Medgeekonomics

This article is from last weeks New York Times' Week in Review: (insert here long http address instead of a simple link which i have added for my friend... he's hopeless, he works in a cave with dead bodies... you may also click the title of the post for the NYT link,911doc)...(Yes, I'm retarded and can't figure out how to put in a link without copying the entire address. So no blog-snob comments. And f#%k off.)

This article caught my eye because it was about health care, sure, but what really pulled me in was that the editor decided to 'tease' the article on the front of the Review by headlining: "Are doctors paid too much?" The assumption you may logically make from this teaser is that the NYT, in its infinite wisdom, thinks that we are, in fact, overpaid.

I know I will get no sympathy from the masses when it comes to money - when you make over 100,000$ per year, Joe-six-pack loses interest in your whining. You have also heard ad nauseam the arguments for why we should be well paid (years of training, high loans, importance of / life changing effects of professional decisions, bad hours, etc...). So, I want to forget all of this and ask an emotionally neutral question: as a pure economic decision are doctors, in fact, paid too much?

The way I approach this is in the context of two concepts: present value of future earnings and opportunity cost. You may now wake up.

Here's an actual example: My niece is 26 years old. She graduated from an elite university with good grades - a good comparison for your typical med student. She has been working as a consultant for 4 years. Without a graduate degree, she will likely increase her earnings to about 150,000$ / yr. within 3 years. If she works to age 60, her lifetime earnings will be about 500,000$ (appx. total earnings to age 30) + (150,000 x 30 = 4,500,000$) = 5 million dollars. This number actually approximates a discounted present value as I have assumed she will get no raise after age 30.

Here's another example: I graduated from an elite university at age 23 with good grades and decided to go to medical school. Let's assume my niece and I both had full scholarships and came out of college with no debt. I did two years of research for no money to increase my competitiveness and get into a good med school (pretty typical these days). Medical school was 4 years at a total cost of about 50,000$ / year = 200,000$. Residency was 6 years. My first year I earned 30,000$; my 6th year about 50,000$ (total ~ 240,000$). Discounting these dollars makes them about equal so here I am, age 35, at total lifetime earnings of ZERO (it's actually negative because of deferred loans but let's not go there). Let's say my salary from age 40 on is about 250,000$ (this is well above a typical primary care doc's salary and a bit above average for specialists). Let's do the math: (~1,000,000$ age 35-40) + (20 x 250,000$ age 40-60) = 6 million dollars. Of note, my salary has DECREASED in the past 5 years by 30%, so this number is likely very high when it comes to discounting to present value.

What would you choose? Go from age 23-35 with a good standard of living and by 35 have over 1 million $ in earnings or live on the edge financially to age 35 and have no earnings. Obviously an easy decision. Now if you are a primary care doc, your lifetime earnings will likely NEVER get to 5 million $. Again, an obviously easy financial decision. So, like in the above example, would a high earning specialist trade an extra 1 million in lifetime earnings for a more financially secure life while under 40? Maybe. But, guess what, this is a bad way to look at it. The consultant at age 35 probably has investments, a house with equity and other financial vehicles that have been appreciating in value over 12 years, while the doc has debt that is increasing over this time. So now, that extra million of lifetime earning discounted to the present plus the opportunity cost of 12 years of investment, roughly cancels out the extra earnings!!!

I hope this argument has been whine-free. The bottom line: for a person with the typical med-student type qualifications, upon graduation from college, medicine is likely a neutral (at best) financial decision, and likely a poor one for non-specialists.

As the New York Times asks: Do doctors make too much? As a purely economic decision, I would argue the answer is "no". Interestingly, they sort of answer their own question in a different way in the article, and I quote: "Primary care doctors and pediatricians, who rarely perform complex procedures, make less than specialists. They are attracting a declining percentage of medical students, and some states are facing a shortage of primary care doctors."

At some financial break point, which has clearly been reached in the primary care specialities, people will decide it's not worth it to go to med school. Substitute in the above quote the words "shortage of primary care doctors" with "shortage of all doctors" and you should get the idea.