Healthcare Reform: Solving the Medical Student Debt Crisis Through Human Capital Contracts

Despite the enactment of healthcare reform by the United States Congress in 2010, organized medicine has yet to successfully tackle the issue of medical student debt. More than 86% of physicians graduate with educational debt averaging more than $155,000. The perception of medical school debt encourages students to choose careers as highly paid specialists over less compensated primary care practitioners. And who can blame them? The current insurance reimbursement scheme incentivizes specialists with higher compensation to perform expensive diagnostic and therapeutic procedures. Unfortunately, the present system is contributing to the rising costs of healthcare in the United States. This unsustainable healthcare model warrants encouragement of more cost-effective interventions that focus on preventive medicine, such as those provided by primary care physicians.

Medical student debt, however, has emerged as a barrier to students pursuing a career in primary care. Peter Bach and Robert Kocher's May 29 Op-Ed in The New York Times, "Why Medical School Should be Free," argue that waiving medical school tuition will encourage more students to pursue primary care in lieu of higher income medical specialties. To pay for their proposal, estimated to cost $2.5 billion per year, Bach and Kocher would eliminate the training stipend provided during residency and fellowship to physicians pursuing non-primary care specialties. The Bach and Kocher proposal has several flaws that, if implemented, would adversely impact organized medicine.

First is the issue of equity. Is it fair or realistic to force specialists to forgo any form of compensation during the most financially vulnerable period of their early professional training?

Secondly, and maybe more importantly, the Bach and Kocher proposal does not address the income disparity between primary care doctors and specialists, which studies demonstrate is the major contributing factor to the rapidly declining number of primary care physicians. A study in the journal Health Affairs demonstrates the income gap is a significant factor contributing to medical students choosing specialty training in lieu of primary care practices. Narrowing the substantial income gap would require, according to Vaughn et al., "substantial reductions in specialists' practice income or increases in primary care physicians' practice income, or both, of more than $100,000 a year." The Bach-Kocher proposal would do little to lessen the payment gap between primary care physicians and specialists.

We propose an alternative plan: eliminating medical school tuition through "human capital contracts." Our initiative builds on a proposal initially put forth by Louis Weinstein and Honor Wolf in the American Journal of Obstetrics & Gynecology.

Human capital contracts to finance medical education

It works like this: an investor, such as the federal government, will cover the initial cost of a student's medical training. In exchange, the student will promise to repay a percentage of their gross compensation over the first 10 years of their medical career. By requiring a lower percentage of repayment for primary care physicians, our model will encourage more students towards this career path. For example, assuming a 2.5% payback model for primary care versus a 5% rate for specialists, a family doctor earning $200,000 would pay back $5,000 per year for 10 years whereas a specialist earning an annual salary of $400,000 would pay back a total of $20,000 per year for 10 years. By coupling the amount of money repaid to income earned and therefore alleviating the concerns associated with the income to debt ratio, medical students would be encouraged towards a career in primary care.

Our proposal also has the potential to decrease the salary difference between primary care physicians and specialists by mitigating the issue of medical student debt as a factor in compensation differentials. However a more targeted solution, such as an overhaul of the entire medical reimbursement model that favors specialists with higher salaries, is ultimately required to resolve the income gap.

Additionally, even with the shift toward more primary care practitioners that our proposal would create, the reality is that the United States faces a shortage of both primary care physicians and specialists. The Association of American Medical Colleges (AAMC) reports that by 2020 "demand is set to outstrip supply" in several non-primary care specialties including general surgery, ophthalmology, orthopedics, urology, psychiatry, and radiology. A permanent solution would require admitting more students to medical school as well as increasing the number of Medicare-supported residency slots (currently frozen as a result of the Balanced Budget Act of 1997).

While Bach and Kocher should be saluted for bringing the medical school tuition crisis into the national discourse, we believe our proposal is more practical and would be more widely accepted by the medical education community. Organized medicine and government should study the feasibility of human capital contracts as a mechanism to fund U.S. medical education. A resolution exploring our proposal is before the upcoming June American Medical Association's House of Delegates 2011 Annual Meeting in Chicago, Illinois.

Anand Reddi and Andreas Thyssen are medical students at the University of Colorado School of Medicine.