November 20 2013
by Todd Hixon

Should Doctors Be Paid Like Hedge Fund Managers?


Uwe E. Reinhardt: Debating Doctors’ Compensation –

I seldom disagree with Uwe Reinhardt [much as I seldom agree with Robert Raich], however Reinhardt’s post linked above on physician compensation prompts a rebuttal.

Not a place of healing**


Reinhardt argues that the best standard for judging the level of doctors’s pay is the pay available in other U.S. occupations that compete for the same talent pool, and he suggests a comparison to financial market professionals:

“The relevant comparison should not be doctors in other countries, but the incomes earned in the United States by members of the talent pool from which American physicians are recruited, a group that includes many who end up in the superbly well-remunerated financial markets, where they are well paid almost independently of their actual net contribution to society.”

While I have no love of Wall Street and have never worked there, I think that’s a bad analysis. First, Wall Street is a business: “It’s all about the money”. And, most of the compensation for high-earners on Wall Street is directly based on business success: “You eat what you kill”.

Wall Street (together with London and Hong Kong) is the pinnacle of a global market place where a small number of very talented people are able to make extraordinary amounts of money by winning the game at global scale. Yes, they rig the game from time to time, which needs to be constantly policed. When this noise is filtered out, it remains true that a few very talented market professionals (like Warren Buffett) make extraordinary income because they win the great game.

Other businesses have extraordinary compensation at the pinnacle, too: professional sports, movie and television stars, successful entrepreneurs.

Comparing these big winners to U.S. doctors as a group is confusing. A median-to-median comparison gives different results: for example, data indicates that the median salary for graduates of the Harvard Business School (arguably the premier prep school for financial market professionals) is about $200,000*, versus about $300,000 median compensation for doctors in the U.S. Stock options and deferred compensation probably benefit HBS grads more than doctors, but the point holds: median compensation is not greatly different. The difference comes from the few winners at the top of the pyramid.

Plus, Wall Street careers are frequently brief. It’s an incredibly intense young-person’s game. Many winners and all the losers move out within 10-20 years.

Medicine is not a business; it’s a profession. U.S. doctors are a fairly large group (~650,000), far more numerous than hedge fund managers (there are 6,250 U.S. hedge funds), basketball players, A-list movie stars, or successful entrepreneurs (there are ~200 big tech exits in a typical year). Once admitted to medical school, doctors face little career risk, and after residency they can expect 30+ years of practice. Doctors are quasi-public employees: more than half of the funding for U.S. healthcare comes from the government. And compensation is not results-based to any significant degree: doctors are paid for performing procedures or for their time. It makes sense that peak compensation is not the same as Wall Street.

Discussing this issue, a physician colleague put it to me this way the other day: “Do we [doctors] care about health care or wealth care?” Definitely doctors need to be among our most talented people and hence compensated in the top few percent. But Gordon Gekko would make bad doctor. In medicine, greed is not good.


*Disclosure: I attended the Harvard Business School. A class survey done at my 10th reunion showed similar results.

**Image credit: sepavo / 123RF Stock Photo

This post first appeared at on June 2, 2013.

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