Physicians-to-be, practicing physicians, and many of their patients take great interest in how much money doctors make. Physician compensation surveys can offer some eye-popping numbers — orthopedic surgeons make more than $450,000 a year! — but they are often highly misleading. A key shortcoming is that surveys neglect what’s called opportunity cost, which is the amount of money lost from choosing the next best alternative.

Given the extensive and expensive nature of training, medicine has a high opportunity cost: Future doctors must endure four years of medical school, three to six years of residency, and sometimes an extra year or two of fellowship before earning “physician salaries.” That’s valuable time that could’ve been used to climb the career ladder elsewhere, cashing checks instead of paying debt (the average medical student graduates with over $190,000 of debt).

That got me wondering: To what degree is medical school a wise investment? And how does opportunity cost affect the relative earnings of each specialty? Specialties like cardiology that require six years of post-graduate training significantly delay earnings compared to specialties with shorter residency programs.

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First, here’s some baseline data, which comes from Medscape’s highly anticipated and attention-grabbing annual physician compensation report.

Talia Bronshtein/STAT Sources: Medscape Physician Compensation Report 2017

To answer my questions, I used a metric called net present value (NPV) to measure physician salaries. My formula considers medical school tuition, length of residency, and the opportunity cost of medical education. It essentially sums up the benefits and deducts the costs (including the opportunity cost) at each of three stages of a medical career: medical school, residency, and full-time practice. Accounting for interest rates (a dollar today is worth more than a dollar tomorrow), it calculates how much an entire career in medicine is worth to a 22-year-old college graduate, assuming he or she retires at age 65.

Doctor salary formula

Instead of going to medical school, say a college graduate with a bachelor’s degree gets a job. The average graduate earns approximately $50,000 per year. I considered this to be the yearly opportunity cost (in the formula above). Combined with the cost of medical tuition and fees ($55,500 a year for the average private medical school), this represents the total annual cost during medical school. To keep things simple, I excluded the cost of debt from the equation, an uncommon but conservative estimate. For residency, I assumed an average stipend of $51,000 per year, while for post-residency I used the average salaries reported by Medscape. Assuming an interest rate of 5 percent (r = 5), I ranked each medical specialty by net present value.

The estimated value of medical specialties compared to other occupations

Choose an occupation from the menu then hover over a specialty to see the earnings gap.

If you choose a career in
your lifetime earnings would be $1.5M less
than if you specialized in Endocrinology.
Talia Bronshtein/STAT Sources: Medscape Physician Compensation Report 2017, Recruiting Trends report 2016-2017, Collegiate Employment Research Institute, Michigan State University, Time, Association of American Medical Colleges, Time

As a whole, the results confirmed that medicine remains a strong investment compared to working the average job straight out of college. But an interesting pattern emerged: Specialties with longer residencies dropped several spots in their ranking compared to the Medscape salary list. For instance, cardiology is considered among the top three highest-paid specialties, but it fell several spots in this analysis, as did gastroenterology, endocrinology, and others.

That got me thinking: What if a college graduate had a better second option than the “average” job? Someone with the work ethic and ability to be accepted to medical school might could have ended up in a higher-earning career like investment banking. The average starting salary for investment bankers, with bonus, is $114,000 and rises to $163,000 for third-year analysts. Assuming absolutely no more growth in salary for the rest of a career in banking, a highly conservative estimate, I recalculated the net present value for each medical specialty:

Talia Bronshtein/STAT Sources: Medscape Physician Compensation Report 2017, Time, Association of American Medical Colleges, Time, Forbes

Now, instead of a multimillion-dollar return on investment, the majority of medical specialties become worth several hundred thousand dollars or less. Even more surprising, more than half a dozen specialties have negative net present values, meaning that from a solely economic perspective they are poor investments.

Unfortunately, these specialties represent some of the most common types of physicians, like internists and pediatricians. These primary care physicians are vital for the healthy functioning of our health care system. Relatively low financial incentives like what my analysis shows could be a reason why there’s a shortage of primary care physicians. Projections for the United States show we’ll be short some 20,000 primary care doctors by 2020. Loan forgiveness programs for these physicians have recently come under fire by lawmakers and, if eliminated, would contribute even more to the low return on investment.

Here are my two key takeaways from this thought experiment:

  • The analysis justifies the importance of loan forgiveness programs and other incentives for primary care specialties, which are among the most poorly compensated medical specialties, even considering the relatively short duration of their training programs.
  • While medicine is a financially stable career and a strong investment, other high-earning career options are just as good if not better investments.

The second takeaway gets to a more fundamental point about why compensation should not be the only reason why graduates decide on a career in medicine. Salaries are misleading, and even considering a more thorough approach like net present value still neglects many unique hardships of medicine that can’t be quantified — high stress, long hours, and dealing with death, to name a few. These analyses also can’t quantify the intangible benefits, like the intellectual beauty of medicine, the satisfaction of easing pain, and the thrill of saving a life.

At the end of the day, the decision to become a doctor should align more with the heart than the pocketbook. As the late neurosurgeon Paul Kalanithi eloquently stated in his memoir: “People often ask if [neurosurgery] is a calling, and my answer is always yes. You can’t see it as a job, because if it’s a job, it’s one of the worst jobs there is.”

Zach Nayer is a medical student at George Washington University School of Medicine and Health Sciences, and a contributor at the Huffington Post. He earned his undergraduate degree in health care economics and policy from the University of Virginia.

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  • Great analysis Zach! Very basic (yet much better than I would do!), but gets all the main themes right. I would argue that many, if not most, physicians would end up in careers with salaries even greater than you project, making the lifetime differences in salary and inflection point towards ‘losing’ decisions even more dramatic.

    So the question becomes, who goes into primary care and why? The people who love the job….. It’s one of the best ones on the planet when you peel away all the noise and administrative burdens. Never forget that when all of us are complaining! Good luck in Med School.

  • It is amazing that the author completely ignores Family Practice. and then drops pediatrics out of several charts. These two specialties are the foundation of a good medical system.

    The real take away should be that medical school costs (and a lot of undergraduate costs) are too high. $250 K for medical school. The debt lost for most medical school students is $200-300K. The debt repayment for these loans is over a million dollars! None of it is tax deductible. Most physicians are now paying off those loans in their 50’s and 60’s. Not at all a good systems for incentivizing one to go into a primary care field.

  • So the basic premise seems to be that our doctors making minimally $202k need to have loan forgiveness. Paid for by whom? Let’s raise that revenue by taxing the rich, specifically those making over $200k per year. Seems like a stupid solution – let’s tax people with massive loans in order to raise revenue so we can forgive those loans.
    But seriously – premed is stupid. Let’s imagine getting rid of pre-med first. If you want premed then sure, go get it. Otherwise the MCAT should be sufficient. How much is physics used in pediatrics anyway? Second, allow medical trainees to practice the full scope of their training. Thereby allowing PAs and FNPs to perform (at lower cost)most of the work where there are projected shortages. Finally, open more residencies at the top of the field so that the average compensation comes down. Is it really true that in an open market an orthopedic surgeon ought to be making a half million a year? Seriously? This is nothing more than price inflation through an artificial shortage.

    • Amazingly bad analysis. Premed is stupid? Let’s take them out of high school and make the physicians? There is a certain need for maturation before one becomes a doctor. As for NP’s and NP’s, They are not sufficiently trained to replace physicians. The first duty of a medical practitioner is to accurately diagnose. Nor is treating is not like placing widgets. Neither is sufficiently trained to do either without supervision. That’s why referrals and prescription writing by these two far exceed the average primary care physician. Both PA’s and NP’s now demand the same reimbursement as doctors. Lower costs is a myth.

      As to your assertion of competition, every study done on supply and demand shows that more a specialty is represented in an area, the more procedures are done in that area. The competition is for the OR, but they all make the same “high” income.

  • Notice that the article makes no mention about the massive writeoffs that Medicare and Medicaid require doctors to take.

    In many cases, the government programs allow about 10% of what the physician billed for. If you are a patient and have one of those programs, just look at your own statement from the government. You will see it.

  • Don’t forget sunk cost if one has embarked on a career prior to applying. My technology management Masters thesis/software design showed I needed to go into a subspecialty, and have everything paid for up front by someone else. Otherwise, it made no financial sense to leave my career as a licensed professional engineer and president of a regional consulting firm.
    The only way this was possible turned out to be indentured servitude to the (US) Federal government. What a great choice! Army, Navy, Air Force, Public Health Service, and several other Federal agencies are happy to see you leaving medical school DEBT FREE! Make more than your peers in GME years, and competitive earnings in payback years (truer for primary care), and a good fixed retirement if you stay a little longer.
    Many years these scholarships go unused. A teuly qualified applicant most likely will secure a scholarship. All you have to do is ask (preferably at the same time you are doing applications).

  • 1. This analysis is really bizarre. Going into finance pays less than pediatrics apparently? You’re missing the high end of other careers in your comparison.
    2. Healthscape salaries are notoriously terrible.
    3. The bigger questions for physicians is if these salaries are sustainable. Health costs are out of control in the U.S. and near the breaking point. Physician salaries are 20% of that cost. Prescription drugs which everybody is howling about are 10%. Do the math here folks.

    • Physician salaries are NOT 20%. It’s more like 7 to 10%. Pharma cost is much higher than 10%. Get your fact right. They still matter.

    • Physician *billing* is 20% of the total healthcare cost. Overhead for most physicians is roughly half of their revenue, so physician income comes out to about 10% of the healthcare cost. More in some cases, less in a lot of others.

  • Non-economists can be excused for missing salient variables in their equation. Return on investment should include the cost of failure. With high risk comes higher rewards. Acceptance into Med School is not a guarantee of an MD degree. Some 17% never complete, lose income-producing years, and are still burdened with educational debt.

    Second, 40% of physicians are NOT salaried at all. They are independent business men and women with office overheads such as equipment debt, employee salaries, accountants, etc. Thus, the above calculus is somewhat flawed.

    Nevertheless, this does not invalidate the takeaway message. One should not make anticipated income the primary motivator for a career choice.

    • If you’re going to be picky about salient variables, at least read the actual Medscape report. “For partners and solo practitioners, it includes earnings after taxes and deductible business expenses but before income tax.”

  • Excellent article. Makes perfect sense analytically. At the end of the day the decision to become any kind of doctor is that you will love the day to day work, and that the resulting financial successes are to be viewed as a secondary bonus. Money cannot be the primary reason to enter into a certain specialty as one does not want to be miserable for 40 years in a career if you are not happy doing what you are doing. No different than any other type of career choice.

    • Go to Cuban doctor for a vaccination or a shot of penicillin, not a heart valve replacement.

  • Very interesting Zach! I agree that salaries are misleading. As an observer of physicians, the stress levels and administrative burden exact a toll in a different way then other professions. While it may be 24/7 for lawyers and bankers as well, physicians have people’s lives in their hands.

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