IV.   Adequacy of Physician Supply

A.   What is an “Adequate” Supply of Physicians?

An adequate physician supply could be defined as having the right number of physicians, with the right skills, in the right place, at the right time.  The adequacy of supply, therefore, has specialty, geographic, and time dimensions.  Numerous studies and commissions have investigated the issues of what constitutes an appropriate number and mix of physicians, how the United States can help ensure an adequate supply of physicians at the national level, and how the Nation can improve the geographic distribution of physicians—especially in underserved rural and urban areas.  Findings from these and other studies have contributed to the development of government policies and programs that have helped shape the current physician workforce and that have implications for the three major health policy concerns: access to care, cost of care, and quality of care.

Determining what constitutes an adequate supply of physicians can be approached from both a clinical and an economic framework.  The clinical approach addresses the question: “Is supply sufficient to meet the needs of the population?” The economic approach addresses the question: “What level of physician services are we willing and able to pay for?”  While there is substantial overlap in need and demand for physician services, many services provided may not meet a clinical definition of need and many needed services are never obtained—especially in medically underserved communities. 

Ideally, an approach to determine the adequacy of physician supply would rely on an optimization framework where services are provided to the point where the marginal benefits of services equal the marginal costs.  The marginal benefits and the marginal costs, however, differ for the various participants in the health care system (e.g., patients, physicians, and insurers).  Therefore, beliefs on what constitutes an adequate physician supply will differ by the various participants in the health care system.  What society thinks is adequate, for example, could be quite different from what the marketplace, insurers, physicians, NPCs, or patients think is adequate.

• From society’s perspective, an adequate supply is one that is large enough to ensure patient access to quality care but that does not create significant inefficiencies in the health care system.  From a societal perspective, some “inefficiencies” are acceptable—such as having sufficient excess physician capacity to handle unexpected surges in demand.  From the perspective of society, care would be provided in the most cost-effective manner, whether that care is provided by physicians or other health workers.
• From a marketplace perspective, an adequate supply is one that operates efficiently.  Market forces would determine an adequate supply.  Physician staffing patterns of closed-panel HMOs are an example of market-defined adequate staffing levels, and Weiner (1994, 2004) concludes that the United States could continue to provide quality care with substantially fewer physicians. ^[30] From the HMO perspective, physician requirements are defined by the demand for needed services (as defined by the HMO).  This definition differs from the marketplace perspective where physician requirements are defined by the demand for all physician services (including elective services).
• From an insurer’s perspective, an adequate supply is one that produces a socially acceptable level of care for a minimum cost.  Too few physicians will limit competition, and for managed care organizations, competition among physicians strengthens the insurer’s hand in negotiating payment discounts.  For some insurers, and in particular those that pay for physician services on a fee-for-service basis, having too many physicians can drive up health care costs by creating incentives to provide marginally beneficial services.
• From a physician perspective, an adequate supply is one that is large enough to ensure patient access to quality care, but that is not so large that it introduces excessive competition for the existing patient base.  Too many physicians competing for a limited number of insurance contracts or a limited number of employment opportunities will drive down physician earnings.  On the other hand, a shortage of physicians is undesirable because it places pressures on physicians to handle larger patient loads.  Many physicians are employers of other physicians, and a shortage of physicians drives up recruiting and labor costs.  A shortage of physicians could reduce the sale value of existing physician practices because physicians desiring to expand their practices can more easily increase their patient base without purchasing other practices.
• From the nonphysician clinician perspective, an adequate physician supply is defined not only by the ability of the health care system to ensure adequate access to care, but also by whether there are sufficient employments opportunities for NPCs.  An oversupply of physicians could crowd out the market for some NPC services.
• From the patient perspective, an adequate supply is one where the patient can receive prompt and high-quality care.  For most patients who are shielded from the total direct cost of care, at least in the short term, economic considerations such as inefficiencies created by an inadequate supply are of lesser importance in determining what constitutes an adequate physician supply.

Exhibit 45 illustrates the range of physician requirements assumptions to provide services to a particular market—whether that market is defined by geographic location or specialty.  At one end of the spectrum, physicians and NPCs have a financial incentive to limit competition so they might view a smaller number of physicians as desirable.  At the other end of the spectrum, individual patients are relatively shielded from the costs of training physicians and the cost of physician services.  Consequently, patients will tend to desire a larger number of physicians with its associated increase in access to care.

Exhibit 45. Number of Physicians that Constitutes an Adequate Supply in a Given Market, by Perspective

[D]

Because of differences in perspective and incomplete information to estimate physician requirements, and because of their policy implications, estimates of current or projected shortages and surpluses are often controversial.

During the 1990s, the growth in managed care led many to predict a growing surplus of physicians—and in particular specialists.  These predictions, in turn, led to changes in government support for graduate medical education financing and policy recommendations from groups such as COGME that, at the time, tended to favor producing more generalists and fewer specialists.

In recent years, the consumer backlash against the more restrictive forms of managed care and the growing elderly population has prompted a reconsideration of physician workforce policy.  Now, the growing concern is that the United States is producing too few physicians—and in particular specialists (COGME 2003; Cooper 2000, 2002)—although there is no consensus.  Perhaps one lesson from the past decade is that forecasters should exercise caution when relying heavily on one trend or demand determinant to project future physician requirements.

B.  Market Indicators of an Adequate Supply of Physicians

Historically, utilization-based forecasting models such as the PRM are based on the assumption that current patterns in the utilization and delivery of physician services are adequate.  That is, the assumption is made that the current physician supply and demand are relatively in balance at the national level.  A review of the market indicators that generally accompany an imbalance in physician supply and demand is useful to assess this assumption.

If a serious imbalance in physician supply and requirements occurs, one would expect to see tell-tale signs.  (For small imbalances in physician supply such tell-tale signs might not be readily apparent.) In this section we discuss different approaches and indicators that have been, or could be, used to identify imbalances in physician supply to assess the underlying assumption in the PRM that physician supply and demand were relatively in balance at the national level in the base year.  These approaches and indicators are summarized in Exhibit 46 and discussed in more detail in the remainder of this section.

Exhibit 46. Market Indicators of an Imbalance in Physician Supply and Demand

Economic Indicators

Economic theory suggests that in the unfettered marketplace long-term imbalances in the adequacy of physician supply cannot exist because market forces provide a self-correcting mechanism to eliminate persistent surpluses or shortages of physicians.  According to economic theory, a shortage is accompanied by rising physician incomes and improved choice of employment opportunities thus signaling the need for more physicians or a reallocation of physicians across specialties.  Rising income provides the financial incentive to enter the medical profession, to enter a particular residency, and to delay retirement.

Conversely, economic theory suggests that an oversupply of physicians depresses physician earnings and reduces choice of employment opportunities.  Critics would argue that market failures and government interventions in the health care system interrupt and distort market signals that could help to self-regulate the adequacy of physician supply, thus reducing the effectiveness of economic indicators to signal imbalances in physician supply and demand. Information on selected economic indicators of the adequacy of physician supply is provided below.

Physician Earnings

Between 1990 and 2000, mean hourly earnings of physicians declined by 5 percent (Exhibit 47). The decline was largest for surgical specialties (-14.1 percent) and obstetrics and gynecology (-13.7 percent).  Mean hourly earnings remained relatively unchanged for internal medicine and pediatrics, and grew by 14.5 percent for general and family practice.  These earnings trends cover a period when numerous commissions, panels and studies projected a growing surplus of specialists and the need for more generalists as managed care attempted to direct work away from specialists towards their less expensive generalist colleagues.  Unfortunately, more recent data are not available from AMA publications, and physician salary surveys by other organizations are not necessarily comparable to the AMA sampling frame.

On the surface, these income trends in the 1990s suggest that the United States had a more than adequate supply of physicians in surgical specialties and obstetrics/gynecology, an adequate supply in internal medicine and pediatrics, and a less than adequate supply in general/family practice. This simple analysis of mean hourly earnings, however, does not control for other trends that could affect mean hourly earnings and that may or may not be indicative of an inadequate supply of physicians—such as changing physician demographics, changes in the health care operating system, and changes in reimbursement rates from third-party payers.

Exhibit 47. Trends in Mean Hourly Earnings Per Hour of Direct Patient Care: by Specialty (in 2004 dollars)

[D]

Source: Analysis of AMA Physician Marketplace Statistics, various years.

Physician Employment Opportunities

A physician surplus creates a buyer’s market that allows physician practices and other employers of physicians to be more selective in hiring decisions.  New physician graduates faced with relatively fewer employment opportunities could take longer to find employment and be less satisfied with offers in terms of starting salary and location.

A 1996 survey of graduating residents and fellows in internal medicine collected information on job-seeking experiences in that year (Miller et al., 1998).  Fifty-three percent of graduating residents/fellows in infectious diseases indicated significant difficulty in finding a practice position and 29 percent indicated they received only one job offer (Exhibit 48).  Comparatively, in general internal medicine only 23 percent indicated significant difficulty finding a practice location and only 12 percent indicated receiving only one job offer.  Unfortunately, information on employment opportunities is not readily available to track trends over time and to ascertain current imbalances in supply and demand.  Over the last decade, the job potential for many specialties, such as anesthesiology, has changed dramatically.

Exhibit 48. Percent of Residents Reporting the Following Job Market Conditions: 1996

Source: ACP-ASIP Online, http://www.acponline.org/counseling/wrkforce.htm.

Access to Care Indicators

Access to care can be measured in many ways, and for policy purposes is often measured in terms of lack of medical insurance or low physician-to-population ratios.  Two indicators of the adequacy of physician supply are the length of wait for new patients to schedule an appointment and the wait time upon arriving at a scheduled appointment.  Longer wait times are indicative of growing demand for services relative to supply.    

The AMA collects data on wait times through its annual practice survey (Exhibits 49 and 50). During the 1990s and early 2000s the average wait time for new patients to schedule an appointment increased steadily for general and family practice consistent with growing demand for services relative to supply.  For surgical specialties, and for all physician specialties combined, the average wait time for new patients to schedule an appointment was relatively constant during the early-to-mid 1990s, but increased in the late 1990s and early 2000s.  Average minutes of waiting upon arrival for a scheduled appointment was relatively unchanged in 2000 compared to 1990, although there were fluctuations from year to year.

Exhibit 49. Average Days of Wait for an Appointment by New Patients

[D]

Source: AMA Physician Socioeconomic Statistics (various years)

Exhibit 50. Ave. Minutes Waiting upon Arriving for a Scheduled Appointment

[D]

Source: AMA Physician Socioeconomic Statistics (various years)

Physician Productivity and Practice Behavior

Physician productivity and practice behavior are sometimes indicative of whether demand for services is growing faster or slower than supply.  An increase in demand for services, relative to an increase in supply might allow physicians to be more productive in terms of seeing more patients per hour, induce physicians to work more hours, result in delays in retirement, and result in greater employment opportunities for NPCs. 

As discussed in Section II.B , average hours spent in direct patient care declined throughout the 1990s, and although this decline is consistent with growing supply (relative to demand), there are many other factors such as changes by physicians in desired lifestyle that could explain this trend towards reduced hours worked.  Also discussed in Chapter II.B , MGMA statistics showing a trend towards greater physician productivity and greater use of other staff (e.g., NPCs) are consistent with growing demand (relative to supply), but can also be explained by other factors such as improved training and technology.

While changes over time (or differences across geographic locations and medical specialties) in many of the factors summarized above could indicate variation in the adequacy of physician supply, there are often no good sources of data to track these indicators and each indicator is influenced by multiple factors which complicates isolating the impact caused by small imbalances between supply and demand.  Consequently, researchers are sometimes left with only anecdotal evidence to suggest whether there is an adequate supply of physicians.

C.  Comparing National Projections of Physician Supply and Requirements

The baseline projections from BHPr’s physician supply and requirements models suggest that overall requirements are growing faster than the FTE supply of physicians (Exhibits 51 and 52). Between 2005 and 2020, requirements are projected to grow to approximately 976,000 (22 percent), while FTE supply is projected to grow to approximately 926,600 (14 percent).  These projections suggest a modest, but growing, shortfall of approximately 49,000 physicians by 2020 if today’s level of health care services is extrapolated to the future population.

These projections suggest supply imbalances in many medical specialties, although rebalancing residency programs to areas of greatest need will help mitigate severe imbalances.  The supply of primary care physicians is growing slightly faster than demand, and this trend could help to relieve the current undersupply of primary care physicians in some Federally designated shortage areas.  Approximately 7,000 additional primary care physicians are currently needed to de-designate primary care HPSAs.

The projections suggest a growing shortage of specialists, with demand growing by approximately 62,000 more physicians than will be supplied.  Surgical specialties account for more than half of this shortfall, although non-surgical specialties such as cardiology and pathology show demand growing significantly faster than supply.

As discussed previously, the dynamic nature of the physician workforce means that projected shortages and surpluses in individual specialties tend to be overestimated with a static model. As inadequacies between supply and demand grow larger, market and other forces help to direct new graduates into specialties of greater need.  Comparing the FTE supply projections to demand projections under the high-growth scenario (Exhibit 44), produces an estimated shortfall of 185,000 physicians (or approximately a 20 percent shortfall in overall supply).

Exhibit 51. Baseline FTE Supply Projections of Active Physicians

Note: Totals might not equal sum of subtotals due to rounding.

Exhibit 52. Baseline Physician Requirements Projections

Note: Sum of subtotals might not add to totals because of rounding.

D.  Extrapolating National Patterns of Physician Requirements to Assess the Adequacy of Physician Supply by State

Exhibit 53 shows a State-by-State comparison of physician supply to simple estimates of physician demand.  Demand estimates in this exhibit were calculated as the product of the size of the population in eight age categories and national, age-specific physician-to-population ratios from the PARM (BHPr, 2003).  Each dot represents a State.  The vertical error bars span the supply estimate ± 10%, while the horizontal error bars span the demand estimate ± 10%. 

The reference line indicates an equilibrium between supply and demand (as calculated).  Note that the age-specific physician-to-population ratios are based on health care utilization patterns in 2000, and assume that at the national level there is an equilibrium between the supply of and demand for doctors.  While most of the States lie close to the reference line where estimated supply equals estimated demand, several of the larger States above the reference line (suggesting a possible oversupply) include New York, Pennsylvania, Massachusetts, and Maryland.  Many States substantially above this reference line are home to top medical facilities that treat out-of-State patients.  Large States below the reference line (suggesting a possible undersupply) include Texas and Florida.  California is exactly on the reference line, but it should be noted that California’s large population greatly influences the national physician-to-population ratios.

E.   Summary

While there exist geographic pockets of physician undersupply, at the national level there exists no strong evidence that in the base year (2000) there were any serious imbalances in physician supply.  During the 1990s there were clear indicators that demand for primary care physicians was growing faster than demand for specialist services (reflecting managed care trends), as well as short-term imbalances in specific specialties as indicated by anecdotal evidence of fluctuating starting salaries and level of difficulty for new graduates to find work.

Physician demand, driven primarily by population growth and a growing number of elderly, is projected to grow slightly faster than supply under the assumption that the health care system continues to provide the current level of care using current patterns of care delivery.  If, as some suggest, increased public expectations and ability to pay spur additional demand for physician services, then a significant shortfall of physicians could develop over the next 15 or more years in the absence of increased output from U.S. medical schools, increased recruitment of foreign-trained physicians, or both.

Exhibit 53. Comparison of Physician Supply and Demand by State, 2001