News Release
November 1, 2013

Is Medical Education in a Bubble Market?

Lowering the Cost of Health Care Requires Lowering the Cost of Medical Education

PHILADELPHIA — The costs of medical education must be reduced as part of efforts to rein in health care costs more generally, according to a Perspective published online this week in the New England Journal of Medicine. The currently high costs of medical education – which at some schools rise above $60,000 per year – are sustainable only if physician salaries remain high, which the authors, led by a physician from the Perelman School of Medicine at the University of Pennsylvania, say is less likely because of efforts to reduce health care costs.

Noting that students leave medical school with debt that often exceeds $150,000, the authors argue: “If we want to keep health care costs down and still have access to well-qualified physicians, we need to keep the cost of creating those physicians down by changing the way that physicians are trained. From college through licensure and credentialing, our annual physician-production costs are high, and they are made higher by the long time we devote to training.”

“People wonder whether we are in a bubble market in medical education,” says lead author David A. Asch, MD, MBA, Professor of Medicine and Director of the Center for Health Care Innovation at Penn Medicine.  In bubble markets, such as the recent US housing market and the dotcom bubble of 2000, prices rise based on speculation rather than intrinsic value, as people buy houses or stocks with the hope of reselling them to those with even more optimistic views of their valuation. When clearer thinking returns, those who haven’t sold are left having overpaid, holding an asset they cannot unload.  “In the case of medical education, students buy their education from medical schools and resell that education in the form of services to patients.  Medical education can remain expensive only so long as there are patients, insurers, and employers who are willing to pay high prices for health care. But if prices for physician services decline, then the cost of medical education will have to decline too, or people won’t be willing to pay for medical school in the first place,” Asch says.

The authors warn that high debt-to-income ratios drive students away from less financially rewarding fields.  “Debt-to-income ratios reveal how much a student has to go into the hole financially for education compared to what a graduating student might earn,” says Asch.  “For example, it costs approximately the same to become an orthopedist, psychiatrist, or primary care physician, but orthopedists earn much more.”

That might suggest that there is already a medical education bubble for psychiatry and primary care, but as bad as the debt-to-income ratios might be for those fields, they are even worse for some other fields outside of medicine.  The authors note that veterinary medicine is closer to a bubble market situation, which could burst when potential students recognize that the high costs of becoming a veterinarian aren’t matched by high income later.

As the cost of education in general rises, students might naturally be expected to focus more on those fields that provide a better balance between cost and return.  “Veterinary education is vulnerable, medicine less so. Business education still seems to be a good buy.”  But, Asch asks, “Do we really want a world populated only by MBAs?”

 “Doctors do well financially,” says Asch, “but the cost of becoming a doctor is rising faster than the benefits of being a doctor, and that is catching up to primary care more quickly than orthopedics, and that ratio is close to overtaking the veterinarians.” While only about 20 percent of health care costs are attributable to physician payments, physicians’ earnings have been sluggish since the early 2000s. The authors note that a burst bubble can be averted if schools see these changes coming before their students do and lower their prices.

Co-authors on the perspective are Sean Nicholson, PhD, Cornell University and the National Bureau of Economic Research; and Marko Vujicic, PhD of the American Dental Association.

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Penn Medicine is one of the world's leading academic medical centers, dedicated to the related missions of medical education, biomedical research, and excellence in patient care. Penn Medicine consists of the Raymond and Ruth Perelman School of Medicine at the University of Pennsylvania (founded in 1765 as the nation's first medical school) and the University of Pennsylvania Health System, which together form a $4.3 billion enterprise.

The Perelman School of Medicine has been ranked among the top five medical schools in the United States for the past 17 years, according to U.S. News & World Report's survey of research-oriented medical schools. The School is consistently among the nation's top recipients of funding from the National Institutes of Health, with $392 million awarded in the 2013 fiscal year.

The University of Pennsylvania Health System's patient care facilities include: The Hospital of the University of Pennsylvania -- recognized as one of the nation's top "Honor Roll" hospitals by U.S. News & World Report; Penn Presbyterian Medical Center; Chester County Hospital; Penn Wissahickon Hospice; and Pennsylvania Hospital -- the nation's first hospital, founded in 1751. Additional affiliated inpatient care facilities and services throughout the Philadelphia region include Chestnut Hill Hospital and Good Shepherd Penn Partners, a partnership between Good Shepherd Rehabilitation Network and Penn Medicine.

Penn Medicine is committed to improving lives and health through a variety of community-based programs and activities. In fiscal year 2013, Penn Medicine provided $814 million to benefit our community.

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