Thursday, July 02, 2009

It's Doctors and Politics, Not The Market, That Control the Supply of Doctors

The marketplace doesn't determine how many doctors the nation has, as it does for engineers, pilots and other professions. The number of doctors is a political decision, heavily influenced by doctors themselves.

And Congress also controls the supply of physicians by how much federal funding it provides for medical residencies — the graduate training required of all doctors.

To become a physician, students spend four years in medical school. Graduates then spend three to seven years training as residents, usually treating patients under supervision at a hospital. Residents work long hours for $35,000 to $50,000 a year. Even doctors trained in other countries must serve medical residencies in the USA to practice here.

Medicare, which provides health care to the nation's seniors, also is the primary federal agency that controls the supply of doctors. It reimburses hospitals for the cost of training medical residents.

The United States stopped opening medical schools in the 1980s because of the predicted surplus of doctors. The Association of American Medical Colleges dropped this long-standing view in 2002 with the statement: "It now appears that those predictions may be in error." Last month, it recommended increasing the number of U.S. medical students by 15%. Florida State University's College of Medicine, the first new medical school since 1982, will graduate its first class this year.

~"Medical Miscalculation Creates Doctor Shortage" in USA Today on March 2, 2005

Thanks to an anonymous commenter on
this CD post


At 7/02/2009 12:07 PM, Blogger C. August said...

There was a somewhat similar article in Slate in late April.

The author noted the doctor shortage, and among other things, blamed baby boomers and med school class size restrictions in the 90's because of a fear of a surplus.

To this, I wrote a long post, drawing on George Reisman's work, about how the various government interferences in the medical market amount to price controls (and subsequent artificially high demand), and analyze why even in Massachusetts, where we have the highest physician to patient ratio in the country, we have a shortage. Rather than detail my arguments in an overly long comment, I'll just include a link in case anyone is interested.

The Flawed Economics of Socialized Medicine

At 7/02/2009 12:42 PM, Blogger Milton Recht said...

Dr. Cooper's numbers do not seem to match government projections. BLS Occupational Handbook has 1.3 percent annual growth in physicians and Census has about 1.0 percent annual increase in US population.

US population is growing less than growth in number of doctors. Government numbers say will see more doctors per 1000 residents.

Obviously, Dr. Cooper uses different assumptions, but BLS and Census are not statistically unsophisticated.

At 7/02/2009 1:06 PM, Anonymous Anonymous said...

Milton, perhaps you should plot the aging of the population? An aging population uses an ever increasing amount of medical services, hence the need for more doctors. I believe your method of analysis is the one that is flawed.


At 7/02/2009 3:44 PM, Blogger Hot Sam said...

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At 7/02/2009 5:29 PM, Anonymous Dr. T said...

"The number of doctors is a political decision, heavily influenced by doctors themselves."

Somebody please show me the evidence for this. What no one in the media seems to understand is that a university cannot just suddenly decide to add a medical school. The costs are enormous, the logistics are difficult (there must be many local hospitals willing to teach students and residents), the medical school must be approved by an accrediting agency (which is NOT the AMA as most reporters believe), the participating teaching hospitals have to be accredited, federal funding must be arranged, and qualified faculty and deans have to be hired. This is why so few new medical schools exist.

Expanding existing schools also is difficult because it requires larger lecture halls, a larger anatomy lab (for dissecting and studying cadavers), larger microscope labs, more small rooms for problem-based learning and case studies, more computers, more faculty, etc. A 20% expansion will cost tens of millions of dollars and may take five years or more to complete.

There are tens of thousands of qualified foreign physicians who want to practice in the US. Congress and the President can increase the quotas whenever they wish. That's the fastest way to increase the pool of practicing physicians. Don't blame the doctors for this. Most are working very long hours and would not mind having fewer patients.

At 7/02/2009 8:45 PM, Anonymous Anonymous said...

I'm having trouble understanding how the author of this blog is an actual economist at Michigan. I am not a doctor but most of this discussion is irrational, as $200k is not a high average salary for a professional in the United States. (I will address this again later in the comment.)

Physician Assistants and Nurse Practitioners are substantially lower cost options than medical doctors for medical care and they can handle many of the less risky tasks in medicine. The average salary for PAs is $79k in 2008.

The us of PAs and NPs began in the military as a method to deal with a shortage of doctors. It was very successful and, as these positions are given more responsibility, they remove more tasks from more expensive physicians and reduce the cost of care. This is a real cost cutting option.

Using less skilled labor to handle medical care is the smart solution to some medical expenses associated with healthcare, but this is not the most important cost factor.

In one of the comments in the previous CD post, someone suggested that the U.S. spends 25% of its healthcare expenditures on doctors. This is a great distortion of the expenses.

As cited from the original report -- -- the U.S. spent 22.7% on physician services which includes the total cost of delivering care because we bill at the procedure level. It's the billing at the procedure level that causes most of the distortions in the industry.

Finally, while Mankiw and others seem ready to quote from the report, they skipped the comments directly below the figures that they pulled. I'll add them because the researchers had other explanations for the data:

"One can think of several reasons why physician compensation in the United States is relatively more generous than elsewhere. First, physicians in most other nations face a powerful single buyer (monopsony) for health services. As the McKinsey Global Institute and Mark Pauly have shown, market power (or regulation) translates into relatively lower prices for health services, including the services of physicians. Second, U.S. physicians must make a larger financial investment in their education than their counterparts in many other countries do; they must recover the debt they incur as part of the educational process. Third, the incomes of highly skilled health care workers—notably physicians—are determined partly with reference to the incomes that equally able and skilled professionals can earn elsewhere in the economy. Because the U.S. distribution of earned income for all occupations is wider than it is in most other OECD countries, the relatively high incomes offered skilled professionals in the United States may well have served to pull up the incomes of American physicians relative to the incomes of their peers abroad."

There is abundant evidence that some spending on doctors is unnecessary. But, the more likely result of fixing this is a change in the distribution of income across doctors and not a substantial decrease. There is not abundant evidence that giving M.D. degrees to more people (some with weaker credentials) is a good idea. In addition, reducing financial incentives for smart people to become doctors also seems counterproductive. In the computer industry smarter people have 10:1 to 100:1 productivity advantages over less smart people in writing software. I don't need more idiots trying to write software and I don't need more idiots practicing medicine without any differentiation between their degrees and skills.

If we could get access to physician data on productivity and safety, perhaps we could actually answer these more interesting productivity questions.

At 7/02/2009 9:13 PM, Blogger C. August said...

Anon @ 8:45pm 7/2/09

All I see here is that you're echoing Keynes. You see a strong role of government dictating what individuals can do in a market for some sort of overarching societal goal.

You say that "some spending on doctors is unnecessary" and then presume to suggest a different distribution of incomes across that -- dare I say... class? -- will "fix" supposed problems.

Why such a narrow focus on data and statistics, when the fundamental questions are so much more important? By what right do you or a government get to decide what "spending is unnecessary"? _Who_ is doing the spending? _Where_ is the money coming from? What does this even mean?

It means that some bureaucrat has decided he gets to judge how to dispose of another person's life, because that person has decided to be productive in an industry (medicine) that said petty bureaucrat had determined "vital" or "too big to fail," or a "human right." (and from the consumer side, that the bureaucrat gets to decide how he spends his money)

We're discussing a supposed shortage of doctors -- which, if you would look at it closely, is an artificial condition caused by price controls -- and you're worrying about how government can "fix" it, when economists like Bastiat, Hayek, Mises and Reisman have shown, for over 150 years, that the only "fix" is for government to get out of the way.

You want to answer "interesting productivity questions", while you should be looking to the workings of the free market and how it both respects the individual rights of the producers and consumers, and also works.

At 7/03/2009 12:45 AM, Blogger Hot Sam said...

This comment has been removed by the author.

At 7/06/2009 8:11 AM, Anonymous Anonymous said...

C. August, I just gave you a standing ovation for your comments...not just any standing ovation, the kind that starts with the slow clap and builds... Well written.

That is what has frustrated me most about most of these posts relating to the Healthcare system on Mark's blog.

Invariably, they start with insulting Dr. Perry's intelligence. Next, they offer some rationale based on a bunch of value judgments on why this or that analysis is wrong and additional forms of intervention would make it right.

Dr T and Anonymous (the other one not me), we don't need your analysis to fix the problem by telling us the best way(s) to limit our choices or freedom. The answer is so simple that it is profound. We simply need for you, the other rent-seekers and bureaucrats to get out of the d**n way.


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