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Special Theme: End-of-life Care: Education and Practice: ARTICLES

The More Things Change

Revisiting a Comparison of Educational Costs and Incomes of Physicians and Other Professionals

Weeks, William B. MD, MBA; Wallace, Amy E. MD

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In 1994, we published findings of our examination of the 1990 educational costs and incomes of physicians and other professionals. We found that students could expect poorer financial returns on their educational investments when they chose careers in primary care medicine than when they chose a procedure-based medicine or surgical specialty, business, the law, or dentistry.1

Since then, there have been substantial changes in economic and workforce conditions for all groups that we examined. Since our original analysis, the country's business environment has fluctuated substantially, from one fueled by “irrational exuberance”2 in late 1996 to recession in late 2001. Other changes include the fact that the number of lawyers per population has decreased somewhat,3 while the ratio of associates to partners has declined.4 The number of dentists per population has decreased.5 In medicine, efforts to reduce the disparity between the incomes of primary care and procedure-based physicians were implemented,6 and the number of practicing physicians per population increased by 13%.5 Over the same time period, managed care penetration doubled.7

Because of these changes, we were interested in conducting a follow-up analysis of our previous comparison. Using the same sources of data and analytic techniques, we evaluated the returns on educational investments for people in business, law, dentistry, and medicine in 1997 and compared our findings with those from 1990.


We used standard financial analysis techniques to compare the returns on educational investments for various professions. Our interest was in the relative returns available to students for whom medicine is a relevant career choice. To a large extent, graduate school options, and thereby career options, are defined by academic performance at the college level (as defined by grade-point averages and standardized test scores). Professional schools require different standardized tests, the values of which are not comparable. Therefore, we examined the 1997 mean enrollment-weighted college grade-point averages (GPAs) for graduate school matriculants in the various professions to develop ideal comparison groups for which to gather income data. Grade-point averages were calculated on a 0-4 scale, with a 4 equaling “A” or “excellent.”

We sought comparison groups with mean GPAs that closely approximate that of medical school entrants (3.52).8,9 To develop a comparison group for business schools, we examined the mean GPA (3.36) of students matriculating in the top 20 graduate schools of business as defined by U. S. News & World Report.10 The mean GPA for law schools approved by the American Bar Association is 3.26; that of the most competitive 50% of law schools is 3.44.11 The mean GPA for dental schools approved by the American Dental Association is 3.23; that for the most competitive 20% is 3.52.9 Data limitations precluded an examination of incomes of law and dental students from the top schools only; therefore, we used data from all dentists and attorneys in the analysis.

We examined two measures of the return on educational investment that could be expected by a high school graduate (age 18) who is contemplating one of five professional career choices (law, business, dentistry, primary care medicine, and procedure-based medicine). We used an established method of evaluating return on investment12 and adjusting for differences in number of hours worked in each profession.13. Hours-adjusted net present value is the current value of an expected stream of cash flow per hour at a predetermined rate of interest, the discount rate. Hours-adjusted internal rate of return is the annual interest rate, which equalizes the negative and positive cash flows on an investment by weighting them according to when they occur, accounting for differences in numbers of hours worked. (For another version of this definition, see Appendix A: Glossary of Financial Terms and Measures.)

We assumed a fixed working lifetime, defined as high school graduation to age 65. Although some choose to work longer, discounting makes the contribution of the final years trivial to the analysis. We assumed that students complete undergraduate education (four years) and graduate education (variable) without interruption and are employed in the intervening summers not spent in school. We assumed that all graduates are employed in their chosen professions. We also assumed that inflation equally affects income, tuition, cost of debt incurred to finance education, and purchasing power; therefore, our model does not attempt to weigh the effects of future inflation. Cost and income data are in 1997 dollars.


Direct costs

Direct educational costs are tuition, fees, the costs of educational supplies, and the costs of room and board. We assumed that students enter higher education debt- and savings-free, such that all educational costs must be earned or borrowed. We assumed that all summer earnings offset educational costs and that remaining expenses were covered by nondeductible student loans (8% interest, 15-year term, beginning the year after graduation). All groups were assigned $10,825 per year for undergraduate tuition (the average undergraduate tuition cost for four-year institutions in 199714) and $9,260 per year for non-tuition expenses in undergraduate and graduate school (as budgeted in 1997 by the Guaranteed Student Loan Program, a government program subsidizing some types of student loans, in its assessment of financial need). Table 1 summarizes the total tuition costs, expenses, and annual loan repayments by degree obtained for 19978,9,15,16 in absolute terms and as proportions of 1990 costs.

Table 1
Table 1:
Total Tuition Costs, Expenses, and Annual Loan Repayment by Professional School for 1997 and Comparisons with 1990 Data

Opportunity cost

The opportunity cost is the income that a person could have generated had he or she not pursued higher education. While the opportunity costs for individual career paths might change over the working lifetime, our analysis examines the lifetime earnings pursuant to a particular career path choice. Because career objectives are likely to determine the undergraduate field of study, the most accurate decision point for our analysis begins at high school graduation, when a student is considering college-level coursework. Thus, the opportunity cost is represented by the income of a full-time employed high school graduate. We obtained median, age-specific, pre-tax income for high school graduates from government sources.17 Opportunity costs were the same for all professions across all ages.

Income and hours

We assumed that the mean summer earnings of undergraduate and graduate students in all groups were a fourth of the mean annual income of high school graduates of similar age if the educational schedule allowed summer employment (it does not for second- and third-year medical and dental students).18 We also assumed that the pre-professional students spent as many hours in education and summer employment as employed high school graduates spend in full-time employment.19

Lifetime earnings may be adjusted for the number of hours worked, either by dividing the sum of the lifetime earnings by the lifetime hours worked, or by performing the adjustment for each year examined. We used the latter method for three reasons. First, this is the method that we used in our earlier analysis, so the method is consistent when comparing the results from different years. Second, this method more accurately depicts the changes in the relationship of work hours to incomes over the working lifetime. Third, while the different methods result in slightly different numbers, the rank order of the groups examined does not change.

Business school graduates

Incomes for business school graduates were generated using data on starting incomes for graduates from the top 20 business schools10—the target comparison group. Only the starting income was available; therefore, the average age-adjustment factor in the other professions was used to approximate incomes for business school graduates over the working lifetime. This method produced a conservative estimate of income for this group that peaks at an annual salary of $145,000 at age 48. The average hours worked for business school graduates was obtained from the appropriate income quintile from census data.19

Law school graduates

For attorneys, the only available age-specific income and hours data are for those in law firms. Before age 40, 61.8% of non-federal attorneys in private practice work in law firms (i.e., firms with two or more partners); after age 40 the comparable figure is 46.8%.3 The Altman Weil Pensa annual survey of law firm economics provides data on total after-practice expense compensation and billable hours for non-federal attorneys in law firms. We estimated that the actual number of hours worked by attorneys was 110% of median billable hours, the additional time being needed to administer the firm.4 We assumed that after lawyers have been associated with a firm for five years, they become partners.

We combined the law-firm data with data from Compensation of Legal and Related Jobs, Non Law Firms, which provides age-specific cash compensation data for non-firm, non-supervisory attorneys20 to develop a weighted median income for all attorneys. We used hours-worked data from the law-firm study for all attorneys, as other such data were not available.

Dental school graduates

Data on median age-specific incomes and hours spent in patient care for non-federal dentists were obtained from the annual survey of dental practice conducted by the American Dental Association.21

Medical school graduates

For physicians, we used the minimum postgraduate training periods required for board eligibility and assumed that residencies are completed without interruption. Median residents' incomes were obtained from the AAMC Data Book published in 20008; median after-expense incomes and patient care hours for non-federal patient care physicians were obtained from the American Medical Association's Socioeconomic Monitoring System.22 We conservatively assumed that residents work the same number of hours as do attending physicians in their specialty. We defined “primary care medicine” as general or family practice, general internal medicine, and pediatrics. We defined “procedure-based medicine” as surgery, obstetrics, radiology, anesthesiology, and medical subspecialties.

The age-specific data on income and hours spent in patient care were compiled by specialty, which aggregated the data on subspecialties. Although we were unable to access age-specific income and hours data for general internists and medical subspecialists, we developed ratios of incomes (0.9 for generalists and 1.2 for specialists) and hours (.99 and 1.02, respectively) from data compiled by the American Medical Association22 and applied these to the age-specific data for all internists to generate age-specific figures for generalists and specialists. No comparable information about pediatrics subspecialists was available; therefore, we included all pediatricians, including subspecialists, in the primary care group. Because of their small number, the inclusion of pediatrics specialists only slightly overestimates the income of primary care physicians. To estimate the income and hours for primary care and procedure-based physicians, we weighted the specialty-specific data by the number of specialists in practice in 1997.5

Table 2 summarizes the costs, incomes, annual work hours, and cash flows by age and profession for 1997. Greater detail is provided for the beginning of a professional's career to demonstrate the effect of length of education and educational costs on the time required to achieve a positive cash flow.

Table 2
Table 2:
Costs, Incomes, Annual Work Hours, and Cash Flows per Hour by Age and Profession in 1997

Sensitivity analysis

Our results are dependent on both the assumptions made and the accuracy of available data. We performed a sensitivity analysis to examine the impact of varying disputable aspects of the analysis (Table 3). Aggregate data for incomes in business beyond the first year after business school are not available; therefore, we assumed that their subsequent income growth parallels the average growth rates of the other professional groups. We reexamined the data estimating businessmen's incomes at 80% and 120% of our initial estimate.

Table 3
Table 3:
Results of Sensitivity Analysis That Examines the Effects of Changing Hours and Incomes Assumptions on Returns on Educational Investment, for Five Professional Groups*

Although the annual income data for attorneys include statistics for both law firms and other practice types, the available data for annual hours worked was for law firms only. To estimate a lower limit of the rate of return we used the same income data, but assumed that the average number of hours for all attorneys was 125% of that reported for attorneys in law firms. To estimate an upper limit for the rate of return, we repeated the calculations using our initial estimate of annual hours worked and the income of attorneys in law firms, which was higher than that for all attorneys.

We included an upper estimate for the internal rate of return for dentistry based on income and hours data for dental specialists. Finally, for physicians, we considered the impact on the internal rate of return of including all hours spent in professional activities in the analysis instead of only hours spent in patient care.

Findings from this analysis are discussed later in the article.


Figure 1 shows the average hours-adjusted net present values of the educational investments for the different professional groups discounted at a 5% rate for 1990 and 1997. For comparative purposes, a high school graduate would have an hours-adjusted average net present value of educational investment of $0.00 for all discount rates. Thus, this figure represents the current value of the future hourly wage, above and beyond that of a high school graduate (the opportunity cost) after subtracting out all educational expenses. In 1997, at a 5% discount rate, attorneys ($10.73) and procedure-based physicians ($10.40) earned considerably higher returns over a working lifetime than did dentists ($8.90) and businessmen ($8.27); the return for primary care physicians ($5.97) was considerably less than those of all other groups. After 1990, the hours-adjusted net present values of the educational investments increased considerably for all professional groups, save for procedure-based physicians. When comparing 1997 with 1990 results, the rank order of the professional groups remained the same for this measure, except that law school graduates overtook procedure-based physicians. Varying the discount rate did not change the results of the analysis.

Figure 1
Figure 1:
The hours-adjusted net present value of the educational investment, discounted at 5%, for 1990 and 1997.

Figure 2 demonstrates the cumulative hours-adjusted net present values for the five professional groups over their working lifetimes, discounted at 5%. At a particular age, this figure reflects today's cumulative value of the educational investment per hour worked. Because of their relatively early earning potential, businessmen quickly experience positive cash flows, indicated by a positive trajectory in the value line. After completing residency, both physician groups advance—albeit at different rates. Procedure-based physicians surpass primary care physicians within six years of completing residency. They surpass businessmen at age 45 and approach attorneys at age 50. Primary care physicians advance more slowly and never approach the cumulative net present values per hour worked for the other groups. The cumulative annual cash flow for primary care medicine remains 28% below that of business, 33% below that of dentistry, and more than 40% below those of procedure-based medicine and law over the later years of practice.

Figure 2
Figure 2:
The cumulative-hours—adjusted net present value of the educational investment, discounted at 5%.

Figure 3 shows annual hours-adjusted internal rates of return on the initial educational investments for 1997 and 1990. In 1997, primary care physicians had an hours-adjusted internal rate of return on their educational investment equal to 16%, compared with a return of 18% for procedure-based medicine, 22% for dentistry, 23% for law, and 26% for business. After 1990, the rates of return on educational investment for all professions except dentistry decreased, although primary care did so minimally.

Figure 3
Figure 3:
The hours-adjusted internal rate of return on educational investment for each profession, 1990 and 1997.

The sensitivity analysis (Table 3) indicates that, except when comparing the low net-present-value estimate for business with that for primary care, the returns for primary care physicians persistently trail the returns for other professional groups. Assuming that undergraduate GPAs accurately predict future careers, it may be more accurate to compare physicians with graduates of the top law schools (law-firm attorneys) and dental schools (dental specialists). In this comparison, procedure-based physicians fall well below law-firm attorneys and dental specialists in both absolute and relative returns on the educational investment, while primary care physicians drop to an average net present value of approximately 40% of the educational returns of those professional groups. Although it remains at the lowest level of all professional groups examined, primary care medicine has made the largest percentage gain in net present value of all groups over the seven-year period examined.


The preceding pages have shown how we used conventional accounting techniques to investigate the return that a high school graduate could expect on his or her educational investment in professional training. Our findings show that an investment in professional education continues to carry significant financial rewards.

Although all the professions we studied are well rewarded, the relative rewards of the groups vary with the measure used. Attorneys and those in business have the highest hours-adjusted internal rates of return, while attorneys and procedure-based physicians have the highest hours-adjusted net present values. For both measures, primary care physicians had the lowest returns of the five groups studied. These findings are consistent with those based on 1990 data.

The difference in the ordering of the groups, depending on the measure, may be simply explained. The internal rate of return is a relative measure of return. Thus, the relatively brief periods of training (and therefore lower investments) and earlier incomes for attorneys and those in business account for their high rates of return. The net present value is more sensitive to absolute income levels. Thus, the high absolute incomes of attorneys and procedure-based physicians explain their high total returns.

Our findings suggest that over the seven-year period examined, physician payment reform has been effective in diminishing the income disparity between the primary care and procedure-based specialties. Part of the rationale behind efforts to level incomes was to attract more physicians into primary care specialties. While the playing field has been leveled somewhat, it is disconcerting that there is less work-force growth in primary care than in other medical specialties: although the overall physician workforce has grown by 13% per population, that of primary care physicians has grown by only 10%.5 The comparison of educational returns across time raises other concerns. Although the difference between primary care and procedure-based specialties has decreased, primary care medicine remains the least financially attractive profession. Some people who enter the medical profession may be influenced by economic incentives in deciding their medical specialties. While a career in primary care medicine is relatively more attractive than it was seven years ago from a financial standpoint, it is still a much less lucrative career option than procedure-based medicine. We previously raised concerns that if the level playing field focuses on reducing the income of procedure-based medicine instead of increasing the income of primary care medicine, competing market forces may encourage students to enter law, business, or dentistry instead. From an investment return perspective, the level of the playing field within medicine is turning out to be much closer to that of primary care than it is to that of procedure-based medicine. Practical students might find other career options more attractive than medicine.

There are several limitations to our approach. First, our results are dependent on the data available. The relative positions of procedure-based physicians, for example, vary across the assumptions examined in the sensitivity analysis. On the other hand, the same analysis demonstrates that primary care physicians have relatively poor financial returns across a wide range of assumptions. Second, the returns are those that could be expected by a student today, given current costs and incomes. To the extent these data change over time, so will estimates of returns. Nevertheless, we believe current data are the most relevant information for students who are now considering professional careers. Third, the returns are based on medians. Those students who can more precisely define their future costs (e.g., of attending a particular law school) and income (e.g., from practicing a particular surgical subspecialty or type of business) may project very different returns. Fourth, our analysis cannot account for any variation in the risk associated with particular careers. Unlike physicians, attorneys, and dentists, society does not confer a licensed monopoly on practice for business. The greater risk associated with a career in business may, in part, justify a higher return.

Finally, our analysis ignores other factors that play roles in the choice of profession. The return on educational investment is not the sole motivation to choose one profession over another: intellectual stimulation and prestige undoubtedly have roles in career decisions,12 as does the desire to be of service to others. But policymakers would be remiss if they ignored the powerful influence of the up-front costs of professional training and students' concerns about their ability to repay the debts they incur. The direct costs of education are very real to students, as are the lost opportunities to earn income elsewhere. Many students may make informal calculations of returns using near-term costs and future ability to repay debt. Such a calculation strongly favors professions with brief training periods and high incomes.

Market forces are pervasive. The same economic incentives that have been utilized to encourage medical students to choose careers in primary care may influence undergraduates to choose careers in other professions. Our examination of the returns on different educational investments indicates that primary care physicians are currently underpaid not only relative to procedure-based physicians, but also relative to other professionals. These returns and the incentives they produce should continue to be carefully examined as part of health care reform.


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APPENDIX A Glossary of Financial Terms and Measures

  • Cash flow: The flow of money to or from an individual (or firm). In this analysis, annual cash flow (CF) is defined as after-expense income (Y) minus educational expenses (E) and opportunity costs (O) as defined in the following equation:
  • Cash flow per hour: Cash flow divided by number of hours worked.
  • Opportunity cost: The value of available alternatives that must be foregone in order to achieve a particular goal. In this analysis, it is the foregone value of starting work immediately after high school and is the same for all professional groups.
  • Discount rate: The discount rate reflects the increased value of receiving a dollar today in comparison with a year in the future because today's dollar can be invested to produce an immediate return. Discounting is a method of evaluating financial alternatives with different income patterns and is a standard feature of financial and economic analyses.
  • Net present value: Today's worth of an expected cash-flow pattern at a predetermined rate of interest—the discount rate. It is calculated as the sum of the annual cash flow (CF), over a number of periods (j, from 0 to the nth period), discounted at a particular assumed rate of alternative investment (i), to the present period as shown in the following equation:
  • Because of its influence on net present value, the discount rate can be varied to reflect a range of reasonable possibilities.
  • ▪ Hours-adjusted net present value: the net present value calculated on the cash flow per hour.
  • ▪ Cumulative-hours—adjusted net present value: the sum of annual hours-adjusted net present value from the completion of high school to a specified age (Figure 2).
  • ▪ Average hours-adjusted net present value: cumulative hours-adjusted net present value divided by the total number of years examined (Figure 1).
  • Internal rate of return: The annual interest rate that equalizes the negative and positive cash flows on an investment over its duration by weighting them according to when they occur. It is calculated as the interest rate (r) at which the sum of the present values of a series of expected incomes (Yj, j = 0 to n) is equal to the costs (Xj = Ej + Oj, j = 0 to n) required to produce them as demonstrated in the following equation:
  • In the present analysis, as with most examples, negative cash flows occur in earlier periods and positive cash flows occur later.
  • Hours-adjusted internal rate of return: the annual return on the educational investment over the working lifetime calculated on incomes and costs divided by hours worked in their production (Figure 3).
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