Government Funding for Not Training Doctors: Another Odd Program

Fewer Doctors Will Increase the Cost of Health Care


Filed Under : Subsidies, Health Care

Dr. London is John M. Olin Professor of Humanities at New York University, New York.

In a plan many health experts describe as brilliant and innovative, federal regulators announced recently that for the next six years they would pay New York State hospitals not to train physicians.

Of course, this plan isn’t unprecedented. For years the federal government paid farmers to let fields remain fallow. Now, the 41 teaching hospitals in New York State will be paid $400 million not to train new physicians.

The purpose behind this proposal is to reduce the surplus of doctors and save money. Dr. Alan Hillman, a professor of health policy at the University of Pennsylvania, is quoted in the New York Times as an endorser of the plan. “I’ve never heard anything like this before. But I really can’t find any fault with it. Maybe this is one of the first rational collaborations between hospitals and the Government.”

This plan was devised and proposed by officials of the Greater New York Hospital Association, with the active compliance of prominent politicians. Since New York trains 15 percent of the nation’s doctors and the federal government finances that training to the tune of $100,000 a year for each resident, the argument is made that fewer training residents will result in a net financial benefit for the hospitals.

Amid the congratulations and the backslapping is a scheme as flawed as the nation’s agricultural program. If anything, this plan demonstrates yet again that politicians and health administrators know almost nothing about economics. Leave aside the absurd subsidy for the training of physicians, which the market could easily address without government intervention; by paying hospitals not to train new doctors, health costs will be artificially increased. After all, dramatically more doctors in an environment with modest population growth will in time decrease the cost of medical care.

What about the experts who say they can’t find fault with this plan? Perhaps they also believe it was rational to subsidize farmers for not growing food. If this is a logical plan for hospitals and farmers, why stop there? There are probably too many telephone carriers; after all, the price of long-distance calls has been decreasing continually over the last several years. Should carriers be subsidized for not installing new lines?

Invariably there is the politician who believes he is smarter than the market. There is always the naysayer contemptuous of the invisible hand. So enthralled are pols with the New York plan that they have already objected to the limited scope of the program.

So this is how tax dollars are to be employed. Presumably health-maintenance organization standards and medical innovations which reduce hospital stays and the number of occupied beds will lead to further subsidies for hospitals that are operating at the margin. The logic of this plan leads inevitably to a situation similar to Soviet manufacturing or government-subsidized coal mines in the United Kingdom. Even when these entities ceased to have an economic rationale for their existence, government funds supported them.

As an explanation for their enthusiastic embrace of the plan, hospital executives said the program would encourage them to wean themselves from their dependence on the cheap labor of residents. This, too, has an odd ring to it. Hospitals currently receive large subsidies for doctors-in-training who are then paid a modest wage for a 90-hour work week. The logic is that these residents are being trained on the job. But as hospital administrators readily admit, residents engage in tasks that could easily be performed by less highly trained personnel or even machines.

Far better, it seems to me, to eliminate the government subvention and put hospitals in the position of training or not training residents as they see fit. There isn’t any reason to assume that medicine must be treated differently from unsubsidized professions.

Should a free-market scenario be considered, there would be physicians without government assistance and generally lower medical expenses when hospitals apply the efficiencies of the marketplace. As things stand, the advertised public approval of the fee-for-doing-nothing plan is a function of economic ignorance and political backscratching.

Admittedly, many farmers benefit from parity pricing that encourages idle fields. But just as surely, Americans are generally not better off with food prices rising artificially and tax subsidies to hospitals for not training doctors.


August 1997

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December 2014

Unfortunately, educating people about phenomena that are counterintuitive, not-so-easy to remember, and suggest our individual lack of human control (for starters) can seem like an uphill battle in the war of ideas. So we sally forth into a kind of wilderness, an economic fairyland. We are myth busters in a world where people crave myths more than reality. Why do they so readily embrace untruth? Primarily because the immediate costs of doing so are so low and the psychic benefits are so high.
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