Greg Mankiw features the chart below 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?
To be clear, the AMA does not limit the number of people who pursue careers in medicine and has no power to do so. The AMA continues to advocate for an increase in the physician workforce, especially in light of our quest for health-care reform that covers all Americans. We need to attract the best and brightest to careers in medicine and help practicing physicians continue to provide high quality patient care. To successfully increase the physician workforce to meet America’s long-term needs, the AMA is calling on Congress to lift the current cap on residency positions, create new incentives to get physicians to underserved areas, and enact permanent Medicare physician payment reform. With the growing U.S. population and aging baby boomers, the physician shortage is one our nation cannot ignore if we want adequate access to health care.
-American Medical Association
(Parody). We, the AMA, are lying to the public. We do effectively restrict the number of physicians produced by the methods described in the above article. More med schools and more accepted applicants would mean more doctors, oversupply and less pay for us – c’mon now, we don’t want that. Yes, there are other problems in the healthcare system – but fundamentally, our lobbying of Congress (we are annually one of the top political lobbyists) helps us restrict the supply of doctors. Sorry, if you don’t like it, go to Europe where it may cost $10-20 to see a doctor for a flu virus. Here, in the US, yup, you see us, you’re gonna PAY.. hey, how else can our family docs make 2-5x European doctors, you understand, right?
Wow very clever! I almost thought you were the AMA! Moron
physician salaries are a small factor in the cost of healthcare so this whole thing is pointless, drug prices, expensive medical technology, more imaging, etc is why your healthcare is so expensive. Also we live in an expensive ass country, what do you expect! Higher physicians salaries, compared to what ever country that you can’t even use as a comparison because of demographic differences, are here to make up for expensive and long education that docs must fund as well as high malpractice insurance because
These docs in other countrys work half the hours and half the pace. And don’t have the problems of our county, immigrants and income disparity. You aren’t just paying for your own healthcare but the ED visit of the homeless guy outside! What you think the government actually makes money and pays for that guy? Everyone needs to get paid
close this horrible and ignorant article
I was told by a doctor that the US government offerred to pay to have solders sent to medical schools during WWII due to the severe shortage of MDs and the AMA refused to to allow the servicemen into the medical schools. If the AMA is serious about increasing the number of doctors, why hasn’t it happened? The AMA is one of the most powerful lobbyists in the US and Congress has nothing to gain by limiting the number of doctors. I have already written my Senator about the need to increase the number of MDs to get the cost of healthcare reduced. Maybe this needs to become a major issue ofthe healthcare debate.
The comment by the AMA above is rubbish. Medical schools are controlled by the LCME. The LCME is dominated and funded by the AMA. The AMA deliberately holds down the numbers of medical graduates to keep their disgusting incomes high.
The AMA’s opposition to nurse practitioners may also be a factor.
Didn’t they come out against NP-clinics recently?
And yet it is acknowledged that the inconvenient hours
and locations of the average doctor’s office do contribute
to the overuse of ERs. So NP-clinics are helpful. But
the AMA doesn’t like any competition, it seems.
Thanks for the bar-graphs.
[...] Read the story [...]
agreed….we have a cartel here, is Obama aware?
more training, competition, debt, and arguably more work than other professions-why should they deserve more money?
You can’t just pop up med schools like some of these store front law schools, much more is involved in training physicians and the education is regulated so you have a well trained physician population
more med schools and larger class sizes have been increased recently, so efforts have been made, but without increased residency spots its pointless, which takes government $, so encourage the government to increase residency spots rather than spend their time helping their lawyer buddies
It is actually a little of both. The AMA, through sponsored entities does limit both the number of med schools and the number of accepted applicants. It is also true that Congress effectively limits the number of residents since Medicare pays for the bulk of resident expenses in Direct Graduate Medical Expenses DGME).
If AMA representatives want to blame Congress though, I’d like to see them also support getting government out of the medical field entirely and restoring free markets. When you let the bear get its nose in your door, it is going to come all the way in and eat you. It seems most every Association plays this game of trying to get the most money through government and then expecting they can control the strings that will be attached.
Both Congress and the AMA should let the free market work. The clearest article I’ve seen on this is Milton Friedman’s article here:
http://www.hoover.org/publications/digest/3459466.html
Yes, there are not enough doctors. Yes the cost of medical education is tremendous. Yes, there is not enough competition between insurance companies in most states. Yes, there is too much “lawsuit abuse.” Yes, the doctor -patient relationship is broken.
All of this can be traced back to government involvement either directly (regulation/legislation) or indirectly (distortions through subsidies or the tax code.)
The answer is not more government, but less. If we continue down this path, there will not be a need for more residents or more schools, as government will dictate all terms of the profession and the “brightest” will look elsewhere for a career.
For the past quarter-century, the American Medical Association and other industry groups have predicted a glut of doctors and worked to limit the number of new physicians. In 1994, the Journal of the American Medical Association predicted a surplus of 165,000 doctors by 2000.
“It didn’t happen,” says Harvard University medical professor David Blumenthal, author of a New England Journal of Medicinearticle on the doctor supply. “Physicians aren’t driving taxis. In fact, we’re all gainfully employed, earning good incomes, and new physicians are getting two, three or four job offers.”
http://www.usatoday.com/news/health/2005-03-02-doctor-shortage_x.htm
Dave,
What do suggest the physician’s income should be? How do you determine their salary is “disgusting”? I can make the same argument for lawyers/electricians/plumbers and definitely pro-athletes.
With your reasoning, why don’t we force the NBA and NFL to have 5x more teams. This would create more accessibility and hopefully, lower costs.
I have an idea. Why don’t we allow high-school graduates who want to “help people” take a 2month correspondence class. If you pass with a 2.0, you can be a doctor. This would surely lower costs since the start-up costs for physicians would be minimal.
I am not really advocating this approach, but the time and costs to become a physician is astronomical. Also, during this time, income is lost while many of physicians’ friends are out in the “real world” making very good money. I should know, I am a physician who owns an old car (and will keep if for awhile) while many of my friends are doing better than I ever will.
I was one of the top students in high school and college. If you want to keep competent people interested in medicine, you have to shorten the training/costs or keep salaries relatively high. That is the real world we live in. Any denying this is naive.
I completely understand that the doctors have to be well paid and they need to be compensated for the ordeal they go through in the medical schools and the debt they incur going through it.
Here is my argument against the current system however. You ask any doctor – they are over worked. There just are not enough doctors and to cater to the demand, they overwork. But, just like I don’t want a sleepless truck driver, pilot – I don’t want a sleepless surgeon either. Why not let the market demand determine the number of doctors we need, just like any other profession – or at least have a formula that measures up with the population growth? We’ll have enough doctors, well rested and maybe in the rural areas as well.
It is well established that the AMA indirectly, in subtle ways, controls the number of doctors in this country, using various tools in its arsenal. It is quite appalling how they always throw the free market principles in everyone’s face except when it comes their own union members.
These days I feel that if monetary reward is the primary approach to attract good candidates to a profession, it would hurt the profession in the long run; people in it will look for ways to enhance their income at any cost. That is obvious in the wall street. Not sure what the right number should be – why not let the market determine that rather than the AMA? Besides, there are enough contols (board exams etc) in place to ensure that the not-so-good doctors are weeded out.
Regardless, with the cost of the healthcare going up, everyone that is sharing the pie has to give up some including the doctors, insurance companies and maybe even the patients…
Again
no increase in docs, without an increase in residency spots
Medicaid funds them, which is controlled by the government
like everything else
You are right!
The number is residents is controlled by the congress based on the amount of money they allocate towards residents’ payments. Unfortunately, it is the organizations like the AMA that lobby for limiting the funds – that’s why I was careful to say they “indirectly” control the number of doctors.
Anyone who is against any union, has to wonder why and how this union was so powerful all these years …..
The AMA is weak, that’s why so few docs even belong to it
medicine is competitive for a reason, do you really want your pediatric heart surgeon to be that dumb kid in glass who used to eat glue?
Docs will gladly leave this country for Australia, France or wherever for a bit of a pay cut. And people with half a brain won’t be entering medicine for 300k in debt and no way of paying it off as well as education till they are 30 and long ass hours.
Your health is the most important thing to you, why wouldn’t you want to take the best care of it that you can?
The other option would be to facilitate the immigration of foreign doctors to the US. Currently, they must have a US residency to practice, no matter how experienced they are in their home country. It is simply hubris to take the stance that US medical education is inherently superior to medical education abroad.
It would negatively affect the US and the country the doc was leaving. The US because, inherently or whatever, medical education in the US is more thorough, pretty self evident when you look at duration and curriculum. Language and cultural barriers are also a factor. Their country because then all these docs flock to the US for more money and better opportnites leaving their own country in the lurch. We could do this for every job in the US, replace with an immigrant that’ll do it for cheaper, problem solved! Pull your head out of your ass
And as an aside this is an article on lowering physician salaries in the US and you are really just arguing for increasing international physician salaries.
I think there are any number of ways this can be done:
1. Remove restrictions on numbers of doctors and instead, specify and enforce standards (to some degree this is already in place). I understand the argument that you don’t want anyone and everyone to become a doctor, but there are enough smart people who can and are willing. And, you test them. Universities would be willing to increase number of medical admissions, because there is money to be made there (look at the MBA offerings). More people will get into the program because of the rewards.
2. Come up with a way for patients to bargain down prices. This is one of screwed up systems in which as a buyer (patient), I want to pay the maximum (the insurance pays for it after all), because I can get the best doctor/treatment. Or, at least, increase insurance industry competition so that they can bring in lower cost doctors (you need enough of them however).
3. Just squeeze down the payment rates (needs government intervention) – the salaries are still high enough that people are not going to run away to other professions.
4. Reduce the debt burden that the doctors complain about by looking at the training that is actually required for doctors. Many other countries are able to produce doctors cheaper. They do ok. One can argue that our doctors are better than docs from elsewhere. But, is that commensurate with the amount of money that’s spent? Do they actually require as many years in school, regardless of the specialty?
I am sure there are holes in these approaches and there are other better approaches. But, broadly we have to rely on either the free market or mandated cost controls to lower the salaries. Right now, there are no cost controls and no free market since the supply is artificially controlled.
Regardless, the wastage and amount of money in our healthcare system is so much that no one even cares about the doctors’ salaries. Rightly so. And that’s how this issue is swept under the rug, I believe.
As a medical student there is one BIG thing I would like to point out here, the “average” salary is listed as ~200K. While that may be, this is certainly not the mode. Most physicians are, in fact, still in primary care (though we do need more) and most of these are making closer to 100-150K. The outliers are the cardiothoracic surgeons pulling in 600K+ or the plastic surgeons making bank. Well guess what, these guys deserve that much for a variety of reasons, market forces being one. There is a reason that big-shots from other countries come here for complex procedures.
Also, just opening up more schools isn’t the answer. If you want to see someone less qualified, go see a nurse practitioner. They are very abundant (for good reason, it’s just a 4 year nursing degree followed by 1-2 years of graduate classes). Do you know what it takes to get into the off-shore schools? Basically you have to have a pulse and some cash. Plus we have new D.O. schools opening up, so don’t forget that, that makes the count more like 160 medical schools. Yes, D.O.’s are pretty much identical to M.D.’s, albeit with the OMM garbage thrown in.
Oh, and P.S. It is a well known fact that most physicians are not part of the AMA. The majority of their membership is medical students, and most of us join because for 50$ they give you a pretty nice dissection kit. So keep that in mind. Doctors are decent people for the most part.
I think most people will agree that doctors need to be well paid for what they endure and also the nature of the work. I also believe that most doctors are nicer than average because those are the kind of people the profession attracts; otherwise, they would have gone to the wall street.
The issue is not whether doctors’ salaries should be high but why it is high. This discussion was primarily about whether the market should determine the salaries or whether the number of doctors produced should have been commensurate with the population. Either of these approaches would have been fair. What’s not fair is the controls that have been in place to keep the salaries high.
It’s true that the AMA suffers decline in its membership. It is true that the AMA has reversed its position on the number of primary care doctors recently. However, these are fairly recent transformations and will take years for the effects of these changes to propagate.
To deny the influence that the AMA has had in our politics is ignoring the facts, although I am glad that their influence has decreased. I would be equally glad when the influence that the pharma and insurance industry lobbies decrease as well.
Nevertheless, the problems in our healthcare industry are so huge that doctors salaries won’t make much of a dent. There are much bigger fish out there.
Ravi.