Economic Factors for Physicians

Introduction to Situation

This paper is based on a fictional case study in which a young woman is considering becoming a physician. Prior to fully committing to this decision, she desires to attain prudent financial information about its repercussions. Specifically, she is seeking to identify the return on investment that her decision could potentially generate. This involves both qualitative and quantitative factors, the former of which pertains to personal gain derived from aiding people in a much needed professional setting. The latter relates to the finances she can generate from practicing medicine.

This financial data is stratified into a number of different categories corresponding to the market for doctors in terms of supply and demand, elasticity, production costs, pricing, and normal profit. These factors will help her to decide in which state it is beneficial to practice. The focus of this paper, then, is to identify how these factors relate to this young woman's decision and to advise her of the value that she can derive from it. Therefore, it is necessary to evaluate this financial data both individually and holistically to truly discern its impact on the future of this young woman.

Relevant Economic Principles

There are a number of germane economic principles that one must consider in order to provide truly prudent advice for a young woman in the aforementioned situation. One of the most basic concepts that will play a determining factor in this situation is the economic notions of supply and demand. Analyzing these factors will shed a considerable degree of insight into where, if at all, this woman should attempt to practice medicine so that she can optimize the financial yield gained from it. Market elasticity is another factor to consider, particularly as it relates to supply and demand. Depending on the elasticity of a particular market, some of the rudiments of supply and demand may greatly or modestly affect the actual market for doctors. The realities of supply and demand are also mitigated by a host of additional factors, which can potentially affect the decision-making process of the young woman. These include variables such as production costs and pricing, all of which can produce an impact on the normal profit that a practicing doctor can receive.

Demand Determinants

The demand determinants for this particular situation are stark, and perhaps even somewhat surprising. The reality is that there are several factors attributing to the increase of demands for physicians. There have been numerous advances in technology and medicine in the past several years, which are resulting in the fact that people are living longer than they ever have before. Thus, there is a predominance of baby boomers who are significantly contributing to an aging population. Servicing the elderly is a prominent concern for the healthcare space (U.S. Department, 2006, p. 2). Additionally, there are legal determinants that are affecting the demand for physicians. The Patient and Affordable Care Act has made it mandatory for people to get health insurance. In the wake of this legislation there is a greater demand for doctors (Health Resources, 2016) than there ever has been before.

Because of the wide-sweeping nature of this legislation, in addition to the inescapable reality that the increasingly elderly population is becoming more prominent in the medical field and its expenses, there is a particular demand for primary care physicians. According to Health Resources and Services Administration (2013), "If the system for delivering primary care in 2020 were to remain fundamentally the same as today, there will be a projected shortage of 20,400 primary care physicians." Viewed from this perspective, the factors that are contributing to the demand for physicians is pointing to the specialization in the primary care physician role, which could prove potentially lucrative for a young woman looking to become a part of this workforce.

Finally, it is worth noting that there is a strong demand for primary care physicians in Texas. That demand is partially predicated on the fact that there was a large uninsured population in this state, that was one of the more sizable in the nation (Conway, 2010, p. 1). There are additional reasons for the growing demand in Texas, which is related to the elasticity of the market for physicians in this state. Legislation was changed in 2009 (to the Physician Loan Repayment Program) to provide incentives for physicians to practice in this part of the country, which makes it more attractive to be doctor in this part of the country (Conway, 2010, p. 1).

Price Demand Elasticity

To formally calculate the price demand elasticity for primary care physicians, the average salary of physicians in 2010 was $173,000 (Conway, 2010, p. 2). The average salary of physicians in 2013 was $176,000 (Kand and Peckham, 2014). In 2010, there were 205, 000 primary care physicians; in 2013, there were 209, 920 primary care physicians (Health Resources, 2013). Using the midpoint formula, the price demand elasticity for physicians, the price change from $173,000 to $176,000 is $3,000, which is 6% of $173,000. The difference in the quantity of primary care physicians is 209,920 minus 205,000, which is 4,920, which is approximately 2%. The price elasticity is then determined by dividing 2% by 6%, which comes out to 33%, the price elasticity.

Supply Determinants

There are several factors to consider in terms of the rules of supply that could potentially impact the decision of the young woman considering becoming a doctor. When one analyzes various factors of demand and elasticity, it certainly seems appealing to become a primary care physician in Texas. This idea is somewhat mitigated by the numerous aspects of supply. It is worth noting that perhaps one of the reasons that the supply for physicians is currently outpaced by the demand for them in this part of the country pertains to pay.

These practitioners earn an average of less than $190,000 a year, which is the lowest of most other types of doctors (Conway, 2010, p. 2). This fact is corroborated by the notion that such physicians are typically paid by the number of patients that they treat. Moreover, there have been significant declines in the hours that these physicians have worked (Conway, 2010, p. 2), which contributes to a situation in which they are making even less money than they were before. However, some of these factors are ameliorated by the physician shortage in Texas, in which there would not be a dearth of hours for primary care physicians to work because of the high demand for them.

Still, the most salient factor in analyzing supply is the cost of production determinant. A conservative estimate of the cost and fees of attending medical school, which is the primary consideration in specifying the cost of production for doctors, is approximately $55,000-year which translates to $220,000 for four years (Association of American Medical Colleges, 2016). These costs are fixed and are highly unlikely to decrease. Profit maximization occurs when the student is able to recoup the costs of attending medical school, which she is projected to do in a pair of years after earning her salary at approximately $175,000 a year. At that rate, she will maximize her profit margin of $130,000.

The student should expect to see normal profits since there is an inordinately high demand for physicians -- particularly in Texas. This fact is also underscored by the vitality of healthcare and the notion that people will always require primary care from physicians. The sellers determinant is also predicated on the nature of the market structure in which this student will be operating within the healthcare space. That market is relatively stable due to the necessity of the services that physicians provide. People will always need them which helps to stabilize the market and the sorts of prices that the young student will help to maintain by laboring in this field.

Recommendations

It is recommended that the young student attempt to practice medicine as a primary care physician in Texas. Furthermore, doing so will provide a number of financial advantages which will benefit her in her life. Those advantages largely stem from the demand for physicians in this part of the country, as well as for physicians throughout the U.S. It is noted that "The total demand for primary care physicians is projected to grow by 28,700, from 212,500 FTEs in 2010 to 241,200 FTEs in 2020, a 14-percent increase" (Health Resources, 2013). Additionally, the supply for physicians is not projected to meet that demand (Health Resources, 2013). In Texas, sch a dearth of physicians will be felt more acutely than in other areas. Thus, there is a distinct possibility that once this student is able to overcome the production costs of actually attending medical school, she will be able to maximize her profits and see significant gains through her practice in a mere two years of working full time in this part of the country.

References

Association of American Medical Colleges. (2016). Tuition and student fees reports. https://services.aamc.org/ Retrieved from https://services.aamc.org/tsfreports/report.cfm?select_control=PRI&year_of_study=2016

Conway, C.A. (2010). The physician shortage problem in Texas. Health Law Perspectives. Retrieved from http://www.law.uh.edu/healthlaw/perspectives/2010/(CC)%20Shortage.pdf

Health Resources & Services Administration. (2013). Projecting the supply and demand for primary care practitioners through 2020. http://bhpr.hrsa.gov/ Retrieved from http://bhpr.hrsa.gov/healthworkforce/supplydemand/usworkforce/primarycare/

Kane, L., Peckham, C. (2014). Medscape physician compensation report 2014. www.medscape.com http://www.medscape.com/features/slideshow/compensation/2014/public/overview#2

U.S. Department of Health and Human Services. (2006). Physician supply and demand: Projections to 2020. http://bhpr.hrsa.gov/ Retrieved from http://bhpr.hrsa.gov/healthworkforce/supplydemand/medicine/physician2020projections.pdf