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April 18, 2006

How Much Should Doctors Make?

In the comments to my post on Wal-Mart's health offerings, Joel writes:

when you try to make the much needed cuts in healthcare cost---leave the doctors pay alone. Why? Say for one of my patients with prostate cancer who i do a prostatectomy (removing their prostate) the hospital bill is around $24K. But I only get $1,800. Do the math the doctors are no longer these fat cats. After 4 yrs of college, 4 years of medical school, 6 years of residency, and 3 years of fellowship...whewww I need a break. I think I deserve all of that $1,800.

Fair enough.  Which reminds me of a graph I've been meaning to post, an international comparison of doctor's salaries:


Quite a jump we have on the rest of the world there.  Now, Joel is right: given what it costs to go to medical school, cutting doctor's salaries would be a foll's maneuver.  But what about a bargain?  Doctors, to some extent, work for the public good.  Why shouldn't the country subsidize their education -- particularly if they go into high-need specialties or work in inadequately served areas -- but lower their pay?  Or at least allow for many more nurse practitioners?  As part of it, we can follow this doc's advice and use the power of the state to restore job quality for doctor's, allowing them to turn their attention from paperwork and bureaucratic haggling and back to patient care.  Because the truth is, our nation's doctors are great, but they're not twice as good as Germany's, or Canada's, or Japan's.  Not near it.  Our rates of negligent malpractice remain high, and our outcomes are no better.  And being a doctor shouldn't be about the money anyway, though the cost of following that route has ensured it will be.  We've scattered perverse incentives all about, and offering a more affordable path and enjoyable career in return for somewhat lower salaries would go far towards fixing them.

April 18, 2006 | Permalink


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Well, if there was any doubt as to why foreign doctors are flooding into the US instead of the other way around, that chart sure clears it up!

Posted by: Fred Jones | Apr 18, 2006 2:51:10 PM

Open up immigration for doctors and let the market set prices. Personally, I think that if you offer docs the choice of (a) single payer, or (b) relatively unrestricted immigration for any and all doctors, most doctors will choose (a).

Posted by: SomeCallMeTim | Apr 18, 2006 2:54:41 PM

I've heard that the AMA does some bad stuff where it tries to restrict the number of doctors coming out of medical schools, to constrict supply and drive up prices.

Posted by: Neil the Ethical Werewolf | Apr 18, 2006 2:58:13 PM

I can see one argument against subsidization. It IS hard to get through medical school. Probably for a reason. We don't want Dr. Boob working on you. But subsidizing a bunch of potential drop outs seems a bit, well, wrong.

Posted by: Adrock | Apr 18, 2006 3:22:11 PM

I've heard that the AMA does some bad stuff where it tries to restrict the number of doctors coming out of medical schools, to constrict supply and drive up prices.

You are correct, Sir. It is not a free market. The AMA is arguably the most powerful lobby organization on the hill. They lobby for legislation making it harder with more red tape to even build medical schools. The answer is to include other disciplines as we do with the Osteopaths.

Posted by: Fred Jones | Apr 18, 2006 3:32:45 PM

I indeed agree under the preface that doctors' focus should be on patient care and not like that of an automobile machanic. I have had several experiences in which the almighty, untouchable healthcare professional has reccommended expensive procedures in cases where multiple opinions have revealed them to be unnecessary.

Posted by: Darren Dalsis | Apr 18, 2006 3:47:20 PM

Oh the poor doctors! Social workers have 2 additional years of education to the doctors' 4, but when they graduate, they often make less than doctors do when they are a resident. It could be worse than being a doctor in America.

I do agree that it's a crime to let medical schools profiteer off their students like this, though, just because they know their students will be making a ton of money later. It's a self-supporting loop at this point. Med school is expensive because doctors make a lot, but they need to make a lot because med school is so expensive, but as long as they make so much, med schools can pricegouge, etc...

Posted by: spike | Apr 18, 2006 3:55:01 PM

You are correct docs in US are paid more than docs in other countries. Unfortunately comparing US docs to docs in other countries is like comparing apples to oranges. Our training is so different and our practice can vary too. I had to go through 17 years (gulp...it still amazes me) of training to get to where I am. In some countries they have a combo university/medical school so that their training time is shorter. Subsidizing educational cost is interesting and would help. I won't tell ya how much debt I was in after 17 years. Plus in some countries like Germany they have a '2 tier' system (ie their are office based urologists---see patients etc and hospital based urologist---operates on patients. This too can decrease training time. Though we may not be worth our salary (well I am at least--prostatecomies are tough stuff a millimeter too much here impotent, millimeter too much there incontinent) there is a reason docs from other countries come here to train. We are without a doubt the country that 'can' (see I used the word can) deliver the best healthcare.
As for limiting the # of medical students...usually we do not. But we can tweak the # of residencies (and that is the true choke point). Less residents say in radiology does = increase demand and possible increase wages. But really I learned this a long, long, long time ago. Go into medicine because you have a passion for it, not for the money. There are a helluva lot of easier ways to earn a buck. And don't even get me started on lawsuits...

Posted by: Joel | Apr 18, 2006 3:59:36 PM

Right -- all that's correct, and what I'm recommending is that we rework our system to more closely model other, cheaper countries. As you say, you went through an excruciating training process that had, at the end of it, certain promises. You deserve to see them fulfilled. But maybe there's a better way to conduct the next generation.

Posted by: Ezra | Apr 18, 2006 4:05:16 PM

But subsidizing a bunch of potential drop outs seems a bit, well, wrong.

Well...you could structure a subsidy so that it starts small but increases with each year of med school; that would reduce lost investment from drop-outs. Or you could have a partial subsidy during med school with a back-end refund for those who graduate. Or you could make it entirely back-end and structure it as paying off some or all of student loans (100% for those who go into highly-needed practice areas or under-served locations, less for everybody else). In other words, there are a lot of ways to do it so that isn't much of a problem.

Posted by: Tom Hilton | Apr 18, 2006 4:09:23 PM

We do regulate and subsidize the education of doctors, but the policy has left us with too few doctors. A lot of distortions in medical care, not to mention malpractice, have to do with the shortage of doctors.

Posted by: Bruce Wilder | Apr 18, 2006 4:15:24 PM

Interesting stuff. A few disjointed thoughts (not sure where they lead):

1. I guess that not only is the *average* pay of doctors higher in the United States, but that it masks a huge variation in pay. Top spine surgeons make that much in six weeks. I'm not sure what to make of that -- my sense is that most American professions tend to spread pay at the top, so maybe that is an American thing rather than a doctor thing.

2. Although you hint at it with your comparisons to the quality of doctors in Japan and Canada, you do not tackle (in this post, at least) a very interesting question: How good should we want our doctors to be? Do we really need many of our best people going in to medicine? If we regulate compensation there and do not in other fields, are we worried that we will dumb down medicine? Should we care if we do?

3. You said: "Our rates of negligent malpractice remain high, and our outcomes are no better." Agreed on the outcomes (at least on average), but I don't know how you can unpack our rates of 'negligent malpractice' from the peculiarities of the American tort system (and, there is no doubt, the American tort system is both unique in the world and peculiar to everybody else). If you have some data on medical malpractice that control for the governing legal system, I would be thrilled to see it.

4. Doctors need to be paid a lot because of our tort system. Progressives don't want to hear it, but it is true, and it is not just about the cost of malpractice insurance (which for some professions is *more* than the average *salaries* for most of the other countries on your graph). In addition to the dollars, there is the damage to dignity. Other countries "pay" their doctors in social prestige, which seems to be what you are driving at when you write that "being a doctor shouldn't be about the money." We used to do that, too. Today, though, the trial bar has destroyed the prestige of the medical profession by various means (advertising, anti-doctor lobbying efforts, gum-flapping tort lawyers on TV, etc.). In addition to that, the mechanics of civil litigation (subpoenas, depositions, document production, the language of pleadings) are inherently degrading, especially to, er, arrogant people like doctors. Finally, the tedious CYA mechanisms that all doctors have to do -- more testing than in their heart of hearts they think necessary, lots of documentation, lots of extra consultation, maneuvering to avoid difficult cases or cantankerous patients -- further degrade them. After all of this, their attitude is that if they do not get to enjoy being the Medicine Man with all the attendant prestige, dammit, they're at least gonna get paid.

Can't say I blame them.

Posted by: TigerHawk | Apr 18, 2006 4:31:29 PM

I wonder what a graph similar graph would like like for plummers or computer programmers or professional athletes.

Wages vary dramatically from region to region and nation to nation for a variety of reasons. Just looking at the dollar ammounts doesn't tell you much.

Posted by: Dave Justus | Apr 18, 2006 4:46:48 PM

Really not enough information to say if the MD deserves his $1800 or not. How long is the procedure, how often does he do it, what do his outcomes look like . . . . the bottom line is, as we say about plumbers, you pay 10% for hammering and 90% for knowing where to hit the pipe. I don't want to begrudge a professional his due.

But the underlying issue is that everyone but the guy doing the work gets paid more than he does. Does managed care mean the managers make more than the caregivers? Should it?

Ezra knows more about this than I do but I think the blame for this, responsibility if you prefer, lies with the employers who bought insurance plans without looking at the costs. It's a great thing to take care of your workers, to supply a safety net, but I think it turned into a gold mine for the insurers as they raised premiums while squeezing the doctors.

We get less care for our dollar and it can't all be due to tort-related expenses. I think the buyers -- the employers -- should have taken charge of this with some kind of risk pool system or co-op to get control of the costs. Between the AMA cartel and the insurers, it's a mixture of inefficiency and greed and we all lose.

Posted by: paul | Apr 18, 2006 5:27:11 PM

Whoa so revamp the educational system for medicine too. Though it probably needs it...yet another tough order. Though other countries have cheaper education I'm not sure its better. But I'm sure it can be pruned. With that said then you'll hit salaries for medical school professors. Just like college professors they aint retiring at 45 with a boat load of money. Very tough...all the is spawned from heathcare cost. Maybe we should critically assess healthcare cost. How much profits are the hospital making, the pharmaceutical companies, etc? Where is the guys $24,000 bill going? Making changes at this level will eventual cause a trickle down effect to education. Its weird ...healthcare is cheaper in these other countries but their average hospital stay is significant longer. For example back to the prostatectomy. Patients are in the hospital an average of 2 days after surgery. They go home with their urinary catheter in place. Why...it doesn't take a rocket scientist to monitor a urinary catheter. With proper instructions patients can take care of them. (Plus on day 2 the insurance companies are already ushering the patients out da door). Now in Germany and Japan it is unheard of to send a patient home with this catheter. So they stay in the hospital for 2-3 weeks until its removed. On average hospital stay per night is around $220 in the US. Again how are we still not doing a good job?

Good point about American wages in general Dave.

Posted by: Joel | Apr 18, 2006 5:28:03 PM

Some notes:

(1) halving physician salaries would reduce overall health care spending by 5%. Reducing pharmaceutical spending by 70%—the estimated result of moving to bulk bargainin—would reduce spending by 9 or 10%. Reducing administrative costs of our patchwork system would probably be the same.

(2) Also, to some extent MD salaries are offset by higher malpractice insurance costs in the USA. If you have a private practice, your insurance costs come out of your salary. This is part of the argument for moving to a "no-fault compensation" system for medical malpractice or some right-wing tort reform. Without some form of "tort reform", it's going to be very hard to get the AMA to go along with anything that will reduce their salaries.

(3) A nurse with a masters in hospital adminstration can make $80K+. GP's and ER physicians tend to make between 90K and 120K depending on the region. Further cutting GP salaries might result in a bizarre situation where doctors make less than nurses. Now, senior secretaries at top law firms often make more than fresh-out-of-law-school associates, so maybe the world won't come to an end.

There are two killers here. First, for a long time, we have said in the US that being a doctor is a way into the upper class. Not upper-middle class, and not the Hilton's high society, but three-luxury-car-garage -in-a-large-house upper class. In Europe it's a way to have steady, upper-middle class work (remember that en Europe, everybody works less). Second, the insane student loans that you & Joel point out give people much more incentive to go into lucrative specializations. So if you look at the percentage of doctors who are GPs in the US, it's significantly lower.

Justus brings out the "averages don't tell you everything" canard, which is very much a canard here, since we're talking about reducing overall spending. Reducing the average wage would almost by definition reduce overall spending.

Posted by: Nicholas Beaudrot | Apr 18, 2006 5:33:12 PM

Now, senior secretaries at top law firms often make more than fresh-out-of-law-school associates, so maybe the world won't come to an end.

That hasn't been true for twenty years. Starting salaries for new first year associates at top law firms (meaning any of the top 200 or so firms that do corporate work) are in the $110,000 - $140,000. I'd be amazed if there are senior secretaries that make anything like that. Maybe the personal slave of a managing partner somewhere, but I doubt even that.

Posted by: TigerHawk | Apr 18, 2006 5:58:10 PM


Nicholas touches on this a bit, but the problem is emphatically not the tort system. Malpractice insurance is the problem. It is a virtually unregulated industry that can make extremely risky investments and then use premium hikes as a way to recoup market losses. In states where "tort reform" has passed, malpractice insurance rates have gone up just as much as in other states, often increasing at a faster rate.

Reforming the malpractice insurance industry is a good way to reduce costs without touching doctors' salaries, since they don't take that money home anyway.

Posted by: Stephen | Apr 18, 2006 6:05:23 PM

Stephen, I hate to be dogmatic, but you are just wrong. Whatever the depredations of the malpractice insurance industry (and your arguments make no sense -- if the malpractice insurance industry is "virtually unregulated," there should be price competition in the pricing of premiums, and low barriers to entry), the tort system is a disaster for many reasons, including the largely non-monetary reasons I articulated in my comments above.

People who advocate reforms in Amerian healthcare finance frequently look at the examples of other countries and suggest we adopt the best attributes those other systems. Just fine, who can argue with that? But why is it that progressives who are willing to look at all kinds of financing alternatives from all kinds of countries suddenly close their minds to other systems for redressing malpractice damages? The American tort system is literally unique in the world. How can you be so sure that it isn't at least one significant cause of overutilization?

I can give you but one tiny example: the massive overscreening for cervical cancer in this country. Nobody outside the United States thinks a Pap smear is necessary more often than about every three years. Doctors push the test annually in the United States because of fear of liability. The new technologies for more accurate cervical cancer screening, and demand for those technologies ten years ago, were (in part) a function of the lawsuits brought over blown Pap smear screens.

Every expert on healthcare agrees that the American "worried well" grossly overutilize healthcare. It is also beyond dispute that we have a totally unique tort system that famously puts doctors on the defensive. It defies reason to put the blame for this on the malpractice insurance industry (however screwed up it may be).

Posted by: TigerHawk | Apr 18, 2006 6:32:49 PM

One last comment(s)...
Its a very interesting idea to reform healthcare education. though a tall task its very interesting. Some reform has come over the last few years. Again not sure its been good. They have now enacted an 80 hr max work week for interns/residents. (Caused by some deaths presumably due to overworked residents, interns/residents cannot work over 80 hrs a week---this includes call). There were times, just a few years ago when I was a intern that I worked over 120 hrs/wk some months. Though it sucked...we saw a lot and learned alot. Now nothing could/would surprise me after such an extensive training. However interns and residents today are just a mere shell of the docs only from just a few years ago. So a change that hasn't worked out...in my eyes at least (Have there been less deaths due to well rested docs...haven't noticed it. Unfortunately most of the deaths are due to poor patient protoplasm.) So be careful with reforming medical health education.
And lastly being a doc takes a committment these days. My old cardiothoracic surgeon would always stress (and that's a nice way of putting it) that we must be committed to the proper care of our patients. "Do you know the difference between being involved in the care of your patients and committed to the care of your patients. Well when you ate your breakfast this morning the chicken was involved...the pig was committed" For being committed, it rare for a doctor to be overcompensated. But obviously I am biased.

Posted by: Joel | Apr 18, 2006 6:44:24 PM

Paul said: but I think it turned into a gold mine for the insurers as they raised premiums while squeezing the doctors.

The growth of HMO's and managed care created a new entity in the medical system - the Medical Group. Most people don't know they exist. But the medical group has become an essential mid-stream influence on medical costs in a major way. These kinds of entity now impact medicine very widely, not just for those in HMO practice. Nearly every hospital (particularly academic health centers) has a medical group now.

Here's what a medical group does, typically:

- MDs apply and join the group, and agree to accept in fees whatever the Medical Group negotiates with the major insurers. The patients and the insurers actually pay the bills, but the 'reasonable and normal' standard is created by the Medical Group negotiating with the insurers.

- Medical Groups usually have some supervisory role over things like average patient visit times, number of patients seen, etc. They do this through monitoring reports, etc.

- If an MD is substandard, they risk being dropped by the Medical Group and then in turn, the insurers.

- In effect, the Medical Group acts like a labor union but without formal bargaining rights under the law.

- In academic health centers (and perhaps some hospitals with staff MDs), the Medical Group acts as the billing and collection agent for all the MDs, including the faculty practices.

- In private practice, the medical group doesn't bill and collect from patients, the MD does. But the fees charged are within the range the Medical Group has negotiated with the insurers.

Unraveling the costs of physicians from the insurance company/medical group axis will be very difficult. The whole 'reasonable and normal' billing structure is based on these fees, which are local/regional in nature. Even Medicare depends on these structure, although Medicare discounts the fees - a constant source of complaints from MDs - as Congress annually determines the Medicare budget.

My guess is that Nicholas is right. The MD fee part of our health cost structure is not low hanging fruit, and will take decades to reform. Incrementalism!

We should not move from the near-in target: Single payer universal health care (rather than multi-payer private insurance), since there is at least a 10% overall savings from this move, but more importantly we establish the primary task of bringing basic health care to all within the US.

For now, the MD compensation, fee structures, medical groups, malpractice issues, and medical school issues (number of students, cost of education, etc.) are way more complicated to solve equitably and quickly. They should be reformed over time once we get a national health care platform.

Posted by: JimPortlandOR | Apr 18, 2006 6:51:21 PM


I don't know the source for your graph, but I think there is a serious factual error there. According to the 2000 US census (http://www.census.gov/hhes/www/income/earnings/call2usboth.html) (sorry for the long link) the median compensation for a full time doctor in the US is closer to $125,000.

Though I was surprised to see that in the same data pool the average pay for our bete noir, the lawyers, was lower -- about $82K. I wonder why.

And don't conflate outcomes with the quality of care. Remember that in the US, 45 million folks are uninsured and thereby with restricted access to healthcare, which will tend to skew the outcomes curve.

Posted by: shadowfax | Apr 18, 2006 6:56:42 PM

if the malpractice insurance industry is "virtually unregulated," there should be price competition in the pricing of premiums, and low barriers to entry

This is just incoherent. Regulation is hardly the sole (or even prime) nemesis of price competition and high barriers to entry. I think Tigerhawk is conflating his Randian fantasy world with the actual world where capital, technology, connections, and imperfect information actually act as barriers to both of those things.

Tigerhawk's attack on the US tort system may not be incoherent, but it's deceptive. There are three ways to make sure that an industry treats the general public well: perfect information and competition (unlikely for any industry delivering a complex service or which is able to otherwise hide its costs from the relevant market), regulation (libertarian bogeyman), or tort (libertarian bogeyman -- despite their doctrinal position on courts). It's no coincidence that most other western countries have more regulation than the US does, and less tort. The US has relied more on tort and competition, less on regulation.

And now pro-big-bidness conservatives want to eliminate tort as well, leaving only competition, which assumes away most of what we actually know about how markets work in favor of Randian platonic ideals.

Posted by: paperwight | Apr 18, 2006 6:58:13 PM

Tigerhawk: Today, though, the trial bar has destroyed the prestige of the medical profession by various means (advertising, anti-doctor lobbying efforts, gum-flapping tort lawyers on TV, etc.

Maybe that's part of it but my opinion of doctors deteriorated from personal experience. While there are some truly excellent doctors practicing, I think too many people become doctors for the money and prestige but have no real interest in the profession, i.e., helping people and/or scientific curiosity.


Posted by: Emma Zahn | Apr 18, 2006 7:24:06 PM

People become doctors for the money & prestiege? Oh my God!!!1

Posted by: Dustin | Apr 18, 2006 8:02:45 PM

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