political views. Isn't that why we find it interesting? If yes was the only word that we liked to hear, wouldn't we just call mom?

 
At 6/25/2009 1:02 AM, Blogger Benjamin said...

Cutie/QT

What identity am I chosing by referring to myself as "Crap Pants." Identity politics? Political beliefs? What political beliefs am I indicating by my Internet name of "Crap Pants"?

Lordy, this is funny.

I actually started to use the nickname to indicate I am crapping in my pants about the accumulating U.S. federal deficits, and the utter lack of will to solve the problem.

Even in this forum (which is somewhat right wing), there are so many sacred cows and pet projects and favorite tax cuts that it is obvious we will run red ink forever.

So am I crapping in my pants. And calling for inflation, to invalidate the debt.

Why is some nice lady in Canada taking this forum seriously, by the way? Are you a friend of Dr. Perry's? A former student?

And in deference to you, I will call myself Benny CP from now on.

 
At 6/25/2009 7:48 AM, Blogger Don said...

My dad practiced orthopedics for 20 years. He had a PhD in ortho from U of Iowa, and served as a Navy surgeon in Viet Nam. He specialized in artificial knees and hips.

He and a couple colleagues invented the orthoscope, a gadget that radically improved the quality of care for his sports medicine patients and reduced surgical/hospital costs.

Dad worked 80 hours a week on average, including three weekends a month on call. Few breaks for holidays. We rarely saw him during the week. Divide $250k a year (just guessing - he wasn't one to talk about money) into 4,000 hours a year and you get about 60 bucks an hour. Out of that salary:

- 25% or more went to taxes

- $70-80k a year for malpractice insurance to protect his family and practice from all the worthless patient lawsuits by crooked lawyers

- Salary for his administrative staff to process and follow up on reams of insurance and government paperwork.

- Costs of OSHA and other compliance overhead to run his clinic and x-ray machine.

I'm not saying we didn't live comfortably. He took good care of us. Rather than credit his salary, I'd say God blessed him for all the pro-bono work he did for patients that couldn't afford care but still took up his time. And trips to Africa on his own dime for medical missions. I heard once that our church was waiting on my dad for his tithe plan so it could figure out its annual budget.

I don't know if these MD's in other countries are as overlawyered and overregulated as US doctors are. Could be the reason why ours seem more expensive.

Final shot: Dad's a humble guy. Often jokes that orthopedics was basically carpentry, and that he would have made more money and had less liability as a carpenter. But he couldn't get into the union.

 
At 6/25/2009 7:54 AM, Blogger David said...

Physician incomes, and the all-too-frequent arrogance of those who follow this profession, are often justified on the grounds of their "life-and-death responsibilities."

An airline pilot may have as many lives in his hands in a month as a physician does over his entire career. An air traffic controller may have as many lives in his hands over a *couple of days* as a doctor does over his career. Structural engineers have enormous life-and-death responsibilities. So do military officers. "Life and death responsibility" is not unique to physicians.

 
At 6/25/2009 7:58 AM, Blogger Mark J. Perry said...

David: Good point. Likewise, the mechanic who fixes or replaces your brakes it taking on a "life or death" responsibility, and so is the person who installs or fixes your gas appliances or gas lines in your house.

 
At 6/25/2009 10:40 AM, Anonymous Anonymous said...

In Belgium anybody could study medicine and where there was a free market, at least for general practitioners. No restrictions applied.

But the lobby of doctors hated to see their friends in the neighbouring countries earning so much more, so now there's a sort of entrance exam,...
a shortage of doctors is slowly building up amid rising health costs, albeit from a very low base.

There are no waiting lists and the quality of medical care can't be poor since each year thousands of people from the UK, Netherlands, etc come over for operations unavailable/unaffordable to them in their own countries.

There is a lot of government meddling though in the health insurance provision but the system beats most other "socialised" health care systems.

The previous unrestricted supply of doctors is in my opinion the single most important reason.

 
At 6/25/2009 1:45 PM, Blogger QT said...

Benny,

Wasn't so much the nickname but the recent exchange with 1 on a previous thread where this expression was first used.

Have to share your concern about the galatic size of the projected deficits particularly as Obama is intent upon enacting sweeping changes to health care, education or green energy, etc. I'd bet on taxes, taxes, and more taxes since the cost savings proposed are minimal.

 
At 6/25/2009 4:43 PM, Blogger PeakTrader said...

Driving a car is also a "life and death responsibility." So, is being a terrorist bomber. I don't know how you can suggest those are equal to "healers," who help patients with real medical problems.

 
At 6/25/2009 5:35 PM, Blogger Robert Miller said...

This comment has been removed by the author.

 
At 6/25/2009 8:55 PM, Anonymous Anonymous said...

Re the Belgian comments, good stuff. I'd be interested in learning more about this if you have anything that you can share or link to...

Don: Your father sounds like an incredible man. That said, he is still an incredible guy in an exclusive club with artificially high wages.

Our reverence for doctors in this country is so ingrained in our culture that we totally ignore or find reasons to justify that their market is rigged, and it is.

For the most part, these Healthcare issues are very easy to solve, but no one has the political cajones to make the real and necessary changes to really introduce free market principles and choice into the Healthcare system.

It is natural for us to make value judgments and try to justify the way that some of these systems have been arranged, but they restrict my freedom.

As a consumer in our Healthcare system my opinion is that: my quality of service is poor, I am not given enough information about costs, and when I am given the costs it is my opinion that they they are too high. But I cannot really exercise my power as a consumer, because my only real alternative is to not participate (be sick at best or die at worst).

The Healthcare system is an orgy of rent-seekers.

I would like to keep this thread open, because I can rail all day about this stuff.

Please prove me wrong and put me in my place, because I would like nothing more than to not be disgusted by how Healthcare works in the United States.

 
At 6/25/2009 9:58 PM, Anonymous Anonymous said...

Ignoring the obvious problem with examining this distribution by its average, even a simple back-of-the-envelope analysis would lead one to believe that doctors' salaries are not causing high health care costs.

If a doctor earns $200,000 per year and works 2,000 hours, then we are paying $100 per hour for their services. The average doctor in the U.S. sees 3 patients per hour, at a salary cost of $33 per visit using this estimate.

If you add up all of my doctor visits in my life and I pay $33 per event, I don't need health insurance. If doctors' salaries are only costing us a small fraction of the total -- probably less than 1% based on just this quick analysis -- why on earth are we even talking about it as a significant issue in the health care debate?

If you examine cost construction in medicine, you will find that driving the standard of care up is what is driving costs up. The standard of care is the expected set of procedures/tests/drugs/etc. for a given complaint. As technology improves, people (and their lawyers) expect doctors to flawlessly provide all of the technology to maintain their quality of life. This principle is ridiculous on its face and is the problem that our society needs to deal with when we construct a solution to our flawed healthcare system.

 
At 6/26/2009 6:28 AM, Anonymous Anonymous said...

I have no idea about where I could find statistics or evidence relating to the doctor market in Belgium.

What will definitely put many Americans off, is the fact that once upon a time Mrs Hillary C. visited us "to learn more about it". Don't know how later she used in her plan what she'd learned though. Guess nobody ever read it.

 
At 6/26/2009 7:55 PM, Anonymous Anonymous said...

Physician's salaries make up approximately 20% of national healthcare spending... So, it's a significant issue, but it's only one among several others, all of which fall on the shoulders of the AMA union and both the Federal and state governments.

Someone might remember this better than me, but there used to be a matrix that Milton Friedman did with four boxes...and the four boxes represented:
1. Someone spending his/her own money on him/herself.
2. Someone spending his/her money on someone else.
3. Someone spending someone else's money on him/herself.
4. Someone spending someone else's money on a third party.

Our Healthcare system stays in boxes three and four...the boxes with the most inefficiency and waste...

I'm still disgusted...

 
At 6/26/2009 11:29 PM, Anonymous Niam said...

Anyways, I like vadlo biology cartoons!

 
At 7/01/2009 2:55 AM, Anonymous Jordon Walker said...

This article is possibly one of the most idiotic attempts to identify the problems with the healthcare situation in our country.

1)Increase the number of physicians does not decrease the COST of healthcare. Healthcare costs are increasing because we have an increasingly aging population. Individuals who would have died in earlier years are now living well into their sixties. These are also the individuals that need the greatest amount of care. Any individual who is moderately knowledgeable about the societal dynamics within our country would be able to identify the fact that our society in and of itself is less healthy when compared to European countries and therefore require more medical attention.

2)Medical schools must be limited and exclusive because doctors do not deal with contracts such as lawyers, but with life. There are NO bad medical schools, but there are several bad law schools. The reason behind this is not with the AMA (which the author of this article fails to realize but rather with the medical accreditation board or the AMCAS). This agency imposes strict limits not because they want physicians to have high compensation but rather because every person in this country should have the peace of mind of knowing that when they see their doctor they are not seeing someone incompetent.

3) Moreover the author seems to be completely reducing the complexity of the healthcare system by only focusing on physicians (who alone have almost no control over compensation reimbursement that belongs to insurance companies and the federal government via Medicare and Medicaid). Therefore there is a misplaced blame and an attempt to reduce a complex issue to a simple blame the doctor argument.


While reading the academic credentials of the author of this article it raises serious questions as to the veracity of the didactic methods of higher education within our society. This article is a prime reason why space in medical school should be limited. The faulty logic and absolute absurdity of the arguments by a person who is "well educated" brings into question the admission standards of the higher education systems that are not within the medical profession.

This article is sad and I say that as someone with only a high school education. Who by the way will be attending Yale University next fall and will eventually become a doctor.

 
At 7/01/2009 3:33 AM, Anonymous Jordon Walker said...

Will the "best and brightest" pass on Medicine and go to other professions? Perhaps. But we're not interested in whether we've affected their choices. We're concerned about lowering the cost of health care. Most of the time you do not need the "best and brightest" doctor - just an adequate one. When you need a neurosurgeon, understand that they will still be highly paid.

This is completely false. The reason that we as a society want the best and the brightest is because having the best and the brightest is the best thing for us. A solid knowledge of the medical implications in cost structure reveals that preventive measures are the most effective means of alleviating the higher long term cost of treating advanced disease. Bright individuals are more likely to be able to spot things at a much more rapid pace than a simply "adequate" doctor.

Moreover your argument that , but most of the time they haven't got a clue what's going on with your body. They take educated guesses is a reason why the best and the brightest are the ones who should become doctors because their educated guesses are more likely result in accurate diagnosis. Having a competent doc miss a cancer diagnosis that could have simply been removed in earlier stages results in chemotherapy treatments that are severely more expensive. Your argument for competency would only increase the cost of healthcare within our society as we would spend more to cover the mistakes that a doctor should have previously noticed.

 
At 7/02/2009 9:09 AM, Anonymous Anonymous said...

Jordon Walker, do you practice medicine?

In any industry where someone is trying to raise barriers to entry or restrict free enterprise, they usually use some form of argument(s) that you are using. That public safety argument is the one that makes me roll my eyes the most.

Again, the AMA and the practice of artificially restricting who can practice medicine is only part of the problem. But they are a problem.

I don't find any of your arguments convincing, and none offer up any evidence other than your opinion. There is certainly not enough evidence that would make me trust your judgments over what is in my best interest enough to restrict my freedom, which is what the current Healthcare system does.

I would gladly trade the current system for one where the AMA was stripped of its power, the government was much more removed from the system, employers were not in the business of providing health coverage, and I had the ability opt-out of suing my doctor for negligence in return for lower costs. That system would put our current system to shame. It would be more efficient; it would cost less; we wouldn't suffer very many of the issues that we currently call a crisis.

The "crisis" is created by perverted incentives across the system: from patients who are incentivized to not care about cost...to providers and producers who are either are protected from competition, incentivized to hide costs, or are compensated to treat and not to prevent.

 
At 7/02/2009 9:48 AM, Anonymous Anonymous said...

Read this old USA Today article. It is ridiculous. The thought of people trying to estimate how many doctors that we will need and how many people we should allow to become doctors.

http://www.usatoday.com/news/health/2005-03-02-doctor-shortage_x.htm

Honestly, it sounds like conversations and debates that were had in the Soviet Union a few decades ago.

It is absurd, and just as absurd is how vehemently people defend that system, eg. the defenses of it on this thread.

This behavior is rational only if you are in the medical profession and benefit from these policies and practices. What is amazing about human nature is how people find reasons to justify it so that they feel good about themselves (we all want to feel good about ourselves), when it is ethically and morally wrong in my opinion.

 
At 7/04/2009 4:41 AM, Blogger The Happy Hospitalist said...

How many physicians we have has nothing to do with how much they are paid. Physicians are paid based on the relative value unit scale (RVU) which is determined by the RUC committee, sponsored by the AMA , a secretive committee of about 27 members, with members of most specialty society, who create a value on every possible CPT service you can encounter with your doctor. Every service encounter has an RVU value. And that RVU value is given an actual dollar value by the federal government by way of SGR economics. Currently, every RVU is worth approximately $35.

It doesn't matter if you have 2 doctors in this country or 200 million doctors in this country. How they are paid is determined by the RUC committee (under AMA control), who makes recommendations to CMS, who then makes it law. And that law is then used by all private insurance companies to set their prices as well. And it has nothing to do with how many doctors there are. Or how many medical students there are. Or how many residency slots there are. There is no market for pricing physician services. The cartel is the RUC committee and the federal government that sets the price. Physicians take it or leave it. Thus is the nature of third party economics.

It's not about a physician cartel or too few doctors, it's about the RUC committee and the power they have in determining the value of physician services, which is then codified into law and established a per RVU price through the sustainable growth rate formulas. (SGR economics).

Dr Perry, it's embarrassing to read what you are suggesting. If you want to change how much physicians make under the current third party payment model we live in, you will have to change the RUC, and that has absolutely nothing to do with how many medical students we have or how many residency slots we have. Politics is politics. And economics is economics. And physicians are stuck in between both processes.

Now, if you abandon third party payment models and true market pricing could occur, the number of doctors would mean everything. But at this moment in time, it means nothing.

 
At 7/06/2009 8:00 AM, Anonymous Anonymous said...

Happy Hospitalist had some fascinating insight, but he/she doesn't sound so happy...

Not sure why you are "embarrassed" by Dr. Perry's suggestions...

Dr Perry's implications are totally consistent with the thrust of your argument... Just because he/I/we do not know the inner-workings or the secret handshake of the AMA and the whatever committee does what, it doesn't take anything from his argument...in fact you have supported it even more.

Which is, too many hands in the cookie jar of our Healthcare system. It's an orgy of rent-seekers.

No need to be embarrassed, you are on the same page...

 
At 7/06/2009 3:42 PM, Blogger The Happy Hospitalist said...

anon. I am actually quite Happy. If you want to define happiness financially, hospitalist medicine has left the confines of RVU/RUC/SGR economics due to the fields cross subsidization by hospitals.

I'm pointing out that an economics professor stating that physicians make too much because they control access is nonsense. We don't set any of the prices. The government does.

That's your cartel.

 
At 7/06/2009 4:03 PM, Anonymous Anonymous said...

"would gladly trade the current system for one where the AMA was stripped of its power..."

Anon, are you really an uninformed idiot? The AMA has little real power. It has less than 25% membership of today's doctors. In reality it is little more than an increasingly insignificant old boys club. It certainly has little control over medical school and residency slots. Most real lobbying power in medicine is now in specialty organizations (ACOG, ASCO, AFP etc). Jeez, get a clue.

 
At 7/06/2009 4:15 PM, Anonymous Anonymous said...

I'd like you intelligent economists to calculate how many patients a PCP has to see each day to break even. Then, figure out how many patients they need to see a day to make $50K. Now, even better, how many they need to see to take home $150K. Therein lies the answer to your 7 minute crappy visit where the doctor doesn't spend any time with you.

Also, people get pissed because they go to a doctor with a question and get a quick exam and are told they are ok, then are shocked that they get a bill for 120 for doing nothing. My examination ruled out many illnesses that you had no idea even exist, therefore you are a poor assessor of value in this market.

You bozos that think you know everything have no idea how challenging it is to manage patients. We are valued because what we do is enormously harder than the mechanic or the engineer.

I'm a doctor and an economist.

 
At 7/06/2009 5:10 PM, Anonymous Anonymous said...

So is somebody going to explain why Canadian physicians make roughly the same as American physicians?

The CMA?

 
At 7/07/2009 5:42 PM, Anonymous Anonymous said...

The author has absolutely zero clue what he's talking about, as usually seems to be the case lately with all the armchair morons solving the health care crisis without having a clue how things actually operate.

Does the author have any clue how many J-1 visas the US gives each year to foreign doctors to fill shortages? That is the "release valve" we have to keep workforce supply consistent with need in underserved areas for the most part, since it takes 10-12 years to educate a doctor from scratch, rather than just recruit one.

We happily benefit from the "brain drain" in medicine and, because we pay better, get most of the brightest medical practitioners and researchers from around the world as a result.

The happy hospitalist has posted exactly how the system works-- prices are set by CMS (Medicare), and private insurance usually follows suit.

In a big city or market with an abundance of docs, insurance companies will try to pay them less. This is all negotiated group by group each year with each provider.

But mostly, docs make salaries based on how hard they work, and how productive they are.

The quality of medical school graduates will PLUMMET to dangerous levels if we pay much less than we do already.

This is already an issue in Canada and Europe-- the rewards are so thin there that no one is willing to put in the years and years of 80-100 hour weeks to learn the art

Docs in the EU don't have to go into debt 100-200K, don't have do complete a 4 year bachelor's before med school, and on average don't have to undergo nearly as many years of specialty training as in the US required for board certification

They also don't have to worry constantly about frivolous lawsuits and pay 20-100K/year in malpractice insurance out of their own pockets

But most importantly, THEY JUST DON'T WORK AS HARD AS U.S. DOCS

Their average workweek is a fraction of ours, they take many more weeks off per year, and more holidays.

U.S. docs are workaholics on average, to the benefit of their patients

If you need a Cardiologist at 3AM on Saturday night in the US because of an acute MI? No problem.

Found out you have cancer and need to see an oncologist on a Friday afternoon to talk about it? No problem.

Money talks.

Docs in the US bend over backwards for referrals and to make money, and are infinitely more available than docs in Canada or the EU.

The simple fact is, all the whiners complaining about their docs in the US will be in for a rude awakening when the incentive of MONEY is taken away-- they will be shuffled to underqualified nurses and midlevels, they won't have phone calls returned at all hours, or have their doctors come in at night or on weekends as readily

You get what you pay for.

 
At 7/07/2009 10:40 PM, Anonymous Anonymous said...

The guy above me posted what I wanted to say. Most of the whiners here don't realize that many doctors are working as much as two full-time jobs. When a college professor shows up at 5am and has to stay for 20-30 hours straight, doing surgery on someone's heart or brain, then I'll welcome their opinion on physician salaries. The plumber charges $75/hr. Why is it so unreasonable to pay a surgeon the same? 80 hours a week, with time and a half for overtime, amounts to $50/hour. My wife is a nurse, and she makes $50/hour for overtime.

As for Robert Miller: "The last time I was in a hospital for surgery, 1 nurse was covering a ward of more than 20 rooms overnight."

Yeah, right.

 
At 7/27/2009 4:52 PM, Anonymous Anonymous said...

There is an interesting comparison between US and Sweden. I spent my first 30 years in Sweden before moving to US and becoming a dual citizen. Sweden has one of the lowest health care costs, high standard of healthcare, free and universal (paid through taxes), and one of the lowest MD salaries. There are several things that strikes me:

1) In Sweden, being an MD is an honorable job, but not something you can get rich on. The "best and brightest" still seek to become doctors by passion. The salaries are determined by the local government who has to balance its health care budget by law. The private hospitals and practices follow the state salary levels.
2) Sweden has a good supply of MDs from its schools. There is a surplus and a percentage of unemployed doctors. Still, it's a popular education requiring a 4.0 GPA.
3) Medical school is free, so you don't have the issue with a large student loan debt.
4) US is a litigious society. Law suites are quite rare in Sweden, being more of a homogenous trust society. Any award amount is based on missed earnings etc, and not as a deterent. At any rate, you don't sue an individual doctor, you will sue the hospital.

Very hard to compare the two models. More as food for thought.
Bottom line : The US health care system is the world's most expensive system, and we don't get the best care - it needs to be fixed! High MD salaries is probably only one of the smaller "leaks" in the system.

 
At 9/21/2009 9:30 PM, Blogger Daryl Lukasik said...

What most of the Doctors and some of the other people responding to this article fail to realize is that the health care system in its present form is economically unsustainable. In ten to fifteen years, or sooner, Medicare and Medicaid will be bankrupt and probably gone. Most people will not have employee paid health insurance, or individual health insurance, because it will be too expensive. A lot of health care professionals will be unemployed. Then I guarantee you that health care prices will come down steeply.

Will health care reform result in lower standards? Probably, but what good are high standard if very few people can afford health care. There is a reason why every one doesn’t drive a $76,000 Lexus, because they can’t afford to own one. That is why we have the Ford Focus, for example. Is the Ford Focus as good as a $76,000 Lexus? Of course not, but it still has to meet pollution, fuel economy, and crash standards, established by the government. And the consumer still demand relatively high design standards from the Ford Focus due to a competitive market. Perhaps we need a separate standard of health-care for the rich, middle class, and the poor.

People will go into health care because they need a job with good income. Who want to go into a career, Graduate College, and then are unable to find an entry-level job, and be unemployed. That is what is happening now to a lot of college graduates. Half the accountants, many with four-year degree, make less than an autoworker. How many auto assembly jobs are their now? If we had the economy we had forty or fifty years ago, many people going to college now, perhaps even some now entering medical school, might have choose to go to an auto or steel plant after high school.

While being a Doctor is hard, so is being an Engineer. It take thousand of people with specialized knowledge, and hundreds of suppliers to make it possible to be able to design a car and build it. Designing a product is harder than fixing something, even the human body. A team of six or twelve people would not be able to learn the volume of knowledge necessary to design a car. This is why, for example, we didn’t even have the microprocessor fifty years ago. It would take far more people to design and duplicate, for example, the complex the human body, then to do an operation on the human body. (I don’t believe we could ever accomplish this.)

If medical school were as hard as you says it is, letting more people into medical school would not decrease quality. Why? they would drop out. This is what happened in the Electronics Technology program at Monroe County Community College, in Monroe Michigan, when I was in the program- a very high dropout rate.

I believe the medical professions do lobby the state and federal governments. Why would these governments artificially restrict supply so severely and create the future complete collapse of the health care system in the United States if they weren’t receiving campaign contributions form these health care groups.

 

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