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Tuesday, June 4th 2013

Medical School Is A Good Return On Investment

I return to the topic of what American physicians earn. Actually, I point you to a piece in the New York Times by noted healthcare economist Uwe Reinhardt. Dr. Reinhardt has done considerable work on the subject and others in healthcare. Here he is explaining the situation well in layman’s terms.

Standard economic theory suggests that over all, American doctors are overpaid, although perhaps not the primary-care specialties. This position leans on the fact that at existing incomes there is still considerable excess demand for places in medical schools among bright American youngsters – not to mention a huge pool of highly qualified foreign applicants. This suggests that the lamented doctor shortage in the United States is the result of an artificially constrained supply of medical school places and residency slots, which serves to inflate physician incomes above what they would be in a better functioning market without supply constraints.

He does dismiss the argument that American physicians are overpaid based on the earnings of their counterparts in the international market. I appreciate that.

[T]he relevant comparison should not be doctors in other countries, but the incomes earned in the United States by members of the talent pool from which American physicians are recruited, a group that includes many who end up in the superbly well-remunerated financial markets, where they are well paid almost independently of their actual net contribution to society.


[T]he rate of return on the investment in human capital (i.e., education and training) to become a doctor is attractive – especially for the higher-paying medical specialties – but it is not as high as the rate earned on human-capital investments for other professions.

I agree with everything above. Obviously physician earnings are highly influenced by the self regulation of medicine which keeps supply low. But as I’ve said before, working in a high acuity specialty, I’d trade restrictions on training and practice for a a similar lifting of some consumer protections which also constrain earnings, especially in emergencies.