Are We in a Medical Education Bubble Market?


The price tag for health professional education programs in the United States is rising. So are education debt levels. That this trend is by no means unique to health occupations – rising education costs and student debt are modern facts of life – does not diminish its potential implications within the health care system.

In a recent Perspectives article in the New England Journal of Medicine, David Asch, from the University of Pennsylvania, Sean Nicholson, from Cornell University, and I ask the question “Are We in a Medical Education Bubble Market?” To economists, as well as the policy community more broadly, rising education costs raise questions about the future return on investment to health care training and, more broadly, the future cost of health care. While medical education is certainly a very different commodity than housing, or tulips in 17th century Holland, we use these examples, as well as the economic principles behind them, to frame the issue.  Basically, bubble markets are created when an asset trades for increasingly higher prices, bought by those hopeful about its future value, and then sold to others with even more optimistic views of that future value.  Bubbles burst when some new and lower sense of intrinsic value appears.  The last buyers are stuck with something they paid too much for and can no longer unload, like being caught without a chair when the music stops. Bubbles are often recognized only once they burst, and for people who ‘bought high’ in the housing market, dot-com market, or tulip market in 17th century Holland – and there were a lot of them – the market correction is ugly.  

When we examined changes over time in education debt levels relative to average incomes – a simplified measure of return on investment – for a variety of health care occupations, law school and business school graduates, and higher education programs, we came away with several interesting policy conclusions. Here, I want to highlight only two.

First, by and large, among all health care occupations the ratio of debt to earnings has increased substantially in recent years. Consistent with the notion that this is a higher-education phenomenon, we found the same trend for non-health professional education programs we examined as well; except for one: MBAs. Business school graduates have actually experienced declining debt levels in relation to earnings. These data helped us see whether what is happening in medicine is happening everywhere, and the big picture answer is yes. Our take away from the data is that medical professions still remain an attractive career choice. People don’t choose between being a doctor in 2015 and a doctor in 1985. They choose between being a doctor or a lawyer, an architect, an artist, and so forth, in 2015.

Second, even if rising education costs are not unique to health care professions, it is very important that the health policy community take a hard look at their potential consequences for tomorrow’s health care environment. We raise the issue of whether it is feasible to slow health care spending growth, as the Affordable Care Act aims to do, without addressing rising medical education costs. Our conclusion, based on simple economics, is that higher and higher medical education costs are sustainable only to the extent that the health care system is able to pay providers more, and, in fact, there are strong signs that this is unlikely. Physician and dentist earnings, for example, have been sluggish since the early 2000s. We feel that if we want to keep health care costs down and still have access to well qualified health care providers, then we need to start thinking about ways to keep the cost of creating those physicians down.

The U.S. health care system is on the cusp of transformational change, with ambitious goals laid out in the Affordable Care Act. At the same time, higher education is, according to many experts, about to go through an era of ‘disruptive innovation’ with concepts like competency-based learning and massive open on-line courses starting to expand. Based on our analysis, we feel there is tremendous opportunity to reduce the educational debt load of health care professionals and contribute to the sustainability of the health care system by exploring innovations to reduce the cost of training tomorrow’s health care providers.