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Why are MD Salaries So High? The Medical Cartel

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mwkruse
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Carpe Diem: Why are MD Salaries So High? The Medical Cartel

Physicianincome  

Greg Mankiw features the chart above 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.?  …

… 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. …

The Mankiw post offers further food for thought.

Comments

6 responses to “Why are MD Salaries So High? The Medical Cartel”

  1. Don Avatar
    Don

    Hey, Kevin.
    My dad practiced orthopedics for 20 years. He had a PhD in ortho from U of Iowa, and served as a Navy surgeon in Viet Nam. He specialized in artificial knees and hips.
    He and a couple colleagues invented the orthoscope, a gadget that radically improved the quality of care for his sports medicine patients and reduced surgical/hospital costs.
    Dad worked 80 hours a week on average, including three weekends a month on call. Few breaks for holidays. We rarely saw him during the week. Divide $250k a year (just guessing – he wasn’t one to talk about money) into 4,000 hours a year and you get about 60 bucks an hour. Out of that salary:
    – 25% or more went to taxes
    – $70-80k a year for malpractice insurance to protect his family and practice from all the worthless patient lawsuits by crooked lawyers
    – Salary for his administrative staff to process and follow up on reams of insurance and government paperwork.
    – Costs of OSHA and other compliance overhead to run his clinic and x-ray machine.
    I’m not saying we didn’t live comfortably. He took good care of us. Rather than credit his salary, I’d say God blessed him for all the pro-bono work he did for patients that couldn’t afford care but still took up his time. And trips to Africa on his own dime for medical missions. I heard once that our church was waiting on my dad for his tithe plan so it could figure out its annual budget.
    I don’t know if these MD’s in other countries are as overlawyered and overregulated as US doctors are. Could be the reason why ours seem more expensive.
    Final shot: Dad’s a humble guy. Often jokes that orthopedics was basically carpentry, and that he would have made more money and had less liability as a carpenter. But he couldn’t get into the union.
    Peace,
    Don

    Reply
  2. Mary Avatar
    Mary

    I want to applaud Kevin’s dad, who sounds like most of the physicians I know (I work in a hospital). In addition, I know few groups of people who are as generous in their charitable giving as the physicians of my acquaintance.
    The cost of most specialties’ medical malpractice insurance in this country is astronomical. If I had to identify a single reason for physicians’ high salaries (though there are many interrelated causes in that complicated question), the prohibitive cost of med mal would be it.
    When I think of the value of a physician’s work on one hand, and the ridiculous salaries we seem to be OK with paying for the services of corporate executives on the other, I say the docs are worth every penny they’re paid, and more. The actual buying power of physicians’ net earnings has decreased, rather than increased, during my lifetime (50 years). If we’re looking for why healthcare costs so much, look at whose earnings really have increased over the same period of time. Chances are, you’ll discover that it’s the insurance companies in general and their executives in particular.
    If we want more physicians practicing medicine, we can fund more medical schools so that there are more openings for qualified applicants, yes. We can also stop pricing physicians’ liability insurance so high that they leave medicine altogether, or at least leave the most expensive specialties to insure. Personally, I’d be very interested in seeing how different the actual net pay in Europe, Australia, and Japan really is — the net, what-they-take-home pay — from US physicians’ earnings. If they’re paying out half of it in liability coverage, I’d be extremely surprised.
    Mary

    Reply
  3. Michael W. Kruse Avatar
    Michael W. Kruse

    I was curious to see what response this article would generate.
    I do think the cartel metaphor has some merit. Professional organizations have the positive benefit of regulating quality but they can also be used to limit supply and drive up wages. None of that counts against the performance of most physicians who are dedicated hardworking professionals.
    Malpractice insurance and bureaucracy are major contributors to the problem. It is also true that some nations subsidize medical education which keeps down the school bills doctors must pay. That subsidy is not counted as a part health care costs but when our doctors must pay back the full amount, and thus charge higher rates, that becomes part of our health care costs.
    Apples to apples is exceedingly difficult in this debate. I do think the cartel factor is one piece of a dauntingly complex puzzle.

    Reply
  4. Rob Avatar
    Rob

    I guess it’s also a question on whether we want to trust our lives and health to people who make $50K or $200K per year.
    I reality, it’s starting to be the former even in the US. My wife was bit by a tick while we were camping recently. We went to a local urgent care clinic and only saw the nurse practicioner. I’m sure they had a doctor somewhere since they prescribed antibiotics, but my wife never saw him/her.
    But when we had family medical conditions of a much worse nature, I’m glad we had access to the physicians we did, and I would have paid any amount for a cure.

    Reply
  5. Travis Greene Avatar
    Travis Greene

    So by that measure, education, police work, the military, and most public service is unimportant, since those professionals don’t make $200k?
    If the urgent care place (which I think is mostly for non-trivial but non-life-threatening situations) had been staffed by all doctors getting paid $200k, it would be prohibitively expensive. A well-trained nurse is probably appropriate for many situations.
    Qualified professionals like doctors deserve to be fairly compensated. Most doctors are honorable, hardworking people. Neither of those facts contradict the proposition that certain systemic changes could greatly improve our healthcare system.

    Reply
  6. Kansas Bob Avatar
    Kansas Bob

    The graph here (http://www.payscale.com/research/US/People_with_Jobs_as_Physicians_%2F_Doctors/Salary) seems a bit different than the graph you display.. especially when you consider that your graph is 13 years old. I wonder what an accurate average figure for an American doctor is?

    Reply

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