Physician and Nurse Incomes Have Increased Tremendously

There has been a lot of ink spilled over the rising cost of health care and in Why Are the Prices So D*mn High? Helland and I do not cover every theory and cannot satisfy every objection. Our goal is more modest. We can say that one major factor in rising health care costs is the rising price of skilled labor.

We argue that there is a direct, obvious, and measurable cause of higher costs in healthcare—namely, the price of skilled labor. No profession other than physicians has seen such large increases in incomes over the past 50 years. Figure 19 shows the real income of physicians from 1960 to 2016, indexed to 100 in 1960. Since 1960 the real income of physicians has increased by a factor of three. By comparison, barbers and bus drivers have seen essentially no increase in real incomes. Median incomes are up only modestly whereas mean incomes, which are pulled up by outliers, are up by only 50 percent.

Moreover, nurse incomes have risen in lock-step with those of physicians.

At the same time, we have hired more physicians and more nurses per capita. As Figure 20 shows since 1960 the number of physicians and the number of nurses has more than doubled.

With more physicians and more nurses each making more, it’s not surprising that the cost of medical care would increase.

Addendum: Other posts in this series.


The rising incomes of physicians are falling. Yes, falling. Why? This generation of young physicians has a different approach to both the business of medicine and life: less of the former, more of the latter. The percentage of physicians employed by hospitals recently surpassed 50%, and its rising. Hospitals offer security and regular hours, but not riches. I have been representing physicians for longer than I care to admit. It's different now. In times past, the founder of a practice would build the practice by working long hours and cultivating referral sources, hire younger physicians to help treat the patients, and eventually sell the practice to the younger physicians. That model doesn't exist today, or more accurately, there are many more older physicians approaching retirement than younger physicians who are interested in buying the practice.

The problem with data are that they reflect the past. The problem with health care today is less about physicians earning very high incomes but concentration in health care: giant health care (hospital) corporations, large and growing multi-specialty group practices often owned by corporations not physicians, and a payment system (third party reimbursement) that promotes rather than discourages concentration.

What about the standard of care, counselor? Are doctors making fewer big mistakes now? Recently a relative of mine got a common bacterial infectious respiratory illness from a leading hospital. The hospital doctors all pointed fingers at the primary care physician, saying they should have given a routine vaccine for such a disease prior to being sent to the hospital. Why didn't they? Or why didn't the hospital inquire as to whether this vaccine was given? Or maybe they rely on the patient, who's memory may be faulty? Seems like negligence all around. Not something I would have expected even at a Third World hospital in the PH much less the USA.

Bonus trivia: luckily I and others in our family had this vaccine, or we'd have been infected and infected others in the general public, possibly setting off a pandemic like bubonic plague (ain't it cool?). It was amusing to get a call from a local public health service asking if we needed free vaccines, after the fact. Health bureaucracy at work, lame, ineffective, your tax dollars being spent.

Link exchange is nothing else except it is only placing the other person's blog link on your page at proper place and other
person will also do same in support of you.

You can set your own hours and patient volumes in a private practice. In a hospital, that stuff's all dictated to you. Your last paragraph is correct, your first is detached from reality.

It's rayward, He doesn't learn from data, he merely hunts for the data that supports his world view.

My general impression was that the private-practice model was being decimated by HMOs, etc., not Millenial doctors' choices. Primarily because the modern managed care groups so carefully steer/limit patients to certain preferred providers.

It's not just a matter of HMOs, but how being part of a hospital group provides a serious advantage when negotiating with insurance companies. A big insurer could squeeze a small practice, but they sure can't do the same to the same doctors, in the same office, attached to a hospital chain that controls 70% of local beds. The hospital might even pay you better than you were making in private practice, and you also get to use the hospital's billing team.

> The percentage of physicians employed by hospitals recently surpassed 50%, and its rising.

This is primarily because the ACA intentionally incentives large healthcare networks. Medicare now reimburses the same procedures done in a hospital network at a higher rate than private practice.

Ostensibly this is because the goal is to target outcomes rather than inputs. And a large network makes large-scale statistical analysis of patient outcomes tractable.

Cynically, this is because the longterm goal is to consolidate all medicine in the US into a few regional monopolies. When the government needs to contain costs or ration care, they can simply give marching orders to the regional monopolies.

The Feds are driving MDs out of private practice with mandates- items like HIPPA compliance & especially IT costs. I know a large medical speciality group that has a $100K per year RENTAL cost per MD for IT- none of it is reimbursed for.

Agree with Rayward, after having represented hospitals and health plans. The problem is exacerbated by the fact that in many markets hospital expansion is restricted (CON regulation) or doctor expansion into ambulatory centers is artificially restricted, both of which could form some fringe competition for hospitals. Entry at the health plan level is not that restricted PROVIDED that the hospitals necessary to create a network are not themselves a plan or have quasi exclusive relationships with a plan.

Other impediments to competition: Any Willing Provider Statutes (primarily defensive moves in Southern states to the advancement of HMOs) and Most Favored Nation clauses adopted by the Blues.

As for the doctors, the AMA has done a good job of limiting entry. Need to expand residency programs and reduce specialty limitations and expand physician assistants.

As for nurses, about time they got paid for what they were worth. Their pay increase probably reflects pay for bad hours and the fact that women can now choose other professions.

"As for the doctors, the AMA has done a good job of limiting entry. Need to expand residency programs and reduce specialty limitations and expand physician assistants."

The AMA has fought higher Federal spending to fund more residencies?

Have conservatives fought for more Federal dollars funding residencies to pump out more doctors to increase supply?

"Medical schools have increased enrollment by nearly 30% since 2002. However, without raising the federally imposed cap on support for graduate medical education (GME) — which has been effectively set since 1997 — and expanding training capacity, the increase in medical school graduates will do little to help the growing demand for physician services."

"As part of the multi-pronged approach to alleviating the doctor shortage we also need additional federal support to produce about 3,750 more doctors a year by lifting the cap on federally funded residency training positions. Teaching hospitals are operating over 12,000 residency positions without Medicare support, but cuts to Medicare and other clinical reimbursements jeopardize the ability of teaching hospitals to cross-subsidize with clinical revenue these positions.

"The AAMC strongly supports bipartisan GME legislation introduced in both the House of Representatives and the Senate, the Resident Physician Shortage Reduction Act of 2019 (H.R. 1763, S. 348), which takes an important step towards alleviating the physician shortage by gradually providing 15,000 Medicare-supported GME residency positions over a five-year period. However, legislation alone will not relieve the doctor shortage.

"In addition, the AAMC supports non-GME incentives and programs, including Conrad 30, the National Health Service Corps (NHSC) and Public Service Loan Forgiveness (PSLF), and Title VII/VIII, which are used to recruit a diverse workforce and encourage physicians to practice in shortage specialties and underserved communities."

Trump's solution is produce fewer nnew doctors:

"The recently released Trump Administration budget included a proposal to overhaul Graduate Medical Education (GME) that could lead to funding cuts averaging $470 million per year for the program.

"Though the President’s budget does not necessarily foretell actual policy changes, the plan is widely viewed as a statement of the administration’s fiscal and policy priorities.

"The proposed reform would replace Medicare GME, Medicaid GME and Children’s Hospital GME (CHGME) with a single grant program funded out of the Department of the Treasury. Growth in total GME funding would be capped at the sum of Medicare and Medicaid’s 2017 GME payments, plus 2017 CHGME payments adjusted for inflation (the consumer price Index for all urban consumers) minus one percentage point annually.

"If adopted, the new funding formula would result in a total net cut of $47.9 billion over 10 years."

Thanks for the updated information. I didn't realize that the AMA recently changed its position.

You might want to temper your comments, however, based on the all but recent history:

"Today, the AMA and other physician groups blame the shortage of doctors on insufficient government funding for residency slots. The 1997 Balanced Budget Act capped the number of residencies that Medicare funds, a government action that certainly limited physician supply. But physician associations are not off the hook because they lobbied heavily in support of this cap. At the time, they argued there was an impending “glut” of physicians. It is more likely they were, again, trying to protect their high wages.

But even when they refuse to meet healthcare needs, physician groups are also determined to make sure other professionals cannot meet them either. Physician associations have consistently lobbied to restrict the scopes of practice of nurse practitioners, midwives, physician assistants, and other mid-level healthcare professionals. They have done this despite overwhelming evidence that giving these professionals more responsibility is safe. Expanding the roles played by non-physicians is also a promising solution to the care shortage and high costs."

Here is the link to the Washington Examiner article laying out the AMA's past opposition:

Shades of HillaryCare from the 90s. I seem to recall limiting doctors was a proposal.

It’s a good thing we will have robots in some areas.

The proposal was during the Reagan administration as a way to "control costs", on the premise that if you had more doctors, you would have more procedures, and thus higher medical bills. Baloney.

The proposal was during the Reagan administration as a way to "control costs", on the premise that if you had more doctors, you would have more procedures, and thus higher medical bills. Baloney. I've followed this subject and I do not recall this being part of any Clinton proposal, so perhaps you can offer support for your claim.

"The percentage of physicians employed by hospitals recently surpassed 50%, and its rising"

Fake news!

Only 8% are employed by hospitals, up from 5%.

"The majority of patient care physicians (54.0%) worked in physician-owned practices in 2018 either as an owner, employee, or contractor. Although this share fell from 60.1% in 2012, the trend away from physician-owned practice appears to be slowing since more than half of the shift occurred between 2012 and 2014."

"Concurrently, there was an increase in the share of physicians working directly for a hospital or in a practice at least partly owned by a hospital. Physicians working directly for a hospital were 8.0% of all patient care physicians, an increase from 5.6% in 2012. Physicians in hospital-owned practices were 26.7% of all patient care physicians, an increase from 23.4% in 2012. In the aggregate, 34.7% of physicians worked either directly for a hospital or in a practice at least partly owned by a hospital in 2018, up from 29.0% in 2012."

Hospitals started investing in physician practices initially to utilize capital assets idled by the ultimate doctor run enterprise, the HMO. HMOs were created by doctors who wanted out from under the control of insurer rationing of payments and patients rationing their money. Doctors saw huge pools of money being mispent, so by forming an HMO, the big pool of money could be spent by doctors the way doctors thought it should be spent: paying doctors, and nurses and others to make doctors more productive. HMOs hired specialists, but they thought paying hospitals a lot of money for doing procedures that didn't need an overnight stay was contrary to their goal to pay as much of the pool to doctors. So, HMOs built out patient treatment facilities. They even created urgent care operations to eliminate using hospital ERs for mostly children in some distress. My HMO handled more child related urgent care than adult urgent care.

When Congress made HMOs effectively illegal, along with the Blue Cross Blue Shields which were coops of hospitals and doctors to create pools of money for them, HMOs transformed into doctor run enterprises maximizing revenue to doctors. In part, they developed the systems needed to maximize highest insurer payouts per patient visit.

Anyone who thinks doctors should operate as independent practicianers should also believe cars should still be made by blacksmiths, one by one. Specialization allows doctors to maximiize billable hours by paying specialists to do the lab work, billing, record keeping, as a mostly fixed pooled capital and labor cost shared among many doctors.

Interesting. If both wages and quantities of physicians and nurses have increased so rapidly, perhaps high health care costs are primarily a demand-side phenomenon?

I think back in the ‘60s, much of the US population simply did not have as much access to care. One thing that has been noticed as coverage for simple things like preventative care/primary care has expanded - just how much hypertension diabetes, heart disease, high cholesterol, chain smoking had been untreated/unknown to the medical profession

Certainly, US doctors are paid a lot more than those in Europe.

@Tom T - true, Greek doctors last I checked are paid for working in state run hospitals about 30k Euro, hardly a princely sum, that's why they moonlight after hours. Then again, my Greek health insurance is only about 90 Euro a month for the Gold plan. The standard of care I would guess is about 70% of the USA's, which, given the low cost, is "good enough". Let's be honest here: if you get cancer, and your body doesn't have the genes to fight it, you're dead no matter where you live. The rest of illnesses are largely going to be cured by your own body and then there's the occasional cataract, minor cholesterol problem, heart arrhythmia or broken bone that nearly any physician anywhere in the world can fix...

This is more true than people want to admit, just like nobody wants to admit that preventative medicine is diet and exercise.

That only delays some conditions, and is overall a small impact on the healthcare system

Yes, and in Europe docs are typically limited to 40-48 hour weeks. In the US the *average* physician works 59.6 hours per week with some variation due to calculation choices (50-65 is a pretty fair range). Yes this is inflated by crazy docs (and residents where they are required to work no more than 80 hours per week, and then promptly violate the rules).

Worse, US docs have fewer work protections than are common in Europe. They also pay for medical school on debt. And typically have to forgo several years of earnings for useless years in bachelor's degrees that Europeans routinely skip.

I know of many European doctors who prefer their tradeoff. And of course the real killer is to train up in Europe and then practice stateside. This usually means (re)doing residency but there are a few exceptions and they are highly lucrative.

One would think so. There's no Medicare and Medicaid for barbers, no belief that everyone has a right to "access" the same hairstylists as Hollywood celebrities. ("Access" here means right to subsidies, not merely the right to purchase with one's own money.) Admittedly, bus drivers are subsidized. If we had demand-side subsidies for personal drivers (on-demand, point-to-point driving), then driver incomes might start rising too.

Subsidized demand would seem to be more dominant than restricted supply, although the latter might be important too, especially for doctors.

Question: what impact will $32 trillion, about $100k per person, of new taxpayer-funded Medicare-for-All subsidies have on healthcare costs?

About $32 trillion in worker incomes.

Care to argue for your income gooing down?

Why should your cost to society go down?

These seems like an odd result. If the cause was Baumol’s cost disease shouldn’t we expect other fields that have seen minimal productivity gains (like barbers) also have rising incomes? Or is it something unique to skilled workers?

It's because trade union power has kept a lid on the number of people qualifying as doctors and nurses. At least that would be my guess.

Sometimes you guys misuse IQ/training, but here is a role for them. What IQ/training do you want for a barber? What IQ/training do you want for a cog in a well-run HMO machine? What IQ/training do you want for an independent physician?

But sure, unions are your guess.

Are you really implying that doctors and nurses have much higher IQs than they did in 1980? Show us your figures.

+1, that's the obvious flaw in Anonymous's argument

Think shares. Are there more or less intellectually demanding careers than there used to be?

Are you postulating a drop in the average IQ of doctors in the US since the 1980's? If not, your argument is wrong. If so, then provide some proof.

I was talking about barbers, and how the supply might be a bit more inexhaustible. That seems pretty straightforward.

This is what you said: "What IQ/training do you want for an independent physician?"

Do you really think that kind of outright and transparent lie works on anyone? My 5 year old could come up with a better evasive answer than what you just tried to pull.

That was a comparison statement.

I'd hope that anyone reading could grasp the idea that more people are more easily made into barbers than doctors.

It was about the "IQ/training" bundle.

This is the kind of thing that reinforces you as pure troll. This can only be purposeful misreading.

"This is the kind of thing that reinforces you as pure troll."

LOL, I'll let the readers of this blog decide for themselves who the troll is.

"That was a comparison statement."

Well yes, that was obvious. But then we questioned you on the obvious flaw with the comparison. If IQ/training were the primary relevant factor then a tripling of Doctors salaries would imply a drop in IQ/training.

dearieme indicated that trade unions had restricted the supply (ie medical residency training). That's of course a reference to the restrictions on the training of new doctors in residency programs. You scoffed at his answer.

If you say the restriction is on IQ/training, and you say it's not the training, Then you imply it's about IQ. He questioned you on that point and you have evaded directly addressing his question the entire time.

This is a tactic you often use. When questioned on a weak point of your argument, you don't address it. Instead you evade a direct answer.

One wonders why people think playing this dumb is smart trolling.

The US medical field does keep the supply constrained. The US has 40% less doctors than a comparable country. Though Canada and Japan are two first world countries with a lower average. However, they both ration medical care.

Interesting. Alex's graph shows that US doctors (and nurses) per 1000 people has increased about 2.5X since 1960. I wonder whether other countries' doctor growth rates have been even faster or whether the US is catching up, starting from an even lower number in 1960.

Maybe, the US has been restricting supply relative to other countries over the whole period but is subsidizing demand more now than in the past.

BTW, I am informed that the best and brightest students in the US get to choose their specialization before the others. And so many of the best students choose dermatology. High return, low stress.

Maybe your surgeon couldn't get into dermatology. Comforting thought.

That is not how residency matching works. Some specialties match in advance (urology, for instance), but there's no special queue for the best and brightest med students (those with high USMLE scores, research bylines, good clinical and pre-clinical grades). While good students often end up in the specialty of their choice, I've met people who looked great on paper but interviewed terribly and ended up with their 6th or 7th choice. Furthermore, the best and brightest aren't all gunning for dermatology or plastic surgery (the other big money maker), and those who wished to get into derm but failed don't default automatically into the next most prestigious category.

Applicants in the U.S. who fail to match into their preferred specialty end up doing the doctor equivalent of a gap year ("scrambling" into internal medicine or primary care), or they spend a year doing research, after which they re-enter the match for their preferred specialty.

Fourth-year medical students sometimes apply to multiple specialties, but the students in my wife's med school class generally applied to a maximum of two specialties, and only because they were uncertain about what they wanted to do. Applying to more is hideously complicated and expensive, as the rule of thumb is that you want to get 15 interviews to match, which means applying to roughly 30 (though sometimes as many as 40, 50, 60, and even 70) programs, with each application costing $100 (IIRC) and then a rush to claim interview dates upon invitation to interview. The scheduling is nightmarish for the additional reason that not every program uses the same system, people cancel, spots open up, applicants sometimes fly from one interview to another before stopping home for a day or two and then hitting the road again.

TL;DR: Your surgeon most likely chose surgery, your primary care doctor *may* have had grander aspirations.

Thx, I knew I was basing that on a sample size of one doctor's riff.

Meanwhile, the ones who go into proctology are the ones who say, "people will *pay me* to do that?"

so the number of doctors per capita has increased almost ten-fold, and the number of nurses per capita has almost tipled, but the unions are holding down the numbers? That makes no sense.

Sure it does -- for MDs in particular. Are there more qualified medical school applicants than are accepted? And are there more foreign MDs who would practice here if they weren't blocked by having to re-do residency? Isn't it clear that the answer to both questions is yes?

Nope. Med school is not the limiting factor, and never has been (after all there has been record numbers of new US med schools opening).

The limit continues to be the residency slots. The ACGME overseas residency programs and requires that resident physicians meet certain exposure targets for various benchmarks within in a specialty. You cannot open a new residency slot without being able to prove to the ACGME that the resident will get enough patient volume and variety to be fully trained.

But suppose you cobble together enough patients that you might open a community based residency program ... you still have to meet diktats that make it all but impossible for anyone other than large hospital centers to meet the requirements. After all, you have to have a bunch of "faculty" to provide your training who must meet their own standards. And on it goes.

Why does this farce persist? Because the large hospitals like things this way. They have a nice all-but-slave labor in the residency scam - $55K per annum with 80 hours per week (i.e. $13.22 an hour) ... which they can bill at basically attending rates.

Couldn't we just accept foreign residencies? Not on your life. Many foreign residencies are highly corrupt and provide minimal actual training. Okay, how about those from Western Europe? Okay, fine, I actually favor this ... but you run into trouble that their training was in settings with vastly different patient populations and healthcare delivery. Foreign residents routinely have trouble with practicing in the "land of plenty" and rack up massive bills because they get yelled at for underprescribing and then overcompensate the other way (and I have seen a few case where an unfortunate encounter with malpractice lawsuits does the same thing).

But ultimately, let's not kid ourselves. The average family med doc in Arkansas makes $330,00. In Delaware the same doc would average $218,000. I have seen various figures for British docs, but let's be generous and call it $100,000 per annum. How many Brits do we expect to move to Delaware for a $118,000 delta when we cannot induce docs to move to Arkansas for a $130,000 delta?

The other thing to consider is that physicians are already one of the most international professions in the US. 25% of docs have foreign pedigrees.

Again, I am in favor of breaking the AMA ... but the system is just not that responsive. You have to go after ALL the rent seekers and ultimately the AMA is a bit player. The LCME, ACGME, and above all, the AHA, really run the show. Even burning all those to the ground still is not going to make US physicians that much cheaper.

But ultimately, let's not kid ourselves. The average family med doc in Arkansas makes $330,00. In Delaware the same doc would average $218,000. I have seen various figures for British docs, but let's be generous and call it $100,000 per annum. How many Brits do we expect to move to Delaware for a $118,000 delta when we cannot induce docs to move to Arkansas for a $130,000 delta?

Western Europe is a lot more than just the UK, and I am sure there are other non-European residency programs that could be certified as up-to-standard on a case-by-case basis. And do you know how much more $200K buys in Delaware or or $300K in Arkansas than does $100K in London? Do you ever see stories like this anywhere in the US?

There is also the possibility of U.S. students training overseas and coming back to practice if the residency problem was resolved.

Sure, easily. Both Georgetown and George Washington Hospitals have serious difficulty having the docs live within the required radius for home call. I believe that we also see this in SF, LA, and NYC.

When you include cost of living, Arkansas is an even better steal. And Arkansas ain't the top end. After all, within Arkansas there are better paying jobs away from the metropolitan areas.

We literally already have deltas bigger between two practice areas than the ENTIRE salary for physicians in the worst areas (DC, for instance would rank 51st if it were a state). If you cannot induce a doc to move from DC - where he literally cannot pay both his students loans and his rent - to extremely low cost of living rural areas with much higher base pay; there is a limit to what you can get from overseas.

And remember you can already make the magic work. A brand new foreign medical graduate can apply for US residencies. Over half of those who apply as international medical graduates (IMG) get a residency slot. Yet somehow, only around 8,000 even attempt to match each year.

India mints 50,000 new MDs every year. Getting a US residency only requires that they beat out the bottom 10% of US med school graduates. An Indian medical school graduate can expect, eventually, to earn about $15,000 a year. All it takes to earn 10 or 20 times that salary is to apply to residency in the US (where you will start making 3-4 times that amount) and do better than maybe 25% of domestic US grads (and being willing to work in a less desired specialty/geographic combo). Yet less than a tenth of Indian MDs do this upon graduation.

Yeah the ACGME and the like depress physician supply ... but the truth is this is not just a question of money inducing immigration. People are attached to their families and countries. And, being frank, foreign medical doctors are, on average, much less well trained that US doctors. The ones who make it here, they are often above average residents ... but you cannot just solve this by opening the borders and hoping for price equilibration.

The "lines around the states" applies to licensing too. Automatic reciprocity is rare, so physicians pretty much have to obtain a separate license in every state they practice, which means less mobility and interstate telemedicine.

JCS, it seems to me that basic barbershops are about gone. Now we have chain operations like Floyd's with a $27.50 basic cut. I'd think that's out of line with general inflation ..

I should have searched first. There is a page on this, only 2.2 percent inflation in recent years.

The first haircut i paid for cost about $2. Three decades later a friend talked me into a haircut, which cost $20.

I've returned to cutting my own. Not as good as my dad when I lived at home. But for 20+ years is basically cutting my ponytail once a month when the split ends cause too much tangling. Like I did between the $2 and $20 haircuts for a few years.

Mulp in a ponytail is awesome news. I go with "generic short" hair that the Vietnamese barbershop can do pretty reliably for $8+$2. Immigrant labor.

It seems reasonable that the relationship between rising wages for skilled labor has correlated directly to the rising costs of training and education needed to obtain those skills (MR post from May 25). The average debt of my med school graduating class was close to 200K.

In Singapore, education in public universities are heavily subsidised for, an average five-year med school education amounts to a tad more than 60k USD.

Correspondingly, healthcare costs are lower in Singapore- as a percentage of government spending- than anywhere else in the world as a percentage of GDP.

I wonder if theres a causal link between the subsidised cost of education in Singapore and the relatively low costs of healthcare in Singapore. On a side-note, there is universal health coverage, and enforced savings, in the form of CPF.

So you're saying, I could reduce my health care premium if I were willing to have my tax withholding increased correspondingly? I'm pretty indifferent to that choice.

And I'm fairly sure there's been a corresponding, if not necessarily commensurate, increase in quality too.

Whereas barbers and bus drivers are probably worse.

There is also the rising cost of malpractice insurance, which is high everywhere but worst for specialties like ob/gyn.

MP costs are meager compared to overall HC spending. A few percent and not major drivers for most docs. My MP premium has been in the $12-14K range for many years. Low risk primary care. Some high risk specialists have huge MP premiums. But even a few hundred thousand pales compared to the many millions of HC spending that they direct.

Weird that physicians and nurses would track each other so closely (and be so ahead of dentists, who rack up some pretty big loans).

Most dental care isn't covered by insurance. The dental insurance that does exist tends to be a pre-pay like service. And people will skip dental care until in extremis.

"The average debt of my med school graduating class was close to 200K."

I can't imagine that $200K in debt would directly account for a tripling of relative income. And it's not as if every doctor graduating in 1960 had a completely free ride.

Let's face it if the trade off was: society will pay off your debt but your wages are 1/3rd of what they would be otherwise, no one in your class would take that deal.

Several of my classmates, and hundreds of US med students, do just that each year by when they take a scholarship from the military for an exchange in obligated service.

On your point about 1960s debt: the average cost of tuition in 1960 was $500-1000/year. $2-4K total indebtedness--this is pretty close to a single month's interest accrual on $200K debt.

Let us also not forget that training times have been increasing as well. Residency forces physicians to work for years at hourly rates that teenagers can beat at summer jobs while still in high school. It also comes with zero control of your schedule, sleep deprivation ("strategic napping is encouraged"), and of course you have limited control over where you live (e.g. if you want to be a surgeon, by no means the most competitive option, you will apply to 20 programs and maybe can limit your choices to 4 or 5 major metropolitan areas). Oh and you also have no control over your working conditions, are constantly being evaluated, and cannot change your mind halfway through to swap to some other specialty without really eating some heavy losses.

Back 50 years ago was the very tail end of the PGY-1 and out era. If you want to be a Family Med Doc today you get to spend three times as long making crap wages.

And let us not forget fellowships. The serious money/prestige in medicine is in the fellowships. Ever more specialties are essentially requiring fellowships for desirable billets.

A MD minted in 1960 is not just starting out almost $200K less in debt, he also makes those average figures Alex throws around cavalier a half-decade sooner. And remember, medical school loan repayment starts during residency. So not only do you make crap wages, with terrible working hours dictated by a literal monopoly ... you also have to send ever larger tranches of your income on interest.

At the end of the day physicians only have so much working-life expectancy (often there are exceedingly onerous requirements to maintain practice post 80). If you front load all the pain and costs, people are going to expect to be made at the end. And when more of lifetime earnings come in a smaller window, wages go up.

You need to get out of your bubble .

" Residency forces physicians to work for years at hourly rates that teenagers can beat at summer jobs while still in high school."

From this source:

"The average medical resident is earning $59,300 annually, according to Medscape’s 2018 Residents Salary and Debt Report, an increase from $57,200 in 2017."

Outside of the bubble:
"The 2017 nominal median income per capita was $31,786. The mean income per capita was $48,150. The Census Bureau reports those in the Current Population Survey, Table PINC-01. Real median household income was $61,372."

A medical resident makes a substantial wage. Just because you think $60K a year is a trivial income doesn't make it true. The average patient a doctor treats will be luck to ever make $60K a year in their lifetime.

$60K/yr working 80 (+) hour weeks is about $15/hour. That was his point about teenage summer jobs.

Actually, no. First, as noted, I said HOURLY wage. The average patient will also never work anywhere near the number of hours that the average resident spends on the job.

Second, the average wage is currently around 47,000. Inflation will get that to 60,000 within most people's lifetimes. Worse, for you, most people will end up on the top half of the seniority curve at work. The average wage for a 55 year old American is $51,000. With no luck, at all, something like 40% of American will easily cross this threshold.

Thanks for playing.

... of course the extreme government 'licensing' laws on medical-labor have absolutely no effect upon the prices or supply of that labor.

Alex would point out that barbers and bus drivers are licensed too.

I work in healthcare, and I have long believed that the size of the entry debt is directly related to the expense of healthcare - the higher the debt, the stronger the selectivity for individuals driven by financial risk/reward. Whereas in countries with much lower direct cost of education, the medical staff are much less money focused.

Looking at that graph... what happened to physician income in 2005?

Interesting point!

what happened to physician income in 2005?

I wondered about that too. Seems too large to be a statistical anomaly

Those charts show GLOBAL data, and are pretty useless for answering "Why is health care so expensive," which is a question typically asked of the West.

I'm not at all surprised that Ghana and Bangladesh have more doctors per-capita than they did in 1960.

The caption of the second graph says "US Physicians and Nurses per 1,000 People". Why do you say it's global?

I thought that only 20% of healthcare costs go to "physician services", of which half goes to malpractice insurance and other direct expenses of running a practice. Physician salary makes up only something like 9%. Is this still true?

Physicians and nurses do earn more than they do in other countries, but this is only part, and a small part, of why medical care costs more here. Physician salaries make up about 7-8% of total health care spending. Even if they worked for free, we would still have the most expensive health care in the world. It is the care that physicians order that contributes much more to the high costs. Again, to be clear, those salaries pay a part, but a relatively small part.


As a very long term doc with a daughter a new doc, this has been true. Doc's salaries are but a small part of the total HC dollar. In 1976 I made $13K as an intern. My daughter made $52K in 2015. With inflation, the same number! I think our problem is not that docs salaries have done better keeping up with inflation, but most other occupations have done worse.

A typical doc makes X salary, but that doc controls or spends many times that number in HC dollars. So in essence it is the docs method of practice that dictates most of the HC spending. Not only the docs knowledge, and application of that knowledge, but practice patterns, and the relative complexity of their patient mix that control so much of HC spending.

Not sure why this is hard. As with the education arena, this rise in costs since the 1960s coincides with an enormous expansion in federal spending. Presumably, a significant portion of that increase was captured by the skilled labor in the industry. Demand increased enough to maintain both higher supply and higher prices, because patients weren't paying the costs directly.

I do wonder about the sharp upward bend in 1980.

"I do wonder about the sharp upward bend in 1980"
1980-82 was exactly the time when DRGS1 became law

1 f*** yale!

As doc in practice at that time, I noted the ongoing trend toward specialty based HC delivery vs primary care starting in the early '80's. Much more expensive when a patient has multiple specialists vs one main primary doc doing most of the care. Sure the specialist can offer a higher and more focused level of care. But IME most of these patients never needed the specialist in the first place. When these patients make their way to the specialist, either on their own or through the primary doc for whatever reason, even the low risk patients get exceptionally expensive testing. Docs no longer do histories, physicals and useful chart review. And the result is higher HC costs. I saw it every day in my hospitalized patients, I see it every day with my wife as a serious and complex patient the last 2 years. The waste on her has been astounding! Because no doc, neither the hospitalist nor the specialists actually do their job as I was trained.

It's strange for an economist to argue that higher incomes for doctors and nurses are a "cause" of higher healthcare prices. Those incomes aren't rising sua sponte. The above data could with equal justice be used to argue that higher healthcare costs are causing higher incomes for doctors and nurses.

I was searching the comments for this exact point - glad that you made it.

You're missing the point. The argument is that the incomes are rising because of productivity gains in other sectors. When productivity rises in other sectors, the opportunity cost of being a doctor or a nurse goes up, and thus, doctors and nurses are more well compensated.

Were that the case, doctors and nurses salaries would be rising at a rate comparable with, but slightly lower than, those substitute skilled professions. They would not be dramatically outpacing them. That is one argument that the data actually forecloses (or at least undermines).

Isn't it also hard to reconcile with the rapidly increasing per capita usage of health services; shouldn't the need to match salaries in other sectors be best modeled as a leftward shift in physician supply? (i.e. why having a house cleaner is somewhat luxurious for a middle-class household in developed nations, while it's standard for the middle-class elsewhere)

How about studying the salaries and percent increase of corporate healthcare executives and managers. Also lets see the profits of insurance companies and growth in that sector.

Aren't 70% of health insurers non-profits?

Bob Aramony says nonprofit doesn't mean low comp

New technology. That's the overwhelming contributor to rising healthcare costs. Strange that this was not featured, unless the authors have an axe to grind against trade guilds.

How do you square that with new technology reducing costs in every other industry?

HC can be majorly life altering or saving. So new HC technologies get introduced to save lives, not to save money.

Not sure why people struggle with this concept. Technology in healthcare is often introduced to save life and limb and implemented further along the disease pathway.

Look at a field like interventional cardiology for one of the easiest examples. In 1960, you essentially crossed your fingers and hoped the patient survived their heart attack. If they did, they would receive painkillers and bed rest. Now we have drug-eluting stents that cost $1200 on average. Add up the staff that needs to be on call, the medical transport (+associated industry of emergency communications teams) and everything else involved. It's pretty obvious why care costs more in 1960 than it does today. In 1960, you couldn't do anything and people lived and died with dumb luck.

We know that the real cost-savings in medical care only happen upstream of these life or death events. The problem is patients don't really like diet, exercise, and taking medication for chronic disease maintenance.

*less in 1960 than it does today

The FDA doesn't regulate every new appliance in other industries?

That's unfair. The authors specifically state "We can say that one major factor in rising health care costs is the rising price of skilled labor."

Did they even attempt to prove that claim? No. Alex T has a waged a long war against professional licensing so forgive me if I don't see his biased bleeding through.

Oh, and some physicians make more money because, again, technology. They do more than ever before to intervene to cure disease and this requires technical and knowledge expertise. Thus they are paid more. Whether the new interventions are justified is a whole different story.

And our aging demographics. A double edged sword, as aging greatly accelerate medical risks and thus utilization the the new and expensive technologies.

What happened in 2004/2005 that caused a temporary 20% dip?

Where and/or when might we find the detailed data collection and analysis for our little ol' ongoing opioid addiction crisis? (the lethality of which raises pesky questions about fabled physician commitments to "do no harm")

Seems not to've been only Purdue Pharma: other Big Pharma players seem to've been implicated, must be some trade group reps generously represented, maybe even members of some professional organizations and licensing/credentialing outfits or schools, probably some state and Federal regulators took tempting kick-backs, and tons of US physicians wildly overprescribed with sufficient incentives in place to do so.

All aspects of industry-wide CORRUPTION, costs for which seem not to be being counted in our current political climate. (Do we or must we await resolution of outstanding legal disputes to even begin to guess at how widespread corruption is across our medical, pharmaceutical, and biotech industries?)

Nota bene: these suspected incidents of industry-wide corruption have come to us mostly from the hands of caring-and-concerned Boomers, that cohort that was so moral and humane back in the days when it aspired to adulthood.

Taxpayers agreed to pay market price for medical services. Economic theory tells me that the medical industry will supply and endless amount of medical services. The employment numbers verify this effect, looking back ten years.

Similar to your breakdown of administrators vs. teachers in a previous post, gotta break up wages and # of physicians by specialty. A primary care physician may say "my wages haven't gone up!" because he doesn't see the paychecks of the 10 sub-sub-sub-sub-specialty people who treat hangnails of the third toe, left foot, whose jobs didn't exist 40 years ago.

google this to see the relevant changes in workforce distribution and cost:

Surely moral hazard explains everything that qualification and immigration related barriers to entry don't. (Private insurance has risen as a percentage of spending from 21% in 1970 to 33.9% in 2017, Public from 22% to 40.7% ( Out of pocket has fallen from 33% to 10.5%. Patients are much happier spending the insurer's (private or state) money on physician, nurses and prescriptions they don't need than their own. Insurance is a function of income (yeah I can afford $1000 a month). With insurance, treatment is price-inelastic (yes i know co-pay is part of Stiglitz's nobel prize, but the point holds, I think). Incidentally, I suspect that in the UK, as the patient doesn't pay, it is NHS practice managers "you aren't ill enough to waste the doctor's time" and doctors "you aren't ill enough to waste a prescription on" who have been the protector of the public purse. There is no incentive to over-treat. This has its own drawbacks but value for money, its better.

Per the Bureau of Labor Statistics, the annual mean wage for a bus driver is $36,000. The average worker receives about 25% of his income in the form of fringes today, so lets posit total compensation of $48,000 a year. That graph seems to indicate that real compensation per year for bus drivers has declined by about 20% since 1960. That would suggest that in today's currency units, the mean was the equivalent of $60,000 a year in 1960 (in 2018 dollars).

Employee compensation per capita since 1960 has (per the Bureau of Economic Analysis) increased by 13.5x in nominal terms. Applying the PCE price index to that, that would amount to 2x in real terms. So, if the purchasing power of bus drivers' compensation had kept pace with that of other workers, their wages and fringes would now amount to $120,000 per year. Cash compensation in the range of $95,000 a year is what civil engineers are typically paid nowadays. Something's not adding up here.

You're double counting.

First, 25% of total comp today is non-income. That certainly wasn't the case for bus drivers in 1960. Indeed, I suspect the decline in salary is entirely a transition to non-salary compensation and that bus drivers today probably make roughly what bus drivers in 1960 make.

Then you are doing something weird where you compare the "real" benefits of wages by doubling the 1960 total compensation rate for bus drivers to $120K and comparing it to the current salary of modern day civil engineers. Clearly the comparison should be with a 2x version of civil engineers from 1960.

"Something's not adding up here."

We agree on that.

You're double counting.

No, you're not understanding.

Nominal compensation per worker in 1960 was about $5,400 per year. That includes both cash and fringes. That in 2018 was $74,000 per year, again, including both cash and fringes. If you deflate the latter by the change in the PCE index since 1960 (6.5x), the change is about 2x.

Current cash compensation per worker for bus drivers is $36,000 per year. I'm supposing they receive 75% of their compensation in cash, which is about normal in this economy. Total employee compensation would thus be $48,000 per year. That chart seems to indicate a decline in compensation in real terms of 20% since 1960. So, total compensation then should be 25% higher than it is now (but expressed in different currency units). Again, 25% higher is $60,000 a year. That's their assertion, not mine.

Now, I posit a scenario wherein the purchasing power of bus drivers' compensation increases pari passu with that of the average worker. Had that happened, they'd be receiving $120,000 a year. Were 75% of that in cash, that amounts to $96,000 a year.

What they're asserting (implicitly) was that bus drivers were quite handsomely compensated in 1960 and that their compensation relative to the average worker has fallen by more than 60%.

I find your calculations flawed.

1960: $5,400 = 2019:$46,620 (763% inflation)

Which is pretty close to the $48K you list for today.

"That chart seems to indicate a decline in compensation"

That chart shows a decline in average income for bus drivers not total compensation.

There's no mystery here. There wasn't much non-wage total comp in 1960. There is today. The total compensation is about the same for bus drivers, but the non-wage compensation has grown to 25%, thus the wage portion has declined about 20% for modern bus drivers. I would speculate that non-wage compensation in 1960 was roughly 5%.

And yes, purchasing power has increased for all wage earners in the US, because physical goods have dropped in price and/or gone up in quality. But that's true across the board, so it's pretty irrelevant when comparing workers today, such as bus drivers versus civil engineers. If your point is that modern bus drivers can buy better/more physical goods than a similar bus driver in 1960, yes that's true.

How much of this increase in final salaries is consumed by the increasing cost of education and increasing length of residencies and other forms of training with suppressed wages?

I am just blown away that --acccording to the charts above--the number of doctors and nurses has increased so dramatically, not only in real terms, but per capita. And yet their salaries have also gone up? When you see an increase in labor supply like that, are you not supposed to see some downward pressure on their wages?

So much more is now done medically on so many more patients. More docs means more stuff gets done. And that stuff is more expensive with new technologies.

At any one time, much is left undone in any medical community. More docs come in and more of that gets captured. More borderline stuff gets done as docs maintain their incomes.

Also today it 'takes' more docs to care for one patient. So then more gets done on that patient. Instead of one primary doc, long term and well versed in a patient, we have a gaggle of expensive specialists only relating to parts of the patients HC needs.

There is the (flippant) theory that one lawyer in a town makes for apoor business, but two or more can make a killing. Perhaps the medical profession has similar effects?

Skimming the paper, I was surprised that the healthcare section generally didn't control for demographic shift (unless I missed it somewhere?). When I looked at the data a couple years ago, I remember noticing that the vast majority of US health expenditure growth was explained by the growing share of elderly people in the population.

That's not necessarily incompatible with doctors and nurses making more money, but if that extra income is in exchange for longer hours or higher productivity, then the interpretation is somewhat different.


All this is adding up to Robin Hanson looking correct. Spending is rising because we want to buy more. His guess is because it shows we care.
You see this in democrats who in other industries attack providers and sellers (they do so in drugs in fact) but in medical care they ignore that if everyone has insurance the sellers will get most of the gain, but it shows we care for our people.

Wouldn't this happen in Europe and Japan, too?

To spend less on healthcare, someone will make less money, whether it's doctors, nurses, hospitals, insurers, or a combination. That's just tautological.

I am kind of surprised (or maybe I am reading the chart wrong?) that nurses were making an average of $300,000 a year (and apparently, in 2003, actually earning more than doctors). Was some kind of adjustment made there?

Never mind, I see it is just compared to that first year, not an actual number.

I wonder how much the doctor or nurses per person over 65 has changed. My guess is that the number of older people has gone up demand for healthcare has skyrocketed.

When I started in medicine in the '70's, many people had no docs, most people with docs saw just one. Now most seniors have multiple docs in addition to any primary doc. More docs means more medical stuff gets done. And in many cases unnecessary duplication of services.

Who is telling these seniors they need all these doctors/tests/procedures? The doctors, who are paid to do so. And the government is paying. So the ratchet continues.

Not just seniors. Remember that 50 years ago the richest family in the country had their premature baby, about 36 weeks gestation die because we couldn't keep premies alive. Now we routinely save them at 24-26 weeks. Takes a whole bunch of new specialist docs and nurses to do that.


Mostly the docs themselves. But also public education and advertising. Only some docs benefit directly or indirectly from the referrals. Hired docs may indirectly benefit. Some docs benefit by promoting their own ancillary services. Some docs refer because it is the easiest path for them, not necessarily the best path for the patient.

One factor is likely the vastly increased effectiveness of medicine. Modern medicine has made many health problems far more treatable.

That is a major reason why new medical technologies have not lowered our overall HC costs. For instance my wife would have died several times if not for new and very expensive medical and surgical technologies. Her medical billings have been over over $4M the last few years! Actual payments closer to $1M. But that is still a lot of money on one patient due to new technologies.

One statistic does not tell a story.

Look this is getting tired. "Physician" in 1960 is not the same work category in 2019. In 1960 a radiologist interpreted a handful of studies and did virtually nothing interventionally. Today radiologists have CT, MRI, SPECT, Ultrasound and a few odd nuclear imaging studies. In 1960, the radiologist drove very few clinical decisions and very often if you wanted to know what was going on inside, you called the surgeon to open the patient up.

This is basically the same as computer programmers. Yeah a few specialized ones existed in 1960 ... but today they do vastly more than in 1960.

And every specialty is the same. In 1960, surgeons had to devote lots of time to simple things like appendectomies, today surgeons can manage to get out a simple appendicitis in maybe 20 minutes of actual procedure time. So we need less surgeons? Right. Except that all those general surgeons do procedures unheard of before. Bariatric surgery, for instance, was basically unheard of in 1960, now it is a booming use of OR time. And it actually improves patient quality of life, decreases mortality, and by some counts lowers costs to the healthcare system.

Interventional radiology basically did not exist, yet they now do minor miracles on a daily basis.

So if physicians are basically like computer programmers - where the number/100K grows because they deliver more things to people, what are the results? Well some of those deliverables are in the form of increased paperwork. Physicians deliver record amounts of BS data largely because the powers-that-be require it.

Another big source is that in the states (and most of the developed world), all major determinants of health have been getting worse for decades. Obesity? Diabetes? NASH? Alcoholism? Problem drug use?Social connections? Stable families/communities? Resilient coping skills? Religious praxis? Contentment? All of these are moving in the wrong direction. All of them correlate with worse health outcomes; many of them by more than any medical intervention excepting maybe sanitation and vaccines could hope to achieve.

We are well into Red Queen territory. Absent significant gains from medicine, provided by new technology and legions that man it, life expectancy should have cratered.

E.g. obese vs non-obese is about 10 years of lost life expectancy, ceteris parabis. In 1960 ~23% of Americans were obese or worse; today that number is ~40%. On average Americans should have expected to lose about 1.7 years of life expectancy just by getting fatter. Sure we gain some (e.g. 13 years per never smoker or so), but most of them are bad (e.g. divorce is between 2 and 4 years of lost life expectancy).

Medicine delivers a lot more to people today. It allows them to do things they like - drink, sleep around, get divorced, overeat - without paying the full consequences. Productivity is measured not by some silly docs/pops but by docs/risks offset.

Exactly. This is a really silly article.

In my specialty of ophthalmology the average practitioner is at least five times more efficient compared to his 1960s predecessors. Today a cataract surgeon can perform 25 cases per day in an outpatient surgery center with excellent results at a small fraction of the 1960s cost per case. So of course the modern surgeon should earn more! He is vastly more productive!

And much of what an eye surgeon does today was not done in the 1960s. A prime example is the treatment of wet age related macular degeneration. In the 1960s those patients were sent home to go blind. Now these patients are treated and much of the time their disease progression is halted or slowed. Now we could "save" money and not treat these patients. And then watch them progress to complete disability, depression, and see their rate of hip fracture and cerebral hemorrhage double. But, think of the savings!

The cheapest option is always to let the patient die.

The cheapest prevention is always doing fewer "fun" things.

The cheapest healthcare reform would be having more people get and stay married.

Nobody wants the "cheap" option, but boy do they complain about the price of the options they ultimately thrust upon society by dint of their cumulative choices.

+1, some good points here.

Agree. [For the record, I could not find the original reference chart at IPUMS on the rise of physician salaries. My salary certainly has not even kept up with inflation since leaving residency in 1994.] I agree with "Sure" that comparing doctors from 1960 to those today is lunacy. I'm fourth generation physician. Today we deliver babies to more drug addicts, obese patients, moms over 35 years-old, moms with severe medical problems, more twins and triplets, and more premies. And expectations are higher than 40 or 50 years ago-- no tolerance for poor results. Higher risk and greater expectations, more to know. Fifty or sixty years ago most babies were delivered by general practitioners, now most are delivered by residency-trained board certified ob/gyns, and certainly ALL the high risk mothers are. And subspecialties like perinatology (3 extra years training) are tasked with co-managing and caring for the highest risk patients. Should that cost more? It's a completely different world from when my great-grandfather took the subway, stopping by the church to gather holy water, to attend a delivery in someone's apartment.

Physicians have lobbied to protect their turf. They do this stuff weekly and have been for decades:
At the same time they have also managed to keep billing an increased amount for their services while spending less time with the patient and peforming fewer services to the patient via medical assistants, technologists, nurse specialties, coding specialists, etc.
It makes no sense from an economic perspective. Imagine an auto factory with robots that performed 80% of the work. A company wouldnt keep paying the factory working 100% of their prior wages. Yet physician have successfully lobbied it into all major policies.

mebbe notta sucha gooda comparison
factory workers are not legally responsible for the robots work product
while physicians are on the hook for services to the patient via medical assistants, technologists, nurse specialties, coding specialists, etc.

Physicians are so successful in protecting their turf that NPs now have independent and autonomous practice in 38 states and counting. Those docs are sure doing a bang up job!

The author is missing something here that completely disproves his point. Uwe Reinhardt, the famous Princeton healthcare economist, showed in a seminal paper that doctor incomes account for 10% of total healthcare costs.

That means you can cut doctor income by 50% and total healthcare costs only go down by 5%

Considering Euro health systems run at a 50% discount compared to the USA, slashing doctor incomes will do virtually nothing to get total costs in line with Europe's.

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