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April 19, 2006

On Doctor's Salaries

This is from Uwe Reinhardt, Gerard Anderson, and Peter Hussey's Health Affairs article on OECD medical spending. These guys are almost surely the most respected researchers in the field, so take their work very seriously:

Although the United States now has relatively fewer physicians per 1,000 population than the OECD median, its total national spending on physicians as a percentage of GDP is double the OECD median (2.9 percent in 1999, compared with an OECD median of 1.3 percent). U.S. physician spending peaked in 1991–1992 at 3.0 percent after steadily rising from 1.7 percent in 1980. Since 1992 spending has more or less hovered around 3 percent. OECD median spending has been mostly f lat over the entire period, hovering between 1.1 and 1.4 percent of total spending. As a dollar amount, U.S. per capita spending for physician services was the highest in the OECD in 1999: $988, compared with an OECD median of $342. Physician services accounted for 22.7 percent of total U.S. health spending in 1999, compared with 15.2 percent in the median OECD country.

Physicians’ incomes are much higher in the United States than they are in other OECD countries. In 1996, the most recent year for which data are available for multiple countries, the average U.S. physician income was $199,000. The comparable OECD median physician income was $70,324. The ratio of the average income of U.S. physicians to average employee compensation for the United States as a whole was about 5.5. Germany’s was the next highest, at only 3.4; Canada, 3.2; Australia, 2.2; Switzerland, 2.1; France, 1.9; Sweden, 1.5; and the United Kingdom, 1.4.

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.28 Second, U.S. physicians must make a larger financial investment in their education than their counter parts 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 skil led 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.

And there you have it.

April 19, 2006 | Permalink


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Hmm, but compared to other health costs, where do physician's fees really rank? What is the proportion to other costs?

Posted by: pantomimeHorse | Apr 19, 2006 1:08:33 PM

Last sentence, first paragraph...

Posted by: Ezra | Apr 19, 2006 2:07:59 PM

Does the cost of malpractice insurance somoehow factor into this? With Doctors on staff at a clinic at hospital, I would guess not. But is it possible that Doctors in private practice file their tax returns under proprietorships or partnerships where insurance is deducted against their revenues, thus distorting actual income?

Posted by: aflounder | Apr 19, 2006 2:32:05 PM

If you have fewer physicians per capita, you would expect them to recieve higher fees. We call that supply and demand.

Posted by: Dave Justus | Apr 19, 2006 4:55:20 PM

Yep, and we have fewer physicians per capita thanks to the AMA. Time to open that sucker up, or flood the zone with NPs.

Posted by: Ezra | Apr 19, 2006 5:39:09 PM

"Yep, and we have fewer physicians per capita thanks to the AMA. Time to open that sucker up, or flood the zone with NPs."

Let me explain this again. The AMA has NO SAY when openening new med schools. The LCME has sole authority, and they dont lobby for or against new med programs.

If I want to open a new med school, I need one thing: money. As long as you have money you can open up as many med schools as you want to, and the AMA has no say on the matter.

Take for example Florida. They have opened 3 new med schools in the last 5 years, and the AMA had zero say on any of them. The state legislatures approved the funding, they passed the LCME credentials, and thats all they had to do.

YOu are also ignoring osteopathic med schools. The AMA has no control over them either. There are currently 30 DO schools, with at least 10 new programs in the works.

As for NPs, you dont understand how they work either. The AMA has no control over NPs. NPs are regulated by state nursing boards, not medical boards or the AMA. NPs are fine for routine illness, but they are NOT trained to do surgery or handle complex illnesses. They are not trained to manage patients in septic shock or other serious life threatening illnesses. So NPs wont go very far in terms of replacing doctors.

Also, the USA has one of the highest doctor/patient ratios in the industrialized world. There is no evidence of an overall doctor shortage, just a doctor maldistribution. There are more than enough docs in big cities, not enough in rural areas.

Posted by: joe blow | Apr 19, 2006 5:50:30 PM

BTW, you say "flood the zone with NPs"

You are aware that in order to become an NP, you have to be a regular nurse first right?

In case you havent noticed, nurses arent exactly numerous in this country. There is a huge nursing shortage.

So even if you wanted to flood the nation with NPs, not enough people are interested in that as a career. YOu would have to correct the overall nursing shortage first before you could recruit more NPs

Posted by: joe blow | Apr 19, 2006 5:54:54 PM

pantomimeHorse: Physician compensation (i.e. what they get to take home in their paychecks) is about 10-11% of healthcare spending, physician services (i.e. what they get to run their businesses including paying employees, the rent, the utilities, etc.) is about 20% of healthcare dollars. In contrast, insurance companies skim off about 30% of your healthcare dollar.

Ezra: The AMA is a lobbying organization with no control over medical schools (or prescribing, or licensing, or a whole bunch of other things it gets credit for on a regular basis). There are about 1.2 applicatants for every U.S. medical school position and even with a big yearly influx of foreign medical grads there are unfilled residency positions every year. It's not clear that it would be possible to flood the market and knock those "high" salaries down enough to have any effect what so ever on healthcare costs.

Posted by: J Bean | Apr 19, 2006 7:30:43 PM


I dont know why you believe that more doctors would drive down doctor income.

that only works in free markets. Healthcare is not a free market. Medicare controls 50% of all healthcare dollars, by 2020 it will be 80%. Medicare reimbursement sets teh de facto standard for doctors incomes.

Medicare gives the same reimbursement whether there are 20 doctors or 20 million doctors. Doctors do not compete against each other, becasue its not a free market. Since its not a free market, doctor supply is INDEPENDENT of doctor income.

There are some exceptions to this, namely elective cosmetic type procedures such as plastic surgery or LASIK eye surgery. LASIK used to cost about $5000 per eye, now its down to less than $1000 in some areas. Thats possible ONLY because LASIK operates in a free market, unlike the rest of healthcare.

If you want a government run system (some say the US system is already de facto government run because Medicare is a behemoth that controls half of all healthcare spending) then you have to say goodbye to free markets. Free markets are the ONLY way doctors would compete against each other and drive down doctor income.

Posted by: joe blow | Apr 19, 2006 8:27:16 PM

OK. I'll let the NP do my prostatectomy tomorrow morning maybe my patients won't mind. Would you?
Joe is right about AMA not controlling # of students. The choke point in the system is # of residency spots. This is tightly controlled but not by AMA.

Posted by: Joel | Apr 19, 2006 8:50:00 PM

. Physician services accounted for 22.7 percent of total U.S. health spending in 1999 . . . In 1996, the most recent year for which data are available for multiple countries, the average U.S. physician income was $199,000.

I don't know and don't have time to check it out, but these numbers don't ring true. Several folks have cited numbers from the Labor Dept and US census that put physician compensation about 35% lower than the above figure. And from my "real-world" experience, it would seem that the MD compensation is a pittance compared to hospital and other facility charges, pharmaceuticals, and medical devices. I mean, when our hospital is building $400 million in facilities, which doesn't even address the operating costs, and the sum total annual compensation of the ER docs for a 100,000 visit ER is $14 million, I am skeptical. I know, I know, anecdotes are not data, but it doesn't ring true.

Ezra, do you have corroborating data sources?

Posted by: shadowfax | Apr 19, 2006 9:12:19 PM

How do physician work weeks compare between countries? I would suspect that U.S. physicians are working more hours for their higher total incomes. Malpractice insurance pricing is not lower for part-time physicians in the U.S. and part time jobs are not easy to come by. A forty hour work week is considered part-time by American docs.

Posted by: J Bean | Apr 19, 2006 9:36:35 PM


If you "open the floodgates" and have lots more NP's. You'll end up having fewer docs. If my salary were cut in half, I'd get another job. I work too many crazy hours, (and no that would not be reduced by NP's as they don't deliver, and CNM's don't operate), and loose too much sleep in my profession.

I love my job; I love delivering babies; I hate the hours, I hate that it takes me away from my family more than I like; I hate the paperwork and I hate the worry that one small error will end up killing someone (Yeah they don't have to be big ones). It's also not alot of fun when your patient tries to bled to death on you because their uterus won't contract down after having a baby (that's not an error, that's a bad outcome)..... and don't get me started about the malpractice worries.

Sooooo if you cut my hours in half then half pay might be ok. Don't know who be delivering the rest of the time though...

Posted by: storkdoc | Apr 19, 2006 9:42:13 PM

Sigh -- real quick. The AMA doesn't control medical schools, but they lobbied, 70 or so years ago, for the current system that ensures all doctors are massively credentialed and need to go through a torture test with numerous points for blockage.

As for NPs, they shouldn't have to be nurses first. What I would like to have, basically, are GP's, who are more lightly trained than surgeons and so forth. I don't want them removing prostates, but they're more than capable of seeing a child with a cold. In many cases, they already do. We should work to increase that.

Posted by: Ezra | Apr 19, 2006 10:39:57 PM

I'm not fan of the AMA but what would you propose instead of requiring doctors to be "massively credentialed?" Just kind of credentialed?

I'm a surgical intern, so I know this "torture test" firsthand, but I wouldn't want anyone operating on me who hadn't gone through 5 years of surgical training.

Posted by: dr. glasses | Apr 19, 2006 11:44:06 PM

Ah, nevermind the whole "what to you propose" question...reading comprehension was never my strong suit.

I think everyone agrees that more GPs would be a good thing, and their training is already on the lighter side - 3 years of residency after med school compared to 5 years (minimum) for a surgeon. How would you lighten it up? Shave a year off med school? Shorten residency?

Posted by: dr. glasses | Apr 19, 2006 11:50:19 PM

"Sigh -- real quick. The AMA doesn't control medical schools, but they lobbied, 70 or so years ago, for the current system that ensures all doctors are massively credentialed and need to go through a torture test with numerous points for blockage."

Actually, that also had nothing to do with the AMA. Modern medical education came about primarily because of a man named Abraham Flexner and the infamous Flexner report.

Let me give you an idea of what medicine was like before the Flexner report:

First off, doctors back in the early 1900s were mostly snake oil salesmen. There were zero credentials, zero standards to the profession. Most med schools were for-profit marketing institutions that had zero realy training in the sciences or biology. As a result, doctors in general were despised and ridiculed by the common public. Doctors were more likely to kill you than help you in those days. Snake oil remedies were rampant. I believe that it was Osler, one of the famous doctors at Johns Hopkins, who said at the time:

"It would be better for us to throw all the medicines in the ocean, and all the worse for the fish"

Osler was referring to the snake oil therapies that were rampant before Flexner report came along.

So now who was Flexner and what was he all about?

In response to the massive quackery that had infiltrated the medical profession, several state educational boards asked Flexner to tour various institustions and make recommendations for reforms. Flexner visited med schools in Europe, then toured every med school in the US at that time.

When people read his report, they were absolutely shocked. Most of these "med schools" were nothing more than diploma mills. "Doctors" were graduating from these places with almost no real training in pathophysiology. These schools existed for one reason: to make money.

Flexner did find a few schools who were legit however, namely Johns Hopkins University School of Medicine. Flexner was very impressed with the German model of medical education and stated that Hopkins was the best medical school in the country.

After Flexner's endorsement of Johns Hopkins, state regulators scrambled (responding to public demand) to reform the medical educational system. Over half of all existing medical schools were closed. All of the for profits were shut down, and the the only med schools that remained were the university affilated medical centers.

Johns Hopkins quickly became the model for modern american medical education. The term "rounds" originated at Hopkins, because in the original hospital, patients stayed in wings that had a central dome aroudn which the doctors would walk to check in on the various patients.

Residency training was added later, and over the next couple of decades standards were implemented in all medical schools.

The move to reform medical education into what we have today came about because of STRONG PUBLIC OUTRAGE. The public was outraged at the Flexner report and the shoddy state of medicine in the early 1900s and thats why changes were made. Its NOT because the AMA decided unilaterally to institute all kinds of barriers to the profession just because they felt like it.

Posted by: joe blow | Apr 20, 2006 12:37:22 AM

"As for NPs, they shouldn't have to be nurses first. What I would like to have, basically, are GP's, who are more lightly trained than surgeons and so forth. I don't want them removing prostates, but they're more than capable of seeing a child with a cold. In many cases, they already do. We should work to increase that."

NPs already do a large amount of primary care. Its not like there are tons of them waiting in the wings doing other stuff. But the problem is that there is a HUGE nursing shortage overall, so that removes the pipeline that produces NPs.

Are you advocating increasing the incomes of NPs? Because you'll have to do something like that if you want them to flood the medical field.

Posted by: joe blow | Apr 20, 2006 12:41:51 AM

Joe Blow recapitulates some points made in The Great Influenza:The Deadliest Plague in History, by John Barry, re: the history of medical education in the United States. I recommend the book as an interesting story about how to do it right and how to do it wrong.

However, I do think that he's made much more of the Flexner report's effects than warranted. Teh tide was turning as a matter of necessity.

Posted by: TJ | Apr 20, 2006 3:00:13 AM

Ezra, NP's that aren't already nurses-- I believe they're called Physician Assistant's (PA's). http://en.wikipedia.org/wiki/Physician_assistant

That wiki article references World War II "fast track" doctors". Universities switched to trimesters (with no summer break). Med schools at the time only required two years of undergrad to matriculate. The four premed semesters took just over one calendar year and the 8 semesters of med school took just under three. So six (peacetime) years of education crammed into four.

At least that was the plan, since the US was in and out of World War II in less than four years, I doubt anyone actually did it that fast.

Posted by: beowulf | Apr 23, 2006 3:20:43 AM

To Joe Blow:

"used to cost about $5000 per eye, now its down to less than $1000 in some areas. Thats possible ONLY because LASIK operates in a free market,"

I paid less than 1000$ for a Lasik ten years ago for both eyes... guess in which Free Market?
Answer: in France.
Health care is no Free Market, no more than CEO remuneration for instance, or military planes. If the Gvnt' don't step in, the patient get the wrong side of the bargain.
Actually, I could have had it by a private practician, 4 weeks faster and twice as expensive. But I chose the public hospital (a first class one) because on top of being cheaper I trusted them more, as Lasik was still quite new.
Other random remarks about your free market:
- the public hospital still has surgeon today, and good one (they did and do research)
- the private surgeon was less expensive than his german counterpart, as I could check out of curiosity some years laters, I guess because the public one in France was pulling a stronger brake on the price than the german equivalent.
- I'm not aware than less people in France got Lasik than in Germany. The state health system paid for the education, formation and material of the surgeon introducing the high tech, and priced it with other logic than of your's "free market".

But if you are a doctor, I understand well than you prefer to drive a Porsche than a Toyota, it's the same for me. It's just that, not being in the health business, bargaining with my employer is harder than with a patient. And surprise, I manage to survive with a Toyota.
As an aside: I am quite confident I could have go through a medical school myself, so please don't use the eduction Shtick for justifying a doctor taking much more money home than I.

Posted by: cranque editeur | Sep 25, 2006 3:07:58 PM

By FAR physician salary is NOT a significant factor in health care cost. Health care cost in the United States is much more a about de facto socialist system in which the insured and able to pay are paying for those that cannot. Physicians MUST charge more for the clients that can pay, because in may situations they are legally obligated to treat those that can't. Another huge factor is Malpractice insurance, and the cost of physician living with that insurance. You are still legally liable for patients even after retirement, sometimes for as many as 18 years, and as such your malpractice insurance must extend into retirement AFTER income has relatively ceased. Yet another factor is waste. The health care system in the United States is currently undergoing an electronic overhaul of massive proportions, as well as a change in regime as it were between the "D-Docs" and the "A-Docs" (Digital Vs. Analog). This inefficiency and others cost the american public BILLIONS. And last but not least, what I beleive to be the greatest cost of all, is the profit margin for pharmeceutical companies. Did you know that Pharmeceutical Companies have a caveat for their taxation, that they are not legally obligated to report earnings to the public, and some branches of the government, and that they are immune from being audited. It is estimated that the PROFIT of these companies extends into the hundreds of billions, and that much of this goes unreported to the public. Thats profit mind you, not gross, profit AFTER reinvestment into R&D. It is also estimated (but cannot be proven on account of the caveat) that these companies spend as much as 10 times as much on advertisement for their product than they do for all research and clinical testing combined. Sounds like a huge waste to me since Doctors should only be prescribing as per need rather than because of what looks good on TV.

JSawlaw, Medical Student.

Posted by: JSawlaw | Oct 3, 2006 11:34:19 PM

I must say that I was surprised to find that so few of you talked about the role of PA's in bringing down the costs of healthcare or in taking on the general medicine overload that doctors are struggling with. And they don't make any money!!! What wonderful blokes!

PA Student

Posted by: Kristina Smith | Oct 11, 2006 11:07:14 PM

Cranque editeur you ignore the major effect of your 'reform'--ie smart ppl who go into medical school (the avg med student now has a higher gpa and a higher IQ than even the avg law student) will go into another profession, especially if in return for giving away their 20s and exposing themselves to health risks, people try to shortchange them on salary. My peers from college are all earning comparable salaries to what I will receive as a physician and that is without the debt and without losing so many years of their life to 80 hour weeks in a hospital. Frankly, from a financial perspective, they made the right choice. Unlike many of my classmates, I luckily don't have to confront the realities of trying to be a parent when you get 4 days off a month for 5 years but I can guess that doesn't add to the attractiveness of the field. Now, there are some people who will make the sacrifice anyway and go into medicine without lavish pay at the end of the road but most sensible people will choose something else, since after all their genuine desire to help people can be satisfied just as well by going into something else with less hassle. With this in mind, I would rather not take chances and want the best available candidates when I am a patient, not some bargain basement surgeon who cant earn enough for a porsche.

Moreover, this whole you could have done the same job as a doctor argument may make sense to a child but anyone acquainted with the basics of a society knows there is something called specialization of labor upon which societies rely. If you couldnt compete and get into a desirable profession (at the time), there is no need to put others' lives at risk by advocating that the profession itself hire any moron just because you think it necessary to stop people buying porsches.

Yes, that was a harsh response to you but I have gotten needle stuck by someone with HIV recently and while dealing with what might be a life altering condition (though hopefully not since the odds are in my favor), I find listening to marginally deserving idiots whine about how their job is as demanding, etc. and how they need more pay than doctors, etc. gets tiresome. Accepting that not all jobs are equal, that not all people are equally skilled, and that people respond to incentives and typically choose the best deal for them will explain easily why its so dangerous to talk about cutting compensation. Doctors are not going to be cheerful and should not be when someone who puts in braces earns far more in less time than the surgeon who removes your colon cancer--that by the way is a real free market since the govt. doesn't mandate you take everyone with bad teeth like it does with doctors and poor patients...

Posted by: v | Oct 15, 2006 3:04:40 AM

Interesting post ... I wonder how the effect having to pay malpractice insurance factors into this analysis? I don't think that other countries have the *let's sue* system or mentality that exists in the USA.

Lou K - Orange County Plastic Surgery

Posted by: Lou K | Dec 12, 2006 3:21:04 PM

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