The NEW ENGLA ND JOURNAL of MEDICINE

Perspective november 21, 2013

Are We in a Medical Education Bubble Market?

David A. Asch, M.D., M.B.A., Sean Nicholson, Ph.D., and Marko Vujicic, Ph.D.

I n November 1636, the prices of tulip bulbs in the

Dutch market rose rapidly from their normal level
to the point where a single bulb might sell for 10
ble, in which prices of Internet
stocks rose until 2000 and then
plummeted. Bubbles burst when
some new sense of lower intrin-
times the annual earnings of a typical worker. Just sic value appears. The last buyers
are stuck with something they
as quickly, in May 1637, tulip-bulb prices had shot up in the first paid too much for and can no
prices returned to their previous place. Clearly, tulipmania was a longer unload. It’s like being
values. The causes of this dramat- bubble market fueled by specula- caught without a chair when the
ic rise and fall remain in dispute. tion rather than intrinsic valuation. music stops, but whereas even the
The event occurred during the After all, why would people be losers at musical chairs knew that
Dutch Golden Age, when stock willing to pay 10 times the average at some point someone would be
exchanges, central banking, and annual wage for a single tulip bulb left standing, bubble markets are
many of the fundamental struc- unless they were confident that usually recognized only in retro-
tures that govern contemporary they could sell it to an even great- spect — the losers never saw it
capital markets and the approach- er fool willing to pay even more? coming.
es deployed by MBAs today were Bubble markets are created Are we in a bubble market in
developed. when an asset trades for increas- medical education? In medicine,
One modern economic analy- ingly higher prices as it is bought students buy their education from
sis suggests that the precipitous by people who are hopeful about medical schools and residency
decline in tulip-bulb prices re- its future value and then sold to programs (which pay wages that
sulted from a February 1637 others with even more optimistic are lower than the value of the
change in the way that futures views of that value. Recent exam- work that residents provide in re-
contracts were enforced, which ples include the U.S. housing bub- turn). This education is trans-
immediately reduced the value of ble, in which home prices rapidly formed into skills and credentials
those contracts by 97%,1 but this rose until 2007 and then just as that are then sold to patients in
analysis doesn’t explain why the rapidly fell, and the dot-com bub- the form of services. So long as it

n engl j med 369;21 nejm.org november 21, 2013 1973

The New England Journal of Medicine
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PERS PE C T IV E are we in A Medical Education Bubble Market?

patients and what schools can

100 charge students. Just as tulip bulbs
Family medicine
Psychiatry can be sold at high prices only to
90
Emergency people who think they can resell
medicine them at still higher prices, schools
80 Obstetrics and
gynecology can sustain their high tuitions
General surgery only if students can be convinced
70
of higher returns in the form of
Ratio of Debt to Income (%)

Anesthesiology

60
Radiology payments from future patients. So,
Cardiology the amount that schools are able
Orthopedics to charge students is inextricably
50
linked to how much we pay doc-
40 tors now and how much we plan
to pay them in the future. Medi-
30 cal students can take on enormous
debt only because the costs of
20 that debt can be easily passed
along to others down the road.
10 So are we in a medical educa-
tion bubble? We would realize we
0 have been in one if a sudden col-
lapse in what patients are willing
96

98

00

02

04

06

08

10
19

19

20

20

20

20

20

20

to pay doctors made it impossi-

Figure 1. Ratio of Debt to Income, According to Medical Specialty.
ble to sell medical education at
Data on median income are from the Medical Group Management Association. Data
current prices, causing applica-
on average debt are from surveys conducted by the Association of American Medical tions to fall and some medical
Colleges. schools to cut tuition to continue
to attract qualified applicants. Fig-
is believed that patients, or who- dents must borrow rather than ure 1 might be seen as suggest-
ever purchases health care on their what they must pay and, given ing that we are approaching such
behalf, will keep paying more and whatever other assets they may a collapse in primary care fields
more for physicians’ services, stu- have, how much in the hole they and psychiatry. But that is not like-
dents and trainees should be will- have to go. Thus, these ratios may ly to be the case. First, at least at
ing to pay more and more for the better reflect how students actually the level of undergraduate medi-
education that enables them to feel about buying education. cal education, schools charge a
sell those services. Figure 1 shows these ratios for single price to students whether
A simple measure of this mar- selected medical specialties over they go into family medicine or
ket economy is the ratio of the the past 15 years and reveals that orthopedics. Although it isn’t nec-
average debt of a graduating stu- the ratio has become less favor- essarily clear to students or schools
dent to the average annual income able for students overall but par- which students will choose what
in the profession on entry into ticularly unfavorable for students fields, the income of the average
the workforce. There are more entering family medicine or psy- doctor can sustain the debt of the
precise ways to measure the re- chiatry. Although the cost of be- average doctor even as the differ-
turn on investment in medical coming a doctor is roughly the ences among specialties create
education — for example, the net same whether you go into pediat- pressures for primary care and
present value of the stream of cash rics or orthopedics, you earn much psychiatry.
flows out (for education) and in more in orthopedics. Second, as high as the debt-to-
(for services). But that value isn’t The graph is instructive in an- income ratios may be for primary
very intuitive for most prospec- other way: the debt-to-income care and psychiatry, they are even
tive students. In contrast, debt-to- ratio reveals the connection be- higher for some other fields —
income ratios reflect what stu- tween what physicians can charge notably, veterinary medicine, op-

1974 n engl j med 369;21 nejm.org november 21, 2013

The New England Journal of Medicine

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Copyright © 2013 Massachusetts Medical Society. All rights reserved.
PE R S PE C T IV E are we in A Medical Education Bubble Market?

to well-qualified physicians, we
180
Veterinary also need to keep the cost of cre-
medicine ating those physicians down by
160 Optometry
changing the way that physicians
Pharmacy
are trained. From college through
Law
140
Dentistry
licensure and credentialing, our
Family medicine annual physician-production costs
are high, and they are made high-
Ratio of Debt to Income (%)

120 Emergency
medicine er by the long time we devote to
Orthopedics
100 training.5
Business
Although it seems unlikely that
80 we’re in a bubble market for med-
ical education, we may already be
60 in one for veterinary medicine.
That bubble will burst when po-
40
tential students recognize that the
costs of training aren’t matched
by later returns. Then the optom-
20
etry bubble may burst, followed
by the pharmacy and dentistry
0
bubbles. At the extreme, we will
96

98

00

02

04

06

08

10
march down the debt-to-income-
19

19

20

20

20

20

20

20

ratio ladder, through psychia-

Figure 2. Ratio of Debt to Income, According to Occupation. trists to cardiologists to orthope-
Data on median income are from the Medical Group Management Association (physi- dists . . . until no one is left
cians), the American Dental Association (dentists), and the Current Population Survey but the MBAs.
(other professions). Data on average debt are from surveys conducted by the Associ­ Disclosure forms provided by the authors
ation of American Medical Colleges, the American Dental Education Association, the are available with the full text of this article
American Bar Association, the American Association of Colleges of Pharmacy, and at NEJM.org.
the National Center for Education Statistics.
From the Center for Health Equity Research
and Promotion, Philadelphia Veterans Affairs
Medical Center; and the Perelman School
tometry, pharmacy, and dentistry, lot of money, and there are strong of Medicine and the Wharton School, Uni-
as shown in Figure 2. For veteri- signs that we can’t or won’t. versity of Pennsylvania — all in Philadelphia
(D.A.A.); Cornell University, Ithaca, NY (S.N.);
narians, incomes have risen slowly Only about 20% of health care
the National Bureau of Economic Research,
even as student debt has explod- costs are attributable to physician Cambridge, MA (S.N.); and the American
ed.2 Yet although such company payments, and many of the cur- Dental Association, Chicago (M.V.).
may ease the misery of primary rent efforts to reduce costs are This article was published on October 30,
care physicians, it does nothing aimed elsewhere, such as hospi- 2013, at NEJM.org.
to solve the underlying problem. tal payments, and have only indi-
1. Thompson EA. The tulipmania: fact or arti-
The problem is this: if we aim rect effects on physicians’ earn- fact? Public Choice 2007;130:99-114.
to reduce the costs of health ings. But physicians’ and dentists’ 2. Segal D. High debt and falling demand
care, we need to reduce the costs earnings have been sluggish since trap new vets. New York Times. February 23,
2013:BU1.
of medical education. We don’t the early 2000s.3,4 Even if pros- 3. Seabury SA, Jena AB, Chandra A. Trends
have to believe that the high cost pects for physicians’ income fall in the earnings of health care professionals
of medical education is what fast, a burst bubble can be averted in the United States, 1987-2010. JAMA 2012;
308:2083-5.
causes increases in health care if schools see it coming before 4. Vujicic M, Lazar V, Wall TP, Munson B. An
costs in order to develop this their students do and lower their analysis of dentists’ incomes, 1996-2009.
sense of urgency. We just have to prices. J Am Dent Assoc 2012;143:452-60.
5. Emanuel EJ, Fuchs VR. Shortening medi-
recognize that the high costs of The general lesson is that if cal training by 30%. JAMA 2012;307:1143-4.
medical education are sustainable we want to keep health care DOI: 10.1056/NEJMp1310778
only if we keep paying doctors a costs down and still have access Copyright © 2013 Massachusetts Medical Society.

n engl j med 369;21 nejm.org november 21, 2013 1975

The New England Journal of Medicine
Downloaded from nejm.org on November 20, 2015. For personal use only. No other uses without permission.
Copyright © 2013 Massachusetts Medical Society. All rights reserved.