Code Red: Two Economists Examine the U.S. Healthcare System

January 29, 2013

My Son, the Electrician

Filed under: Uncategorized — David Dranove and (from Oct. 11, 2013) Craig Garthwaite @ 9:33 am

I grew up in a solidly middle class neighborhood of second and third generation Jewish immigrants. Our grandparents lived in enclaves like Bensonhurst and the South Bronx. Our parents moved to Queens and Long Island where they became salesmen or shop owners. It fell to my generation to earn advanced degrees and join the professional class. We had a few lawyers, some accountants, and one or two dentists. (My best friend Billy Ebenstein and I were the only ones to become professors.) Becoming a doctor was the pinnacle of success, with prestige, guaranteed financial security, and a lifetime of professional fulfillment.

As kids, our iconic physician was Marcus Welby, the eponymous lead character of television’s top rated drama series. Dr. Welby’s world of an independent private practice, free from interference from administrators and insurers, has ended. Not coincidentally, Marcus Welby was portrayed by Robert Young, who had previously played the lead role of Jim Anderson on Father Knows Best. Our doctors were parent figures, get it?

Physicians can no longer expect to enjoy similar relationships with their patients. Even the world of Gregory House, where the practice of medicine was reduced to finding the best application of diagnostic skill and modern technology, seems a distant memory. At least Dr. House held sway over his boss, Dr. Cuddy, and he never let costs get in the way of his medical decisions. When we last saw Dr. House, he was motorcycling off into the sunset with his dying friend Dr. Wilson. House got out just in time.

In the blink of an eye, the world of medicine has changed. We are witnessing massive vertical integration as providers try to make money from ACOs. At the same time, Medicare and private insurance have gone all-in on pay-for-performance. Only they have forsaken outcomes measurement and instead given us strict process guidelines. As a result of these changes, newly minted physicians can expect to spend the bulk of their careers employed by a hospital or a large multi-specialty group practice. They will not build and maintain a practice – their employer will do that for them. And they will have little discretion over diagnostic testing and treatment plans – they will instead follow strict treatment guidelines.

As a result of these changes, I see the end of professionalism. Tomorrow’s doctors will not be in loco parentis, instead, they will be more like carpenters or electricians, applying their tradesman-like skills to blueprints laid down by others. No one will place tomorrow’s doctors on a pedestal. Parents will no longer brag to their neighbors, “Let me tell you about my son, the doctor.”

Medicine will still be a financially rewarding career path. But if money is what matters, there will be far better choices. It will still take 8-10 years to finish medical school plus residency. During that time, a bright young college graduate could have instead completed three years at a top ranked law school and taken up with a big law firm, or worked at a financial firm, gone to a top business school, and taken a job in consulting. Not only would they earn money sooner, as a lawyer or consultant, they would not have to worry about Medicare slashing their fees.

Recent increases in marginal tax rates make medicine even less attractive. College students who choose medicine may give up 8-10 years of good income, but they could reasonably expect to make even more money once they finish their residencies. The net present value of a medical degree just might be worthwhile. Yet if you combine new federal marginal income tax rates that approach 45 percent with state income tax rates that often exceed 5 percent, then the net present value calculations do not look so good. Many college students will be wondering why they should give up a solid, steady income today in for a higher income as a doctor in the future, when the government is going to take over half of that higher income.

When I grew up, I was always told that medicine was a “calling.” Perhaps it was, though the money didn’t hurt. I don’t know how many young people will be “called” to become technicians. But technicians they will be. And with no real financial argument to support the choice, I wonder why anyone would choose to become a doctor.

6 Comments

  1. [...] Ten years later, my father totally thinks I made the right call. My life is pretty sweet. But lots of other people still don’t think that way. David Dranove may be one of  them. He has a piece today in which he bemoans the ability of physicians to find satisfaction in their lives or make enough money. I’m going to go through most of what he says in detail: [...]

    Pingback by Being a doctor is a great gig | The Incidental Economist — January 29, 2013 @ 11:47 am

  2. Readers of this blog might be interested to know that Dr. Dranove’s has a son who is actually a budding, successful card game designer.

    While this fact may seem irrelevant, it serves to highlight the idea is that people our age do not necessarily want to be steadily employed in a traditional office job (even a reasonably well-paying one) until they are in their late twenties or thirties. Until then, they intend to make the most of their youth by learning and enjoying their health and lack of obligations. The medical profession, despite its stresses, long training, and initial high debt, offers a deferred future and a planned transition from university education into medical residency. While federal regulations may dampen hopes of a high salary in the following decades, policy is not the only determinant of physician income. Demographics also play a role. While soon-to-be physicians do not necessarily expect their salaries to increase, the aging of the baby boomer generation will increase demand for services–wouldn’t this result in more stable salaries for physicians down the road?

    As for the term technician–I disagree. While in some ways a physician is a high-throughput body mechanic, one is also free to engage in research, clinical studies, education, politics, consulting, humanitarian aid. My experience tells me that a lot of physicians take these opportunities. The idea of a calling, in my mind, refers to “being on call”. If someone calls for help, a physician is bound to help. A technician is not (legally). If one feels called to become a physician, you are one of those people bound by conscience to assist in matters of health, any time, anywhere. That is why one would choose to become a doctor.

    Comment by Justin Gaines — January 29, 2013 @ 12:31 pm

    • Thanks for your comments. Just a quick point…medicine was considered a “calling” because people felt “called” to the profession, perhaps by some higher power.

      Comment by dranove — January 29, 2013 @ 12:39 pm

  3. This article was clearly writtten by a non-physician. While there are kernals of truth to his points, he goes far overboard in his extrapolation that everything about being a doctor is somehow terrible. Doctors love to whine, but very few choose different career pathways. Are they going to choose to become a lawyer and make 70% of what a primary care doc gets? Are they going to choose to become a banker in hopes of getting 10 million as a senior hedge fund manager? While we’re throwing ridiculous alternatives, why dont all unhappy doctors go play professional sports? Oh thats right, its because THOSE CAREERS ARENT OPEN TO THEM EVEN IF THEY QUIT MEDICINE. So lets quit pretending that all the doctors who want to quit could easily start their own fortune 500 company or get paid at the top 1% of investment bankers.

    Exactly whom do we hold on a pedestal? The shark lawyers who are largely seen as greedy with an interest in filing frivolous lawsuits? The banker — who were responsible for the meltdown of the US economy? The teacher — who refuses evaluation proposals and hides behind a union shield working against the best interests of children? The accountant — whose greatest contribution to society is helping Enron fool investors and create shadow bookkeeping that is completely opaque?

    Exactly which one of these alternate career pathways holds the “pedestal” status that physicians no longer have?

    Physicians have fallen off the pedestal only because EVERYONE HAS FALLEN OFF — heck even priests have been brought down off their pedestals by society. Society always comes to a point where it no longer holds positions in reverence. This was INEVITABLE and was going to happen regardless of any changes in the healthcare system.

    Whats the old Winston Churchill quote about democracy? “Democracy is the worst form of government, except for all the others.”

    Same thing applies to medicine — what is a better profession than medicine? Is it law, teaching, accounting, banking? And dont you dare throw out nonsense comparing top CEOs or the top 0.5% of lawyers to the medicine profession as a whole.

    Comment by MD — January 29, 2013 @ 2:20 pm

    • One does not need to be a physician to compute a net present value. Indeed, there have been several NPV studies over the years, and they conclude that if a bright college graduate wants to maximize NPV of income, becoming an MD is the wrong career path. With changes in compensation and tax law, I don’t see how things are going to get better. And even a non-physician can understand that if someone is knocked off their pedestal they have lost something they may have valued. This is a step backwards compared with someone who has never been on one in the first place.

      Some will feel that the medical profession is still great. Others may disagree. But let’s not kid ourselves, the trends for physicians are problematic.

      Comment by dranove — January 29, 2013 @ 2:36 pm

      • How do you think these trends will be affected by the retirement of the baby boomers?

        Comment by Justin Gaines — January 29, 2013 @ 2:39 pm


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