Economics, Entitlements

Are U.S. Doctors Overpaid? Healthcare Fact of the Week

According to recently released data from the Bureau of Labor Statistics, medical and dental professions now account for 14 of the 15  highest paid occupations in the United States (measured in terms of annual income). Put another way, of nearly 800 occupations surveyed, doctors and dentists were at the top of the list. In contrast, chief executive officers ranked ninth. Does this mean U.S. doctors are overpaid?

The annual rate of return to an investment in physician education currently is at double-digit levels. Approximately 50 years ago, earlier studies found that such rates of return were much less than 10 percent. The numbers represent the hours-adjusted annualized rate of return on medical education over a doctor’s working lifetime. That investment in medical education includes direct costs (tuition, books, and so forth) and indirect costs, that is, the income foregone by attending college, medical school, and doing a residency rather than working. The return on this investment is the higher annual compensation physicians receive relative to what similar individuals receive on average during each year of their career. The hour adjustment is important because physicians work longer hours than the average worker does. The rate of return is annualized to make it the same as other investments. For example, from 1900 to 2010, the total rate of return for the Dow Jones Industrial Average was 9.4 percent.

These data are approximations because such information for every category of physician is not available. Each of the past studies that have examined this question differ in their methodological details. However, they suggest that while it may not have been true in the “Dr. Welby” era of the 1950s and 1960s, by the 1980s a typical physician earned a healthy rate of return compared to investing comparable resources in the stock market.

But it may surprise some readers to learn that the sizable rates of return for doctors appear to be less than for other professional degrees such as in business or law. Dentists and physician specialists have comparable rates of return, but primary care doctors have lower—albeit still impressive—rates of return. This is consistent with the general impression that primary care doctors are “underpaid” relative to specialists. Not surprisingly, there is a shortage of primary care doctors.

In the chart shown, procedure-based medicine is defined as surgery, obstetrics, radiology, anesthesiology, and medical subspecialties. Long-term trends for the other professions shown in this chart are not available, but we do know that median CEO compensation has increased considerably, rising from less than 60 times average U.S. worker compensation in 1940 to more than 100 times that average by 2004.

It is well-known that much of the difference in healthcare spending between the United States and other nations can be attributed to the higher prices Americans pay for medical care. But the foregoing comparisons suggest that high prices for health labor in the United States might simply reflect higher returns to skilled labor across the board. After all, if we were “overpaying” doctors, we would expect to see a doctor surplus. Yet this is not what we observe. Paying doctors less would not benefit the country as a whole. That is, every dollar saved by consumers also would be one less dollar of income for doctors. Moreover, if doctors were paid much less, more people might get MBAs or law degrees instead. This would surely reduce health spending, but reasonable people might disagree on whether it would improve social welfare.

Christopher J. Conover is a research scholar at Duke University’s Center for Health Policy and Inequalities Research. The chart shown is from his new book American Health Economy Illustrated, to be released in January 2012 by AEI Press. See PowerPoint version and Excel spreadsheets on highest-income occupations and annual rate of return on education for data, sources, and methods.

8 thoughts on “Are U.S. Doctors Overpaid? Healthcare Fact of the Week

  1. who says that doctors are overpaid? i’ll bet they never worked 80 hour weeks nor studied all night nor worked holidays nor borrowed to go to school. keep this nonsense up and you will end up with government doctors who are union members and then what will you think?

  2. I cannot believe that I have to wait until January to read Professor Conover’s book! I shall certainly follow this blog carefully until that happy day. My only fear is that when I think about researching or writing about an issue, I will see that Prof. Conover will have already addressed it. Perhaps my comments can prompt moving the issue at hand forward.

    I’ve always known that doctors have a lower ROI on education than MBAs, for example, but I did not know it went all the way back to 1990, and (presumably) a good number of years before that. A related question that might be one way to address the question of the high share of health spending in GDP in the U.S. versus other countries might be to look at the cross-section of ROIs for different professions, rather than the longitudinal (time-period) ROI within the U.S.

    To put it another way: The labor value of professionals is very difficult to measure. Many physician specialties (especially GPs) are limited in their ability to increase productivity. However, because the U.S. has been (until the last few years) more economically free than most other developed countries in Europe, Canada, Australia, etc., managerial professionals have been able to increase their productivity relatively faster in the U.S. than those countries.

    Ergo, we may observe that the ROI gap between medicine and other professionals has increased faster in the U.S. than other countries. Nevertheless, if it is driven by productivity, professor Baumol’s insight leads us to conclude that physician pay in the U.S. must become increasingly higher than physician pay in other developed countries to compensate, thereby contributing to the higher share of GDP on health spending.

    (Of course, Professors Ohlsfedt & Schneider have addressed other explanations for high U.S. health spending in their 1006 AEI book, which I’ve discussed at

  3. I have a relative who is a doctor (highly trained specialist, double-boarded) – his hours are all over the board, 12 to 14 hour days are not unusual, weekends and holidays are often spent in the hospital, NO guaranteed 6 hours of sound, uninterrupted sleep every night, annoying clipboard health professionals (aka hospital administrators) always trying to stick their noses into the actual hands-on doctors’ and nurses’ care routines, dismal reimbursement rates from the government which pay far less than an auto mechanic makes per hour, etc.

    Yet this man’s focus never changes…he gives the best care to every patient he sees, despite the stress and politics of the job. Does he deserve to make a good living? YES! And the government is on the path to destroy the exceptional health care that all Americans (and non-citizens) seem to oftentimes take for granted.

    ‘Class envy and wealth redistribution’ liberal politicians will drive the best of the best doctors (and potential doctors) to other less stressful professions….and do not discount the ramifications of impending ObamaCare!

    • I can’t tell you how much appreciate your comments regarding doctor work hours, commitment, and stress related to dealing with truly unnecessary administrative hassles that do NOTHING to aid in patient care. I love what I do and I, like your family member, try not to let my focus shift away from patient care in spite of all the forces pulling at it. I do, however, think we are starting to get the quality we are paying for-not good. If you want dedicated, smart, thoughtful, hard working people in ANY profession you have to pay them. Why shouldn’t the people who we intrust our lives too (literally) be on the top of that list along with people who teach our children and people manage our financial futures? All important pursuits, but none of them are fielding phone calls on critically ill patients in the middle of the night or missing holiday dinner with their families to care for someone who may or may not ever pay them. It’s really amazing to me that our society thinks that ok. Anyway-thanks again!

  4. “After all, if we were “overpaying” doctors, we would expect to see a doctor surplus.”

    An ignorant statement beyond belief. The AMA limits the amount of doctors, look it up. I cannot beleive this is a “conservative” think tank

    • I think what Dr. Conover is saying is that if doctors’ salaries were in fact as high as many people think they are, we would have a surplus of MD graduates without positions to place them in.

  5. Specialists are considerably overpaid. Based on claims from medical school admissions directors that many QUALIFIED applicants cannot get into medical school due to a shortage of spots, it would appear that the AMA is restricting supply via accreditation. The fact that the AMA restricted class size in the 1990s, claiming that there was a glut of physicians, strongly suggests that there is an illegal oligopoly on medical accreditation in the US.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>