A recent New England Journal of Medicine article suggests that professional education—particularly for medical specialties and occupations—is experiencing a market bubble.


In the article, “Are We in a Medical Education Bubble Market?” (Nov. 21, 2013), authors David A. Asch, Sean Nicholson, and Marko Vujicic highlight recently increasing ratios of debt to median income “on entry into the workforce” for several medical specialties and occupations. Four specialties—family medicine, psychiatry, emergency medicine, and obstetrics/gynecology—have the highest values at about 85 percent, 80 percent, 57 percent, and 56 percent, respectively. The finding for family medicine physicians, for example, means that the accumulated debt from college and medical school for these physicians would be about 85 percent of income in the first year of practice. 

The ratio of debt to income for specialists such as anesthesiologists, radiologists, and orthopedic surgeons is much lower, in part because their initial incomes are so much higher, according to the article. The authors also show that ratios for other professionals, like veterinarians (165 percent), optometrists (130 percent), pharmacists (110 percent), lawyers (97 percent), and dentists (95 percent) are higher still. Only business-degree recipients have lower ratios of debt to income relative to the other groups:
30 percent, about the same level as orthopedic surgeons, the authors write. 

But this is far too simplistic a measure. Although the authors claim that other measures, like return on educational investment, might be too complex for students pursuing these professions to understand, that is hard to believe: Veterinary, legal, dental, medical, and business students are pretty bright people if you believe in grade-point averages. And certainly, when evaluating their debt burden, they consider their long-term earnings potential, not just the income that they anticipate soon after graduation.

Taking a Closer Look

Nearly 20 years ago, my colleagues and I used the human capital analytic methods that won Gary Becker a Nobel Prize in economics to calculate returns on education that specialty physicians, primary care physicians, dentists, lawyers, and businesspersons experienced in 1990 and again in 1997.a These methods incorporate important aspects of any investment decision, such as opportunity cost (the potential income lost while attending school), anticipated work effort, and changing income over the working lifetime. 

We found dramatic differences in two measures of return on educational investment (the internal rate of return, more sensitive to shorter durations of training; and the net present value of the educational investment, more sensitive to absolute income levels) accruing to different specialties and occupations. Because of their relatively short training period and relatively high income right out of school, businesspersons and lawyers had the highest internal rates of return on their educational investment. Despite longer lengths of training, because of their very high lifetime earnings, specialist physicians had the highest net present values of their educational investment. In both studies, primary care physicians had the lowest returns on their educational investment, regardless of the measure of return used. We also found that, between 1990 and 1997, direct educational costs increased much more than incomes, opportunity costs, or measures of return on educational investment.

The New England Journal of Medicine report shows that education costs continue to rise more rapidly than incomes. But this phenomenon is not limited to those professions examined—and this fact should be quite disconcerting to the physicians in these specialties. These professionals’ customers, too, bear increasingly high debt loads, yet they cannot similarly generate high incomes to be able to repay them. This situation does not bode well for the longer-term earnings potential of professionals in general. Patients who are overwhelmed with educational debt might not be willing to continue to support the high incomes that these professionals command, particularly in a zero-inflation and low-wage-growth environment, both of which increase the overall debt burden that individuals hold. 

Physicians earn about 20 percent of every healthcare dollar spent, but control the other 80 percent with the stroke of their pens (or, perhaps more appropriately, the keystrokes they input). And physicians continue to make good money: On average, primary care physicians now earn almost $200,000 each year, and specialists can make double that. Physicians are concerned that their incomes will decrease as a result of Medicare cuts and implementation of the Affordable Care Act (ACA), when lower Medicaid payment levels will squeeze out higher private-sector payment as newly covered patients fill physicians’ schedules. But they should be equally concerned about how increasing educational debt loads will impair their patients’ willingness to support physician income levels. 

Loan Debts Unlikely to Burst Physicians’ Bubble

As we learned from multiple federal-debt and mortgage crises in the United States, the United Kingdom, southern Europe, and Japan, taking on higher levels of debt becomes a problem only when people cannot repay it—as when recessions occur, job markets constrict, or debt service overwhelms income. Professionals should be deeply concerned about the looming student loan crisis that indirectly threatens their incomes. The debt that U.S. students are accruing is as unsustainable as escalating healthcare costs, Detroit’s pension plans, or Greece’s public spending. Frankly, as students taking on high levels of debt move toward taxpayer status, the impact that their student debt burdens have on their disposable income more broadly threatens spending on health care, consumer goods, and public investment. 

So physicians face some longer-term threats to their income levels, beyond the shorter-term threats imposed by Medicare cuts, implementation of the ACA, the growth of accountable care organizations, and consolidation of the healthcare delivery sector. A modest relative increase in their own educational costs is, perhaps, the least of their worries. 

William B. Weeks, MD, FHFMA, is professor, The Geisel School of Medicine, Hanover, N.H., and a member of HFMA’s New Hampshire-Vermont Chapter. 


a. Weeks, W.B., Wallace, A.E., Wallace, M.M., and Welch, H.G., “A Comparison of the Educational Costs and Incomes of Physicians and Other Professionals,” New England Journal of Medicine, May 5, 1994; and Weeks, W.B., and Wallace, A.E., “The More Things Change: Revisiting a Comparison of Educational Costs and Incomes of Physicians and Other Professionals,” Academic Medicine, April 2002.

Publication Date: Monday, March 03, 2014

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