Dalmia (2009) likened the government’s strategies for lowering healthcare costs by reducing or
finding ways to limit reimbursement to providers was akin to leech therapy – simple, crude, and
completely ineffective. However, when considering the salaries of physicians, even when
accounting for office overhead and malpractice insurance, does their work merit six and
sometimes seven-figure salaries? The profession argues that they are being justly compensated
considering the huge financial investment in their education and the practical indentured
servitude they commit to for a residency or fellowship program to simply earn their ability to
provide direct care to patients (Dalmia, 2009). Physicians argue that the lower their potential
earnings, the less attractive the profession appears to would-be doctors, and they point to the
shortage of primary care physicians to bolster their argument. In truth, neither the government’s
reimbursement methodology nor the high cost of education and malpractice insurance is totally
to blame for high physician salaries. Dalmia (2009) argues that both are the result of distortions
to the health care marketplace created by the policies of physicians’ primary professional
association, the American Medical Association (AMA). Most analysis of the issue of physician
reimbursement focuses on the demand side of the equation and the country’s heavy reliance on
third-party payers which makes, they believe, patients indifferent to the cost because only a
small portion of the actual cost is coming out of consumers’ pockets directly. However, factors
influencing the supply-side play an important role as well (Lindsey & Teles, 2017).
For example, “the AMA is a government-sanctioned guild that tries to protect the wages of its
members by tightly restricting the supply of doctors through onerous training and licensing
requirements (Dalmia, 2009).” Lowering reimbursement without removing barriers to medical
practice entry only serves to reduce the supply of healthcare professionals. Lindsey and Teles
(2017) noted that the role of licensing in driving up the price of health care has been almost
completely ignored because no one can imagine that there is an alternative to the current
system. The obvious need for rigorous and extensive training to prevent harm from incompetent
health care providers leads everyone to the conclusion that state screening of physicians is
necessary to ensure quality and safety in the profession, but the current system provides little in
the way of genuine consumer protection (Lindsey & Teles, 2017). Lindsey and Teles (2017) wrote
that “multilevel system of restricting the supply of doctors is irrelevant to ensuring highly
complicated care is s provided only by extensively trained professionals; however, it does ensure
that many relatively routine tasks not requiring such training are nonetheless reserved for
members of the medical cartel.” Lindsey and Teles (2017) argue that it is the artificially imposed
shortage of physicians caused by licensing policies that allow physicians to demand high salaries,
referring to a 2008 study comparing the salaries of American doctors to those in Australia and
Europe. Pre-tax earnings for U.S. primary care physicians averaged $186,000 (in 2008 dollars)
compared to $121,200 for their overseas counterparts; and American orthopedic surgeons, with
salaries averaging $442,500, are paid more than double the $215,500 earned by European and
Australian orthopedic surgeons. (Lindsey & Teles, 2017).
Another way the AMA controls the supply of physicians is through their vested authority to
provide accreditation for U.S. medical schools, and accreditation is limited to specific class sizes,
thereby controlling the number of MDs who graduated from programs each year. Approximately
20,000 first-year students are accepted to medical schools each year (Lindsey & Teles, 2017).
Medicare funds most of the available residency slots and the number of funded slots has been
frozen since 1997 (Lindsey & Teles, 2017). The final way that the AMA tightly controls the supply
of physicians is through laws that constrain the unauthorized practice of medicine, but that
control is slowly waning as non-physician health professionals are being given expanded practice
rights (Lindsey & Teles, 2017). Addressing the supply side by reducing the barriers to entry for
physicians would naturally put downward pressure on physician salaries in a market-based health
system.
References
Dalmia, S. (2009, June 24). The right cure for physician wages. Retrieved March 7, 2022, from
Reason Foundation: https://reason.org/commentary/the-right-cure-for-physician-w/
Lindsey, B., & Teles, S. (2017, November 8). How medical licensing drives up health care prices. (S.
C. Business, Producer) Retrieved March 7, 2022, from ProMarket:
https://promarket.org/2017/11/08/medical-licensing-drives-healthcare-prices/
