Physician Pay In The U.S.

There is a physician shortage in the United States and this and general features of the hybrid health care system in the United States cause almost all medical providers including but not limited to physicians, nurses, hospitals, drug makers, and medical equipment makers to be paid too much. Neither student loan debt nor medical malpractice insurance premiums nor long years of education and early years of low income as a resident mitigate the fact that physicians are paid too much. 

In the case of physicians, a significant factor is a shortage of physicians with M.D.'s due to insufficient medical school and U.S. residency slots, which the health care system copes with by producing more osteopathic doctors, by giving nurses and physicians assistants and psychologists more authority, and by allowing foreign M.D.'s to immigrate to the U.S.

Some developed countries have twice as many physicians per capita as the U.S. and there is no shortage of qualified medical school applicants. There are half as many physicians per capita as there were in the 1950s. Admission rates for medical school are lower than for any undergraduate college or university in the country, even Harvard. We want physicians to be smart, but we could easily double medical school admissions rates without impairing physician quality in a troubling way, and as it is we are substituting non-physicians with less extreme admissions and education requirements for physicians and failing to make residencies available for highly qualified physicians. Very few countries  that are at all developed have as few primary care/generalist physicians per capita as the U.S. (just 3.1 per 10,000), that U.S. is the middle of the international norm in its number of specialist physicians per capita (23.6 per 10,000). It is near the bottom in terms of total number of physicians per capita, barely in the range of developed countries.

The supply is M.D.'s is also limited because high pay allows physicians to retire early and because higher pay for specialist M.D.s reduces the supply of primary care physicians. Lowering physician pay might actually increase the supply of physicians since it would be harder economically for them to retire earely.

High rates of pay for physicians is also influenced by an industry organization that pushes physicians into owning their own practices rather than working for others, which produces higher compensated physicians but lower quality health care administration.

The average U.S. physician earns $350,000 a year. Top doctors pull in 10 times that. . . . The figures are nigh-on unimpeachable. They come from a working paper, newly updated, that analyzes more than 10 million tax records from 965,000 physicians over 13 years. The talented economist-authors also went to extreme lengths to protect filers’ privacy, as is standard for this type of research.

By accounting for all streams of income, they revealed that doctors make more than anyone thought — and more than any other occupation we’ve measured. In the prime earning years of 40 to 55, the average physician made $405,000 in 2017 — almost all of it (94 percent) from wages. Doctors in the top 10 percent averaged $1.3 million. And those in the top 1 percent averaged an astounding $4 million, though most of that (85 percent) came from business income or capital gains.

In certain specialties, doctors see substantially more in their peak earning years: Neurosurgeons (about $920,000), orthopedic surgeons ($789,000) and radiation oncologists ($709,000) all did especially well for themselves. Specialty incomes cover 2005 to 2017 and are expressed in 2017 dollars. . . . Even in these peak years, family-practice physicians made around $230,000 a year. General practice ($225,000) and preventive-medicine ($224,000) doctors earned even less — though that’s still enough to put them at the top of the heap among all U.S. earners. . . .

Our analysis of Census Bureau data shows that residents are in an exclusive class with oil field roughnecks when it comes to hours worked in their late 20s and early 30s; firefighting managers such as captains and lieutenants also come close. And those blue-collar jobs pay about as well as medical residencies — often a bit better. At least until the residents become physicians and settle into working fewer hours and earning, um, more.

Residency also extends your education into your late 20s and beyond, cutting into your lifetime earning potential. And, as Abaluck’s students often point out, that long medical education also leads to astonishingly high student debt — an average of $246,000 as of 2017. But that debt almost vanishes against a physician’s still more-than-robust expected $10 million in lifetime income.

In 1970, based on a slightly different measure that’s been tracked for longer, America had more licensed physicians per person than all but two of the 10 countries for which we have data. . . .

[T]he United States has far fewer residency slots than qualified med school graduates, which means thousands of qualified future physicians are annually shut out of the residency pipeline, denied their chosen career and stuck with no way to pay back those quarter-million-dollar loans.

[A] deeply influential 1980 report . . . by a federal advisory committee tasked with ensuring the nation had neither too few nor too many doctors, concluded that America was barreling toward a massive physician surplus. . . .

In response to the report and the end of some federal grant programs, the mighty Association of American Medical Colleges (AAMC), a coalition of MD-granting medical schools and affiliated teaching hospitals, slammed the brakes on a long expansion. From 1980 to around 2004, the number of medical grads flatlined, even as the American population rose 29 percent. . . . 

Federal support for residencies was also ratcheted down, making it expensive or impossible for hospitals to provide enough slots for all the medical school graduates hitting the market each year. That effort peaked with the 1997 Balanced Budget Act which, among other things, froze funding for residencies — partially under the flawed assumption that HMOs would forever reduce the need for medical care in America[.]

In 2021, a large survey found that about 1 in 5 doctors intended to leave their current practice within two years, and the share of physicians in private practice fell from 56 percent in 2016 to 47 percent in 2022, according to the American Medical Association.

But for decades, many policymakers believed more doctors caused higher medical spending. Orr says that’s partly true, but “the early studies failed to differentiate between increased availability of valuable medical services and unnecessary treatment and services.”

“In reality, the greater utilization in places with more doctors represented greater availability, both in terms of expanded access to primary care and an ever-growing array of new and more advanced medical services,” he writes. “The impact of physician supply on levels of excessive treatment appears to be either small or nonexistent.” . . . 

Polyakova and her collaborators find doctor pay consumes only 8.6 percent of overall health spending. It grew a bit faster than inflation over the time period studied, but much slower than overall health-care costs.

“People have a narrative that physician earnings is one of the main drivers of high health-care costs in the U.S.,” Polyakova told us. “It is kind of hard to support this narrative if ultimately physicians earn less than 10 percent of national health-care expenditures.”

Regardless, the dramatic limits on medical school enrollment and residencies enjoyed strong support from the AAMC and the AMA. We were surprised to hear both organizations now sound the alarm about a doctor shortage. MD-granting medical schools started expanding again in 2005.

Someone like Orr might say it’s because states have responded to the shortage by empowering nurse practitioners and physician assistants to perform tasks that once were the sole province of physicians. Over the past 20 years, the number of registered nurses grew almost twice as quickly as the number of doctors, and the number of physician assistants grew almost three times as rapidly, our analysis showed.

Osteopathic schools, which grant DO degrees, were also fast to respond to the physician shortage, doubling in number since the turn of the millennium, according to the American Association of Colleges of Osteopathic Medicine. DO is a legally equivalent medical degree that features additional training in hands-on, chiropractic-like treatment, and those who earn it are more likely to go into primary care.

While there still aren’t enough residency positions, we’re getting more thanks in part to recent federal spending bills that will fund 1,200 more slots over the next few years.

But that’s still well short of the 4,000 per year that Grover estimates will be needed to stem the shortage.

From the Washington Post.