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). a 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). a 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). a 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). a 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/
