Not sure about salad dressing…

There was a lovely little dovetail this morning between what I listened to on my drive to work and my catch-up reading once I got there.  First the bit from the radio, courtesy of WBUR:

WBUR’s Martha Bebinger reports that Massachusetts hospitals, some of the state’s largest employers, are preparing for the worst as the federal deficit super committee looks to make cuts in Medicare. The local hospitals say the cuts could hurt doctor training programs, among others.

The Massachusetts Hospital Association is out with a new analysis that shows that one year cuts in the program could reach hundreds of millions of dollars. Over 10 years, that number could reach into the billions.


Martha: [Medicare] pays doctors to care for many of their sickest patients, the elderly and disabled and several proposals would affect how much or the way doctors are paid. But the biggest worry right now Bob is possible cuts to graduate medical education. Medicare pays part of the cost of training doctors, that’s salaries and equipment and services. And if the super committee reduced medicare spending here, the Massachusetts Hospital Association say members would lose between $100 and $300 million a year or one to $3.2 billion over ten years.

Bob [Oakes]: There are about 5,000 doctors in training in Massachusetts at any given time. How many men and women would this affect?

Martha: We don’t have exact numbers, but one estimate says hospitals would have to eliminate several hundred student or resident slots.

Then there was this fascinating post over at the main page about whether at to what degree the government should subsidize education, by the League’s own James K.  Here’s the bit that stuck out a bit:

What may surprise some of you is that 2 implies no need for a subsidy either, not even 2A.  This is where that point I asked you to remember earlier comes into play (you did remember to remember it, right?).  You see, if your actions benefit others, but they pay you for the privilege already then there’s no externality – the market has already taken care of it.  Doctors benefit society, but they get paid well because of that fact.  So if all a particular degree does is make the possessor richer, then the government need not get involved.  But wait, you might say.  Some careers have value that is not adequately captured in the market, what about degrees that lead to those careers?  Well, while there might be a market failure there, but the failure in in the labour market, not the education market.  The subsidy should be for hiring people in the relevant field, not studying in the relevant field.

I respectfully direct you to the full post for a description of what is meant by “2,” which is hard to summarize here.  In a nutshell, it addresses the concept of education as a personal investment.

Perhaps unsurprisingly, I am strongly opposed to cuts in the Medicare subsidy for graduate medical education.  Cutting this subsidy is the very definition of a false economy.  Given the projected shortfall of 150,000 physicians in the coming decade, I’m not sure how one could support anything that would make an already-bad problem worse.

I understand Jack’s point about how well-compensated physicians are, which he thus uses to argue against the idea of subsidizing medical education.  One easy response is to agree in part, but to then point out that if you’re going to accept an average educational debt of $157,000 per doctor then you can’t credibly argue in favor of cutting healthcare costs by lowering physician compensation.

However, beyond medical school there is the cost of training residents.  I wonder if James would consider this a subsidy for hiring rather than education, since residents fall into a murky region between students and employees.  Regardless, it seems inarguable to me that having a sufficient number of physicians to meet the country’s needs w0uld fall into the category of a “social good,” and one that thus merits subsidization.  Cutting the subsidy will only result in a loss of training programs, as hospitals cannot afford to swallow the hundreds of millions of dollars (in Massachusetts alone!) that continuing them would entail.

Residency is where students become doctors.  We need residency training programs.  In addition to training doctors in their respective specialties, residencies keep hospitals staffed with physicians around the clock.  Someone has to pay for them, and the collective benefit makes government subsidy a no-brainer.

Russell Saunders

Russell Saunders is the ridiculously flimsy pseudonym of a pediatrician in New England. He has a husband, three sons, daughter, cat and dog, though not in that order. He enjoys reading, running and cooking. He can be contacted at blindeddoc using his Gmail account. Twitter types can follow him @russellsaunder1.


  1. The problem is that if your philosophy is “doctors don’t need subsidies because they get paid enough”, then the philosophy itself forms a rebuttal to your post. If you aren’t getting paid enough to cover your student loans then either you made a bad employment deal or the market is being distorted in some way that stops you getting paid enough.

    The contention in the linked post is that subsidies should be restricted to things that nobody will pay for, rather than things that people aren’t paying enough for.

    • I would counter that nobody will pay for residency training.

      I think doctors do make enough that medical school, while incredibly expensive, is still a good personal investment. But if the government doesn’t subsidize residency, then I don’t see any other entity that will pay for it.

      • I would counter that nobody will pay for residency training.

        Well, this would need to be demonstrated. It’s not easy to predict what will happen when public funding is pulled from some arena, but just assuming that everything else will remain exactly the same is overly simplistic. Isn’t it in the interests of hospitals to have a good supply of qualified doctors?

        FWIW, I saw this on the Wikipedia article on residencies, suggesting at the very least that there’s some disagreement about likely effects of reduced funding:

        On the other hand, some argue that Medicare subsidies for training residents simply provide surplus revenue for hospitals which recoup their training costs by paying residents salaries (roughly $35,000 per year) that are far below the residents’ market value. Nicholson’s research suggests, in fact, that residency bottlenecks are not caused by a Medicare funding cap, but rather, by Residency Review Committees (which approve new residencies in each specialty) which seek to limit the number of specialists in their field to maintain high incomes. In any case, hospitals trained residents long before Medicare provided additional subsidies for that purpose. A large number of teaching hospitals fund resident training to increase the supply of residency slots, leading to the modest 4% total growth in slots from 1998–2004.

        • 1) Perhaps some larger and more affluent hospitals can absorb the cost of paying residents, but I suspect many cannot. For example, there was a small family practice residency at the hospital where I used to work. That hospital was on a very, very tight budget, and I seriously doubt if it could sustain the residency without subsidization.

          2) There are many, many costs beyond the resident salary. (And that number you in the quote you provide is a pretty low ball. Even as a resident, I made much more than $35,000 per year when I was a resident over a decade ago. I would add at least $15,000 to that figure.) There’s liability insurance for all the residents. There are the salaries of all the attending physicians who precept resident clinical work, teach conferences, etc. There is the extra time for surgeries done by residents, which entails all kinds of OR costs. There are the administrative costs of keeping the programs ACGME-compliant. And so forth.

          3) What is a resident’s “market value”? How is it established, in that the resident is not yet fully qualified to practice?

          • I don’t claim any kind of expertise in this area, so I can’t provide any kind of thorough response. I’ll certainly defer to you on the typical costs of a residency program. I guess my underlying points were just that these questions are properly answered by a medical economist and that the WBUR story displays a clear status quo bias.

            There’s probably also a conversation to be had about the exact value provided by residency programs relative to their cost, whether they should be required or just preferred, etc.; but I’m not the one to be having that conversation with.

          • I agree that there’s a status quo bias in the WBUR piece, though since I happen to support the status quo in this respect I don’t object to it.

            And residency, at least in some form, is indispensable. It is the period of time in which physicians actually learn how to be specialists. Perhaps it can be restructured in some way, but it cannot be discarded or be made optional.

      • As I see it Russell there are two ways this can go:
        1) Doctors have a positive externality and merit a subsidy. If so, then remove the subsidy from residency and med school, and put it on to practising medicine. Doctors will have to borrow more, but since they will make more money when they are finally registered, it will all work out.
        2) There is no externality, and thus no justification for subsidy. In this scenario unsubsidised doctors have to charge more to recoup the increased cost of their education / residency which in turn lowers the demand for doctors. So you have a smaller number of doctors charging more. But if doctors don’t give positive externalities this is efficient.

        The reason I want to put the subsidy on the labour market and not the education market is that there will be people who get a medical degree but don’t end up practising medicine, and they shouldn’t be subsidised. Subsidising medical practice and not medical study also encourages other means of increasing the supply of doctors, like encouraging existing doctors to stay in medicine and retire later, and also encourages foreign doctors to move to your country.

        • The leaves us with the fundamental question of who will pay for residents. For that three years (at minimum), resident physicians have to eat and find shelter. They have to be taught and supervised. Who is to pay for it? I (at least) believe the costs to hospitals to be real, and truly fear that many will simply shutter their programs rather than take the loss.

          If subsidizing the pay of physicians is your answer, which means that residents will have to cover their own living costs during training and somehow also pay for all the other costs I lay out above, then your advocating for a pretty nice jump in physician salaries?

          I happen to think the argument that doctors give positive externalities to be self-evident. Perhaps not everyone shares this view?

          • I’m happy to accept there are positive externalities for doctors (vaccination for example, has clear positive externalities), in which case yes, doctors would get paid more under what I’m proposing. Instead of subsidised education, doctors would be subsidised for practising medicine, thereby being better able to pay off the larger loans they would have to accumulate to pay themselves through residency.

          • James, here is what I consider to be the practical problem with what you are proposing: Sticking doctors under mountains of debt nudges them to profit-maximize far above what they otherwise would just so that they can get out from under.

            Even under the current regime, where much of the training is currently subsidized (med school at state universities, residency free and stipended), I believe it’s happening. The temptation to get a high paying job “just to pay off loans” is enormous. And I believe that once people get on a track making a certain amount of money, they get used to it and are less inclined to get off of it at a later date.

            Now, in many fields, this wouldn’t be a problem at all because you want people working hard and being ambitious. But in the US, financially ambitious doctors are part of the problem. Now, the natural answer to that is “stop letting them do that,” but the problem has been vexing, to say the least. There are so many gray areas in medicine between aggressive medicine and letting nature run its course that it can be extremely difficult for people to second-guess doctors.

            If a residency costs $100k a year, you’re looking at putting doctors in several hundred thousand dollars in debt. My wife did not choose the most lucrative option available to her in part because we didn’t trust the institution involved (fearing it was more about making money than patient care). If we’d started off $400k in debt instead of $100k in debt, that might have changed our calculations. And once on that treadmill, it might have been psychologically difficult to get off it.

  2. Will, but part of what I’m proposing is moving that subsidy money from training to practice. If you’re getting an unbalanced allocation of doctors then you can use the subsidy money to even things out.

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