Last year, healthcare spending in the US increased by 7.5% to a whopping 5 trillion dollars. Or, in other terms—nearly $15,000 per person.
Doctors are surely to blame because of their massive six-figure salaries. Or are they?
Healthcare is expensive, and someone’s got to take the blame. But let’s cut through the nonsense and look at the facts.
Physician services in the US only make up a fraction of total healthcare spending, with estimates ranging anywhere from 8% to 14%. But keep in mind higher estimates lump physician services together, which includes additional costs beyond doctor salaries.
So, if you cut physician salaries in half, it would only account for around 5% of total healthcare spending. And even if all physicians were to volunteer their time without any pay, about 90% of healthcare costs would go unchanged.
Who’s Really Driving Up Costs?
So what’s really driving up the costs? When you look at the other top expenses in healthcare, hospital services and administrative costs each eat up approximately 30% of spending, and prescription drugs make up another 10-15% of spending. These are also the areas that are increasing at a faster rate.
Total healthcare spending from 2022 to 2023 increased by 7.5% compared to a growth of 4.6% in 2022. Physician and clinical services, which includes much more than physician salaries, increased by 7.4%, but where we’re seeing much more growth is in hospital care spending, which increased by 10.4%, and retail prescription drugs, which increased by 11.4%.
But these data points don’t paint the full picture. The top people who profit from healthcare are big pharma and insurance companies.
In the past two decades, the pharmaceutical industry has experienced significant growth, with revenue totaling over $1.6 trillion in 2023. For perspective, that’s around the entire GDP of countries such as Mexico, Spain, Australia, and South Korea.
Revenue doesn’t paint the full picture because it excludes expenses. What does that mean for profits? It’s difficult to say since each pharmaceutical company has different expenses and a different way of reporting. But it’s safe to say that profits are still in the hundreds of billions of dollars a year. The 16 largest pharma companies alone, which earned $684 billion in 2023, spent over $100 billion rewarding their shareholders.
And keep in mind that profits are something these companies can easily downplay after inflating their expenses, which includes paying CEOs millions of dollars in salaries, bonuses, and stock options.
With such a large and profitable industry, you’d expect the US to be leading the way in healthcare. And while the US develops more drugs than any other country, those same drugs cost an average of 278% more in the US when compared to other countries.
The US pays 172% more for drugs than Mexico, 229% more for drugs than Canada, and 347% more than Japan. And on brand-name drugs, the numbers get even worse. The US pays 422% more for brand-name drugs across a comparison of 33 other countries.
There’s a powerful push, often fueled by big pharma and insurance companies, to paint doctors as the villains. They want to deflect blame for rising costs and keep the public’s focus away from their own profits.
And it’s an easy story to buy into, with many doctor specialists making over half a million dollars a year.
The Truth About Doctor Pay
Yes, while it’s true that some specialties make an average of over $700,000 a year, there are also specialties, especially those focused on pediatrics, that make under $250,000. But still, clearing a guaranteed quarter million a year is still quite a bit of money. Should doctors really be paid that much?
What’s important to understand is the debt and opportunity cost of becoming a doctor.
Most physicians graduate with hundreds of thousands in student loans. The average graduating medical student debt in the US is now over $250,000. That’s a massive financial burden that weighs heavily on a physician’s shoulders for years. And keep in mind this is the average, which means many doctors leave medical school with debt much higher than $250,000.
You might scoff at $250,000 of debt, thinking they’ll be able to pay that off in a few years with a physician’s salary, but not so fast.
As humans, we didn’t evolve to think in this long-term logarithmic way. We’re much more interested in the here and now than in how small investments or debts compound over time.
Imagine investing that money instead. The return would be astronomical. Consider investing that $250,000 over 43 years from college graduation age of 22 to retirement age of 65 at an annual return of 10%. Compound interest would leave you with over $15 million.
That’s the opportunity cost of becoming a doctor in America today.
It’s a much different story for doctors who train in other countries, such as in Europe or Australia, who might make less than American doctors, but they don’t train for as long or have hundreds of thousands of dollars of debt to contend with after graduating.
Of course, not every US medical student graduates with that amount of debt. Some students have their education paid for by their parents. And top students have the potential to earn merit-based scholarships that can cover the majority of the cost of medical school.
By the way, merit-based scholarships are how I got all of my medical school tuition paid for, and I did this by leveraging multiple acceptance offers. These are the advanced tactics myself and the team at Med School Insiders can teach you through our medical school admissions consulting services. Learn more at medschoolinsiders.com.
And remember, it’s not just $250,000 or more of debt; it’s also the interest that comes with it.
And what’s more, doctors can’t begin making any significant dent in their debt until after they complete residency. During residency, which can last anywhere from 3 to 7 years, depending on the specialty, doctors only make an average of $67,000 while their debt continues to accumulate interest.
While this may sound like a good amount of money, it comes with working long, difficult hours. Depending on the specialty, residents can work upwards of 80 hours a week, meaning, at times, they’re essentially paid less than minimum wage.
Despite the Accreditation Council for Graduate Medical Education limiting resident work hours in the US to a maximum of 80 hours weekly on average over a given month, there are numerous accounts of residents exceeding these thresholds.
I cover the use of residents as cheap labor over on the Kevin Jubbal MD channel.
And let’s be clear: Doctors are overworked, plain and simple. The US has fewer doctors per patient compared to many other developed countries. According to the AAMC, “the United States will face a physician shortage of up to 86,000 physicians by 2036.”
So, the next time you hear someone blaming doctors for sky-high healthcare costs, point them to the facts. Physicians are not the problem—they’re part of the solution. They are on the front lines, taking care of their patients despite the system stacked against them.
Even though physician compensation rose by 14% from 2017 to 2022, when you account for inflation, their real compensation decreased by 6%.
Physicians are getting less and less for doing the same amount of work, and in many cases, more work due to understaffed hospitals and the additional administrative burdens of the Electronic Health Record. Yet pharmaceutical profits are consistently on the rise. Remember that $1.6 trillion industry we mentioned earlier?
Look, the US healthcare system is a mess. The prioritization of profits over people in the US healthcare system has led people to anger, disillusionment, and in the case of Brian Thompson, the CEO of United Healthcare, even murder.
Check out my assessment of the United Healthcare scandal over at kevinjubbalmd.com, as well as on the Kevin Jubbal MD YouTube channel. In that guide and video, I also further discuss the benefits of a single-payer healthcare system.
There are many, many different factors contributing to high healthcare costs, but instead of scapegoating doctors, let’s be honest about what’s really going on. Doctors are not to blame—the system is.
The idea that doctors are rolling in dough and driving up costs is a myth, plain and simple.
What’s the Solution?
We need a healthcare system that works for everyone, not just for insurance companies. Fee-for-service care puts an emphasis on profits and speed of care over the wellbeing of the patients. Value-based care, on the other hand, ties reimbursement to the quality and effectiveness of the care provided. This results in more emphasis on preventive care, chronic disease management, and patient engagement, and, in the long term, reduced healthcare spending.
While there are clear pros and cons to both fee-for-service and value-based care, which we covered in another guide, working towards an effective, value-based model is one solution for US healthcare.
Singer-payer systems, like the ones used in Canada and the UK, which spend far less per capita, are another option.
These implementations of a single-payer system are riddled with problems, but there are benefits –a single payer owns the patient and their outcome for life so that single-payer is incentivized to get on top of any health issues to limit long-term costs.
With the current US healthcare system, insurance companies aren’t motivated to optimize that person’s health long term because they know there’s a strong likelihood that person will have moved on to another insurance company before they develop something like diabetes or heart disease. It’s the next insurance company’s problem.
There are many other issues with the US healthcare system. For example, given the incentives between insurance companies, hospitals, and clinics, prices are essentially fabricated and are designed to maximize profits while costing the patient more. This leads to another issue, which is that the patient doesn’t have enough skin in the game because they’re not accounting for a meaningful amount of their own expenses. And on top of all that, there’s no price transparency.
It makes more financial sense for a single-payer system to tackle health issues as soon as possible. That’s one of the major benefits of aligning incentives. Should we make a video and guide on the benefits and drawbacks of a single-payer healthcare system? Let us know in the comments.
