Chapter 11
Is There An Impending Shortage of Physicians?
1. Background

Many are concerned that the United States is developing a surplus of physicians who are specialists
and a shortage of physicians who are general practitioners.

Consequences of a MD surplus or shortage differ for individuals with private insurance and public
insurance:
o
o
Private Insurance effects of MD shortage & surplus

Short term: longer waits, difficulty getting appointments, demands for increased
fees for MDs (& insurance premiums & copays), increased use of ancillary labor,
higher MD incomes

Longer term: as MD incomes rise relative to other professions, demand for MD
education will increase, demand for MD residencies will increase, maybe US MD
schools will expand leading to increased MD supply, more persons will seek foreign
MD training, eventually US MD supply will increase, moderating the initial shortage.

Short and longer term effects of surplus are reverse of shortage.
Public insurance (Medicare & Medicaid) effects of MD shortage & surplus

In public insurance markets, government sets fees for MDs so they will not adjust to
moderate shortages and surpluses.

Short term: If shortage exists, MDs will serve less Medicare & Medicaid clients in
order to capture rising fees from private insurers. If surplus exists, MDs will serve
more Medicare & Medicaid clients to avoid declining private insurer
reimbursements.

Longer term: since physician fees won’t adjust to eliminate surplus or shortage.
Excess demand will lead to longer waiting times and an unwillingness to serve new
public patients. More individuals will opt for managed care to increase their access
to MDs.

How do economists determine whether a surplus or shortage exists vs. how do public policy
advocates determine same?

In 1992 Council of Graduate Medical Education (COGME), using a MD/pop ratio approach, warned
that by 2000 a surplus of specialist would occur (= 15-30 % of all MDs) and a shortage of primary
care physicians. COGME advises Federal government on how to subsidize/encourage medical
education for differing providers. This surplus did not materialize.

In 2005 COGME warned that there would be a shortfall of 90K physicians by 2020. Will it
materialize?

Two approaches for defining surplus/shortage situation:
o
Physician to Population Ratio
o
Rate of Return to Investment in MD training
2. Physician to Population Ratio

This approach assumes that a particular MD to Population Ratio indicates a sufficient level of
physician services. If the actual (or projected) value is greater than the target, it indicates a surplus
or shortage exists (or will exist).

Projections are made for differing specialties.

Used by COGME to advise Federal government about subsidies for medical education for MDs and
for other health professions (i.e., nurses, dentists, etc.)

The number of MDs increased rapidly between 1980 and 2008 (435K to 835K) leading to an increase
in the MD/population ratio from 195 per 100,000 persons to 283 per 100,000. This is the basis for
the forecast of a surplus of MDs, particularly for specialists as more and more people were insured
by MCOs.

The projected surplus was expected to decrease MD incomes and excess MD training was a waste of
medical $.

To head off the surplus, COGME recommended that medical school enrollments be decreased,
particularly for specialists, and extra limits be placed on the number of foreign medical school
graduates who were allowed to practice medicine in the US.

No surplus arose.

Problems with Physician to Population Ratio as measure of excess supply or demand:
o
Ignores changes in MD demand caused by aging population, insurance changes, medical
technology innovations that increase/decrease demand)
o
Ignores changes in MD productivity. If MDs are more/less productive due to tech change,
ancillary labor, demographic changes (women work less hours?), then supply might
increase/decrease for the same # of physicians.
o
The MD/pop ratio doesn’t indicate how severe the surplus or shortage is. Is a shortage of
10K MDs important or is 200K the #? What ratio change is important?
o
Finally, MD/pop ratio is unreliable in forecasting shortage or surplus.
3. Rate of Return Approach

Economists believe shortages and surpluses of MDs can be measured by changes in the rate of
return to investment in medical education.

If ROR is greater for MDs than for other professions, it indicates that a shortage exists. If ROR is less
for MDs than for other professions, it indicates that a surplus exists.

The rate of return is calculated by estimating the costs of that investment (tuition, books, income
forgone by going to school) and the expected financial returns (higher future income) achievable as
a result of that investment. (Because this income is earned in the future, it must be discounted to
the present.) High rates of return in medicine shift more students to medicine (eventually lowering
the rate of return) whereas low rates of return shift them to other professions.

Economists prefer the rate-of-return approach, because it incorporates into its calculations all of the
relevant economic factors, such as likely income lost if the person did not become a physician
(opportunity cost), the longer time to become a specialist (greater opportunity costs), likely
physician incomes by specialty, and educational costs including tuition. Changes in any of these
factors will cause changes in the rate of return to a medical education.
4. Factors that have affected demand and supply trends for MDs and their incomes

The aging of the population, which uses more medical services, has increased demand for physician
services.

So has the growth in private insurance, which reduced the out-of-pocket price of physician services
paid by private patients. Patients became less price sensitive to what physicians were charging, and
physician fees rose sharply.

During the 1980s, growth in medical technology increased demand for new diagnostic and surgical
procedures. The high volume of these procedures, particularly in outpatient settings in the 1980s,
and physician productivity gains in performing these procedures resulted in procedure-oriented
specialists receiving much higher profit margins per hour than physicians in primary care, who
performed few procedures.

The growth of managed care in the 1990s forced physicians to deeply discount their fees in return
for a high volume of managed care organization enrollees. Managed care also reduced access to
specialists and thus increased the demand for primary care physicians while decreasing the demand
for specialists.

Physician incomes are strongly influenced by Medicare’s payment policies. Although demand may
be increasing by seniors, Medicare reimbursements are fixed.

Medicare MD payments now tied to a “sustainable growth rate” (SGR) linked to changes in GDP per
capita. Given the recession that started at the end of 2000, the SGR formula has resulted in lower
Medicare physician fees, yet Medicare revenue is too important to most physicians for them to stop
serving these patients. Medicare payments to physicians were to be reduced by 5 percent each year
since 2002, however, Congress has prevented these reductions from being instituted. Similar
reductions are projected for the future and it is uncertain whether Congress will change the SGR
formula to prevent these reductions from occurring. If they occur, both specialists and primary care
physicians will be adversely affected.
5. Rate of Return Evidence on MD Surplus or Shortage: It appears that MD shortage exists today.

Fees, adjusted for inflation, remained pretty flat from 2003 - 08 (see PPT slide)

Volume of services has been increasing, however, particularly use of imaging tests

MD incomes, adjusted for inflation, have been increasing about 1 – 2 % per year.
o
Surgical specialties, hospital MDs (anesthesiologists, etc.), ob/gyns and primary care
received the largest gains in real income.
o
Net present value of investment in med training is still very high relative to other
professions, indicating a shortage exists.
o
Demand for Med School still very high. Excess demand for med school also indicates excess
demand for MDs. # of applicants per slot now 2.2 to 1 whereas it was as low as 1.6 to 1 in
1988.
6. Longer Term Outlook for MDs




Today’s shortage unlikely to be resolved anytime soon.
Supply is increasing slowly
o US Med schools increasing their number of slots; expect # spaces in 2015 to be 36% larger
than in 2002
o Supply can also be increased if graduation time for med school is decreased (from 4 years to
3), by increasing MD productivity and by allowing lesser-trained personnel to perform MD
tasks.
o Med school supply is tightly controlled by medical establishment, so innovations by
entrepreneurs to increase supply are virtually impossible.
Demand is expected to increase sharply
o Population growing 1% per year
o The baby boom is about to retire (70 million strong)
o Elderly visit MDs more frequently, use hospitals more, and use lab tests and imaging tech
more
o Most of the elderly purchase supplementary Medicare coverage which pays deductibles and
copays, making health care nearly free – increasing demand
o Tech advances, particularly diagnostic testing, will continue leading to more demand for
such services
o Patient Protection and Affordable Care Act (Obamacare) will increase number of Americans
with insurance = more demand
Given rising demand and slowly growing supply, MD shortage should grow
o If Medicare and Medicaid don’t increase MD payments, it’ll become more difficult for
seniors and poor to find MDs willing to take care of them
o MDs will have to increase their productivity, by employing others (like nurse practitioners,
physician assistants) to increase their ability to serve patients.