Physician Compensation Economics

Pre-Med & Medical School Pre-Med Topics
1

<p>So I've just used my econ major nonsense to calculate the "net present value" of various careers.</p>

<p>A net present value is: take the money they'll earn over their lifetimes. How much of a present sum (say, a lottery) would they have to earn to have an equal value of money, when you take time into account?</p>

<p>Assumptions: 7% interest rate, salary computations for 27708 zip code based off of salary.com. Retirement at 65. Bonuses included where relevant (Corporate Finance).</p>

<hr>

<p>Auto Mechanic: $720K
Chemical Engineer: $740K
Family Practitioner: $910K
Corporate Attorney: $1 M
Interventional Cardiologist: $1.12 M
Neurosurgeon: $1.28 M
Corporate Finance: $2.6M</p>

<hr>

<p>Don't forget, doctors work much longer hours than the others, so the fact that they make 10% more than a corporate attorney is a REALLY bad deal.</p>

<p>Finally, you should expect doctor salaries to continue to drop over time, possibly quite severely.</p>

<hr>

<p>Whether or not people who are becoming doctors for the money are being ethical or whatnot, they're certainly not behaving wisely in a financial sense.</p>

2

<p>When you said some of the other easier ways of making money, I think you should add that for investment banking gaining admission into the Top 20 Undergrad Universities is very important though if you have more experience that may balance it some. I was comtemplating between majoring in economics or doing some science but then realized going to a state school and majoring in economics probably won't get me very far especially because the college has a separate management school and I was admitted into college of arts and science.
Because of that I am already have limited my options, and I had to choose my state school because of financial problems. Anyway there is hope for transfer but I wouldn't count on it so. To get an MBA do you need to take the GRE to get into a business school?</p>

3

<p>To get an MBA, you take the GMATs.</p>

<p>I'm reasonably certain, by the way, that corporate finance is not the same thing as investment banking. The job descriptions are quite similar, but I believe your employers are different, and your compensation schemes and hours are quite different, as well.</p>

4

<p>So who exactly takes the GRE's then? By the way during your undergrad days, did you intern at financial companies/banks or did you already know that you were planning on going to medical school and instead did research/hospital volunteering? Also there is anything higher than an MBA?
And was am correct to infer that to make around $85K+ in the financial sector, going to one of the top undergrad school does indeed matter?</p>

5

<p>GREs are for people going on to get PhDs. Some people start along that track and drop out to get an MS or an MA (or intend to do so all along). Those also require GREs.</p>

<p>My internships were exclusively science, sorry I can't help. And I have no idea how compensation works. $85K as a starting salary, I don't think happens anywhere. $85K as a career average, I think is actually very low for this sector of employment and does not depend on going to a top 20 school.</p>

6

<p>Ah ok Thanks man, you really help a lot on the pre-med board =). After reading some of the newer topics i have to ask myself why I want to become a doctor again and what other possibilites I have. Thanks for shedding some light into the whole process.</p>

7

<p>Okay, I'm not sure I'm understanding this (although I applaud you for getting a chance to use some of the stuff you know!) so, what we're saying is that if I were to win the lottery tomorrow, and immediately invested all of it with a 7% annual return for the equivalent of my professional life (assume from age 31 - 65) I would have to win 1.12 M to equal what I will be earning during that same professional lifespan (if I were to be an interventional cardiologist)?</p>

<p>That's how I'm interpreting it, though I'm pretty sure that's not right. I don't - I might be closer than I think. If this was graphically represented would my earning line be linear, while my winning/investing line be exponential, and we're determining where these lines meet?</p>

<p>If that is at least close, I find it interesting, because at this point, the range is relatively small, but in the end, there are going to be large discrpencies in the actual end value wealth for the individual professions.</p>

<p>What I also think is interesting though, particularly in regards to the physician/attorney differences is that medicine, at least once you are in medical school, is a much "safer" or less risky profession than law. By this I mean, once you are in medical school, you are going to be a doctor, you are going to get training in SOMETHING. On the other hand, people drop out of law school like crazy, a significant portion will not end up using their JD as practicing lawyers, many more will not come in on a partner track, and for as much as I rail against prestige, in law it absolutely 100% makes a difference in where and how you will practice, and how much you will make. </p>

<p>So in one sense, from a pure statistical sense becoming a physician is not the wisest financial decision, but in terms of assuring one's income, it may actually be a better decision than it looks to be - once you've gotten into medical school: job security, probable shortage in the future, surprising freedom in determining lifestyle and practice considerations, and so on. </p>

<p>Let me know if I'm on the right track here (and by the by - from the other thread - I was a sociology major with a pretty low GPA)</p>

8

<p>You're actually exactly right about how to interpret the net present value. You're very slightly off about comparing professional earnings: that's also exponential, with little "steps" along the way to represent your earnings each year. That is, I'm also assuming that you invest the $45,000 you earn as a resident, etc. (If I didn't let you do that, the NPV would be much smaller than $1.12 million!) The point is that money is more valuable the earlier you earn it, because you can make interest off of it.</p>

<p>Medical school is traditionally safer, but I'm not convinced that that's true in the future. (And I think law is also probably pretty safe. Engineering is probably not.) Medicine is changing rapidly (my concentration is in health economics) and I believe the first squeeze is going to be physician compensation.</p>

9

<p>OP, how do you figure that doctor's salaries are DROPPING? Also, what do you mean it isn't worth it? Finally, not all doctors work long hours...lets say you work at a hospital (many doctors), you probably work 40-50 hour weeks.</p>

10

<p>yea a lot of my relatives are warning me that salaries will fall for docs. plus, the liability and long hours definately makes the job not worth it if you're just in it for the money.</p>

11

<p>1.) That's my impression, having grown up in a medical family and majoring in economics. The data exists, but I haven't bothered to look it up. If you can find that compensation is increasing, you will find me amenable to changing my mind.</p>

<p>2.) I simply mean that on a per hour, time-cost basis, doctors are making less money than many other occupations.</p>

<p>3.) Put this in perspective: residents are required by law to work less than 80 hours a week, and no more than 30 hours straight. 95% of residencies (another poster linked to a study) are non-compliant, meaning their residents work more than that.</p>

<p>Granted, that's residents, and attendings work less than that - but do you really think it drops by half? I'm very skeptical. Trust me. Hospital-based doctors probably work more than others - people are sicker and need more attention.</p>

12

<p>I agree with bluedevil, my H. (intervention cardiology) has had income drop by about 40% in last ten years. This is due to lower and lower medicare reimbursements (most patients are of this age), private insurance reimbursement dropping, malpractice insurance increasing, cost of employees and equipment increasing......</p>

13

<p>Many young docs I know work just as many hours as they did in residency even though they aren't residents any more. Its a profession where you need to put in LOTS of time, no matter if its your 1st year or 30th. And if you figure it out at a per hour basis you are making fairly little money.</p>

14

<p>Great post BDM. This just means it might get easier for me =]. I would go into medicine even if it meant getting paid only enough to sustain. It makes me sick to see so many of my peers becoming premed just for the money.</p>

15

<p>Don't worry about that too much, theslowclap.</p>

<p>Almost all premed who wants to pursue medicine for the money will end their medical careers at precisely that stage: premed. The road is simply too hard for money to be your main motivation. Corrent me if I'm wrong, but I doubt that the student in residency who stays up until 5:00 A.M. at the hopsital and goes home to study for some chemistry exam afterwards is dreaming of dollar signs in his speep (assuming that he actually gets a chance to sleep) ;)</p>

16

<p>*Objection from another thread: *
[quote]
Your physician compensation thread makes the assumption that the money is all put into the bank and earning interest. Obviously that is not the case in real life

[/quote]
</p>

<p>Response:
[quote]
No, it makes the assumption that money has a time-value, which is the case in real life. This time-value is why money earns interest when you put it into the bank, not vice versa. It also explains why loans charge interest. It helps explain why people invest in venture capital. And it's one of a few reasons why real estate values rise over time.</p>

<p>The point is that money that is acquired earlier in life can be used to accomplish various investments, but these decisions often take time to manifest themselves - so the combination of money and time is more valuable than money by itself.</p>

<p>This isn't about banks and interest rates. This is about the real fact that money matters more if you earn it earlier and less if you earn it later. That's undeniable, basic economics.

[/quote]
</p>

17

<p>u got some bad data there..America's top 50 salaries:</p>

<p><a href="http://msn.careerbuilder.com/custom/msn/careeradvice/ViewArticle.aspx?articleid=917&GT1=8934&cbRecursionCnt=1&cbsid=64096c7370e740a4b9e1c2fb583515f8-222707973-TM-4%5B/url%5D"&gt;http://msn.careerbuilder.com/custom/msn/careeradvice/ViewArticle.aspx?articleid=917&GT1=8934&cbRecursionCnt=1&cbsid=64096c7370e740a4b9e1c2fb583515f8-222707973-TM-4&lt;/a&gt;&lt;/p>

<p>
[quote]
And, of course, there's proof positive that it pays to have an MD: surgeons and physicians dominate the list.

[/quote]
</p>

<p>CEO's are actually 10th.</p>

18

<p>You're ignoring the time-cost. Salaries are not a good approximation of lifetime net income. And, besides, I don't use CEOs as a contrast. Specifically the example I contrasted with was corporate finance.</p>

<p>I stand by my calculations.</p>

19

<p>I agree with jksbond007. The salaries quoted on page 1 of this thread are incorrect for most of US.</p>

<p>Below are salaries within mid 50% range of the bell distribution for the NY/NJ area</p>

<p>surgeon - 260k -390k
psychiatrist- 170k - 220k
anaesthesiologist - 280k-395k
radiologist- 260k-430k
family practice 155 k to 204k
pediatrician - 150k -200k
dermatology - 220k-300k
chiropractice- 75k-115k</p>

<p>electrical/civil/or mechanical engineer III - 70k - 100 k</p>

20

<p>That's because they're not incomes. They're lifetime total earnings, adjusted for the time value of money.</p>