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
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.