Are American Doctors Overpaid?

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The United States is known for having some of the highest-paid doctors in the world; however, it’s also known for having some of the highest healthcare costs in the world. This has led many to wonder, “are American doctors overpaid?” And are those costs being passed onto patients? Let’s find out.

As with any question, it’s important to look at both sides of the debate. We’ll start by exploring the arguments in favor of American doctors being overpaid followed by the arguments against it.

 

U.S. Doctor Salaries vs Other Countries

Let’s start with the salary for U.S. physicians compared to other countries.

According to Medscape’s 2022 Physician Compensation Report, the average physician in the United States earns approximately $339,000 per year. If we break this down further, the average primary care physician earns approximately $260,000 and the average specialist earns $368,000. This puts physicians in the top 2-5% of U.S. earners.

It should be noted that physician compensation in the U.S. varies widely both within and between specialties. For instance, doctors working in private practice can often earn significantly more than physicians working in community or academic centers. In addition, more lucrative specialties such as plastic surgery, orthopedic surgery, and cardiology can easily earn upwards of $500,000 per year whereas less lucrative specialties such as family medicine and pediatrics earn significantly less than that.

Now let’s compare these numbers to doctors in other countries. In Canada, the average physician earns approximately $354,000 CAD per year. If we convert this to U.S. currency, this is approximately $255,000–which is roughly $84,000 less per year than the average U.S. physician. In the United Kingdom, the average physician earns £103,000 per year which equates to approximately $115,000 per year. And in Germany, the average physician earns roughly 93,000 EUR which currently equates to about $90,000.

As we can see from these numbers, U.S. physicians are paid substantially more than physicians in many other wealthy countries.

 

Supply, Demand, & the Residency Bottleneck

Another argument in favor of American doctors being overpaid is that the physician shortage has been artificially inflated. There is no shortage of people who want to become doctors. Rather, there are systems in place that have limited the number of physicians that can be trained each year–the most notable of which is the “residency bottleneck.” This, in turn, has inflated physician salaries.

Each year, there are thousands of medical students that apply for residency and don’t get into a single program.

During the most recent 2022 NRMP Match, approximately 6,400 students went unmatched. These are individuals who have completed medical school, passed their board exams, and demonstrated that they have what it takes to be a doctor–and yet, they are unable to continue their training. Instead, they must take a gap year to strengthen their application and reapply in hopes of getting in next year. This lack of residency positions then trickles down and limits our ability to expand medical school spots.

The reason that there aren’t enough residency spots is due to the lack of Medicare Graduate Medical Education, or GME, funding. Caps on funding imposed in 1997 have severely limited the number of facilities eligible to receive federal funding making it much harder to open new residency programs.

This is slowly changing with the recent 2021 Consolidated Appropriations Act which will have Medicare provide an additional 1,000 funded slots over 5 years starting in 2023; however, there will still be thousands of students who go unmatched each year.

By limiting the number of physicians that can be trained each year, the United States has artificially inflated the demand for physicians giving doctors more leverage in salary negotiations. This has subsequently driven up salaries.

It’s simple supply and demand: if there are fewer people offering a service, they can often charge more for that service. For this reason, as the U.S. takes steps toward addressing the physician shortage, we may very well see physician salaries begin to decrease.

 

Mid-Levels and Independent Practice

Lastly, some people argue that many of the responsibilities of a physician can be accomplished by mid-level providers, such as physician assistants and nurse practitioners, at a much lower cost.

Traditionally, mid-level providers work in a collaborative fashion with doctors–similar to the relationship between an attending physician and a resident physician. That being said, there has been an increased push for independent practice for PAs and NPs in recent years, allowing some mid-levels to practice autonomously and without a supervising physician.

The average physician in the United States earns approximately $339,000 per year, whereas the average PA earns $122,000 per year and the average NP earns $118,000 per year. This large gap in pay has led many to question if healthcare costs can be decreased by using mid-level providers in place of physicians in some clinical settings.

That being said, there are significant differences in the training, experience, and level of knowledge between physicians and mid-level providers. As such, there are many concerns regarding independent practice beyond finances.

Now let’s get into the arguments against American doctors being overpaid.

 

Financial Costs of Becoming a Doctor in the U.S.

To start, becoming a doctor in the United States is incredibly expensive.

Before starting medical school, you must first complete a four-year bachelor’s degree. The average cost of college tuition per year in 2022 was $40,000 for private colleges, $23,000 for out-of-state students at public schools, and $10,000 for in-state residents at public colleges.

This means that it costs students anywhere from $40,000 to $160,000 to earn their bachelor’s degree. And these numbers don’t take into account the various other fees associated with applying to medical school including the costs of taking (and sometimes re-taking) the MCAT, application fees, and attending interviews. In contrast, many other countries allow students to matriculate into medical school straight out of high school with some even offering free college tuition.

Once U.S. students gain admission to medical school, however, the costs escalate even further.

As of 2022, the average cost of medical school tuition in the United States is approximately $55,000 per year with some schools charging more than $70,000 per year.

In addition, many schools explicitly prohibit students, and for good reason, from working during medical school making it practically impossible to earn a livable income during these four years. As a result, the majority of students are forced to rely on loans to pay for school and other living expenses.

It should come as no surprise then that the average medical student graduates with around $242,000 of student loan debt with some students owing over $400,000 by the time they graduate. It’s only getting more expensive too as the average cost of medical school rises by approximately $1,500 each year.

During residency, U.S. doctors will begin earning a salary; however, it is not as much as you might expect for someone with over 8 years of post-secondary education. According to Medscape’s 2022 Resident Salary & Debt Report, the average salary for residents in 2022 was approximately $64,000.

This may sound like a comfortable salary; however, more than two-thirds of residents work greater than 50 hours per week, and nearly a quarter work greater than 70 hours per week. This varies widely based on specialty, however, with some specialties averaging closer to 40 hours each week and others more than 80 hours per week. Although duty hour restrictions exist that limit residents to working no more than 80 hours per week, many programs violate these restrictions.

If we use a modest estimate of a 60-hour workweek, the average resident physician earns approximately $21 per hour after nearly a decade of training and accruing between a quarter to half a million dollars of debt.

Although salaries increase significantly once a resident becomes an attending physician, they are often well into their 30s by this point and will then have to start the long road of debt repayment.

 

Opportunity Costs of Becoming a Doctor in the U.S.

This brings us to the next point which is the significant opportunity cost associated with becoming a physician in the U.S. Opportunity cost can be defined as the potential loss from a missed opportunity resulting from choosing one alternative over another.

It takes a minimum of 11 years after high school to become a doctor in the United States. That’s 4 years of college, followed by 4 years of medical school and 3 years of residency. Although there are some pathways that can shorten the length of training slightly, such as BS/MD programs, these are not the norm. In addition, many specialties have residencies lasting longer than three years–and that’s not even getting into the various fellowships available.

Physicians spend over a decade of their lives in training before they start their careers. In comparison, many of their college peers will complete their 4-year degree, start working in their desired field and begin climbing the career ladder. As such, they will have nearly a decade’s head start in terms of investing and building their wealth. For this reason, medicine is not a great career if you’re optimizing for money.

 

Physician Salaries and Healthcare Costs

The last argument against American doctors being overpaid is that they aren’t actually the highest earners within medicine. The real money in medicine is not in the delivery of care, but rather in overseeing the business of medicine.

The average insurance chief executive officer earns approximately $584,000 per year, the average hospital CEO earns $386,000 per year, and the average hospital administrator earns $237,000 per year. Although these numbers may not sound much different from physician salaries, they are likely a vast underestimate of administrators’ actual compensation. Top executives generally earn the bulk of their income through non-salary compensation such as bonuses and other benefits.

For example, the CEO of Aetna earned a salary of about $977,000 in 2012; however, when you factor in non-salary compensation such as stocks and options, his total compensation package that year was valued at over $36 million.

Hospitals and insurers argue that these large salaries are necessary to attract top executives who have the knowledge and expertise necessary to navigate the complexities of American health care; however, many feel that these salaries are unnecessarily high.

According to studies, administrative expenses account for approximately 15-25% of total national healthcare expenditures which equates to roughly $600 billion to $1 trillion per year. In contrast, doctors’ salaries are estimated to make up only about 8% of healthcare spending. As such, many argue that physician salaries are not the primary drivers of the exorbitant healthcare costs we are experiencing in the United States, and lowering administrative costs may do a better job of moving the needle.

The question of whether American doctors are overpaid is not so black and white. It is a complex question with strong arguments on both sides. But what do you think? Let us know with a comment below.

If you enjoyed this article, be sure to check out our piece on the Highest Paid Doctors or NP & PA vs MD & DO | Mid-Level Encroachment [Research Explained].

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