Are Physician Salaries Driving Up the Cost of Health Care?

healthcare money payments
healthcare money payments
Some experts claim reducing physician salaries is the answer to the growing cost of healthcare; one physician shares his opinion on the matter.

As we try to tackle the growing cost of health care some economists have taken aim at physician salaries as the culprit. Dean Baker is one of those economists. He is the co-director of the Center for Economic Policy and Research who recently published an article last month arguing that physician salaries were partly to blame for the higher cost of health care.1 The article appears to imply that the high cost of pharmaceuticals and medical equipment pale in comparison with physician salaries. Further, he points out that physicians in the United States earn more than physicians in other countries and that this discrepancy in incomes is not consistent in other industries such as “autoworkers” and “letter carriers.”1

He describes these pay inequalities as looking an “awful lot like a Cartel”1 — as if physicians directly control “supply” by regulating the number of medical school spots and residencies available in the United States. Moreover, he points out that hospitals control the fields of specialization, which encourages specialty training that increases revenue.

While he uses real-world data, the conclusions he draws from that data are, in my opinion, inaccurate. Much like retrospective studies in which we might find a correlation between 2 findings, the conclusion can often be erroneous due to our inability to see or control for confounding factors. Being a physician and not an economist places me in a unique position to see those confounding factors that Baker has grossly underestimated in his analysis of physician pay. His conclusions, from a physician’s point of view, are drawn in a vacuum of economic theory while missing the real-world facts that explain the seemingly higher salaries.

For example, if he is going to target physician salaries as an “unavoidable part of the high cost of US health care”1 he should explain exactly how much physician salaries contribute to that total cost. Unfortunately, that’s not easy to do. Roughly 20% of healthcare expenditures go towards “physician services.”2 How much of that actually goes towards individual physician salaries is unclear.

Baker fails to point out that approximately 50% of physicians receive their salary from the larger entity that employs them. While the Centers for Disease Control and Prevention (CDC) may consider payments to those entities as “physician services,” those revenues do not directly go towards physician salaries and may in fact contribute to administrative salaries collected by the growing number of administrative positions in the healthcare industry.

Likewise, the other 50% of physicians are probably in private practice. They may collect X dollars from the Centers for Medicare and Medicaid Services for “physician services,” but their salaries are not X. They are X minus expenses that may include salaries of nurses and technicians, leases, equipment rental, licensure, malpractice insurance, and all the other costs involved in a functioning practice. Included in that number are payments to cover the salaries of physician assistants, nurse practitioners, and other allied health providers (which Baker argues may help drive the cost of care down).

From my limited experiences in private practice, approximately 50% of that revenue goes towards paying overhead expenses. Medicine in the United States functions as a business and like any business it requires a large stream of revenue to function. We might argue for or against this healthcare model, but it is our current model and it is subject to the pressures of capitalism. Therefore, making a comparison with other countries in which physicians may be part of a universal health system, and in which free market economics do not apply, is unfair. Simply cutting physician pay is not going to put a dent into our healthcare costs. It may, however, discourage individuals from becoming physicians in the first place.

Baker does not describe in any detail how the cost of becoming a physician in the United States compares with other countries. Physicians in the United States often carry large amounts of educational debt, at ridiculously high interest rates, and get paid relatively little during their training years. In fact, many of my foreign medical colleagues graduate from their training programs with far less debt than US medical graduates.

For example, during my first year of residency the interest on my student loan debt alone exceeded 35% of my total residency income. Needless to say, I could not make meaningful payments towards bringing down my student loan debt. Over the course of 6 years of post-graduate training to become a cardiologist, I accumulated an additional nearly $60,000 in compounded interest on top of my already atrocious loan debt despite my monthly payments.

The comparison of US physician salaries with other countries needs to take into account that in most of these other countries medical education is largely subsidized by the government. The comparison downplays the expensive education required to obtain a medical degree, the numerous years of low-paid post-graduate training, the long shifts and sleepless nights, the personal and professional risks unique to practicing medicine in the United States, and the ever-growing cost of clinical practice.

Baker also notes that teaching hospitals have an incentive to offer residencies in specialties in order to bring in more revenue per resident. The truth is that there are more primary care residency spots available than specialty spots. Many specialists are initially trained in a primary care specialty, but later move on to subspecialize. Hospitals may generate more revenue by providing specialty care, but they do not promote specialty training. I personally do not recall any training programs encouraging me to specialize. In fact, when I applied for my internal medicine residency, I feared that my plans to specialize in cardiology might hurt my chances at a successful match because programs were so eager to recruit physicians who would stay in primary care.

I suspect some of Baker’s arguments come from a 2013 article published in Academic Medicine showing that the mean percentage of physicians remaining in primary care after completing an internal medicine or general surgery residency was 37.9% and 38.4%, respectively.3  That same article reported high reimbursements for training centers offering more specialized graduate medical education programs. However, that does not mean that institutions encourage physicians to specialize. It is difficult to match to a specialty position as there are markedly fewer positions available then primary care positions. For example, my internal medicine training program had 35 spots available per year for residency training. At the same institution, there were only 6 spots per year for cardiology fellowship training. Therefore, there is no concerted effort to train more specialists. Something else is driving the flow of primary care physicians towards specialty training.

The article had some serious limitations, which the researchers themselves pointed out. First, 13% of the cohort couldn’t be accurately assigned to a training site, making it impossible to determine the final disposition of those physicians. Further, the Accreditation Council for Graduate Medical Education database that was used only allowed them to identify primary teaching sites, which does not represent the entire body of teaching hospitals. The study essentially excluded all osteopathic residency programs that often train and retain a larger percentage of primary care physicians.3

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Despite the limitations, Baker is right in saying that many physicians are specializing at a time when we need more primary care providers. He neglects to show, however, how physician salaries are driving this gap. It may be that our society has created a higher demand for specialty physicians. In fact, he discusses possible causes, such as the fact that primary care providers may refer to specialists more often due to fear of the legal ramifications of trying to treat more complex issues on their own. There may also be gaps in medical knowledge that are a direct consequence of increased referrals, thus perpetuating the cycle of specialty referrals for issues that could otherwise be managed by primary care. The lack of primary care providers may in and of itself lead to overburdened primary care physicians who must refer to specialists in order to keep their patient loads more manageable. These are all symptoms of a systemic problem, but not a problem related to physician salaries.

Patients often assume that because specialists have more training, they may be better general practice physicians. That misconception has cultural ramifications even among physicians. I can recall countless times when colleagues have been asked about their specialty and when they answered, “I’m an internist” were asked, “Just an internist?” Even as a noninvasive cardiologist, I’ve been asked by colleagues whether “I’m just a cardiologist or an interventional cardiologist,” as if my training was in some way inadequate because I did not complete an additional year of interventional training. Thus, the expectations set by our society may also drive the demand for more specialty training.

In fact, I do not remember learning about cardiology salaries until long after I had decided to become a cardiologist. I do, however, recall the dread of not matching to a cardiology fellowship. The administrative nonsense in primary care seemed to drown out the reason why I became a physician in the first place. This may be part of the drive away from primary medicine as well – physicians may be grasping to preserve some semblance of what medical practice once was. The growing number of non-medicine related tasks, increased regulatory control, and the mountain of administrative work that has been dumped on primary care providers likely discourages physicians from wanting to go into primary care. Again, this is a symptom of a much larger problem.

While Baker may have quoted the data correctly, the conclusions he drew from that data about solving the growing cost of health care by reducing physician payments is likely flawed. Addressing physician salaries before addressing the other larger issues that plague our healthcare system would worsen the problem by further exacerbating the supply side of the equation. If there is to be any change towards a more efficient and cost-effective healthcare system, economists, politicians, and healthcare administrators need to sit down with physicians who routinely deliver health care.


  1. Baker D. The problem of doctors’ salaries: An economist argues that American doctors get paid too much. Politico. Published October 25, 2017. Accessed November 20, 2017.
  2. Health, United States, 2016. US Centers for Disease Control and Prevention. Accessed November 20, 2017.
  3. Chen C, Petterson S, Phillips RL, Mullan F, Bazemore A, O’Donnell SD. Toward graduate medical education (GME) accountability: measuring the outcomes of GME institutions. Acad Med. 2013;88(9):1267-1280.

This article originally appeared on Medical Bag