Unbiased Analysis of Today's Healthcare Issues

Primary Care vs. Specialists

Written By: Jason Shafrin - Jul• 25•07

The Wall Street Journal (“Doctor Shortage…“) reports that the percentage of medical residents choosing to practice in the primary care arena is falling.  This is likely due to the fact that specialists make significantly more money the primary care doctors. 

Arnold Kling of EconLog has an interesting point as primary care physicians shortages and primary care doctors’ low pay:

  • “The focus of the story is on how the reduction in primary care doctors hurts the Massachusetts health plan. I think that is almost beside the point. My guess is that this is another instance in which American medical care is allocated at the margin in a cost-ineffective way. If insurance companies were not paying so much of the bill, people would not see so many specialists. Specialist income would decline, and more physicians would stay in primary care.”

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  1. Cbetley says:

    Dr. Kling’s commentary is based on the notion that insurance distorts the pricing signals faced by consumers (and implies a normative judgment made by many libertarian economists that third party payment is bad). I fear this one sided perspective is incomplete.

    An alternative way to think of it is differential compensation to doctors as suppliers of health care labor. Classical labor econ says wage is equal to marginal revenue product, but as doctors are both elements of production and the owners of their own firm, what is their product?

    Primary care physicians are more likely to be producing health services as a single, bundled good (here’s a diagnosis, prescription, referral, etc.). Specialist physicians are producing multiple complementary goods (surgical stays, complex diagnostic tests using fancy equipment, etc. ) Hence the specialist has a multiplier effect, which leads hospitals and medical device firms to value his contribution more, and the specialist can capture this value as added income.

    If we had some objective way to measure that the supply of primary care to patients is insufficient, is there a way to increase the return to physicians entering the market for primary care? Raise their compensation (payment rates, wages) relative to specialists!

  2. Sandip Madan says:

    The WSJ article as well as these discussions presume there is a free market operating in doctor supply. As far as I know, the number of vacancies for resident positions are capped by the ACGME and the RRCs. The ACGME (which as I recall has 21-22 medical doctors in its 28 member board including all top positions) decides on the number based on projected future demand for doctors.

    So even if many more people want to become doctors, including primary doctors, they simply cannot do so. The only way primary care doctor shortages can be explained through this “lack of enough pay” logic is if there simply aren’t enough willing people to fill the ACGME quota of GP residents. I don’t think that’s ever happened. The solution is to have the government step in and remove the ACGME caps, modify the resident matching system so as to let a free market system for doctor supply operate. Am I wrong?

    I wrote about this here:


    and again in a more specific context here: