Estimating the Value of Medical Education: A Net Present Value Approach

Abstract

Background: Estimating the value of a medical education is a difficult undertaking. Purpose: As student debt levels rise and the role of managed care in price-setting increases, the financial benefit of an MD degree comes into question. Methods: We developed a model using net present value (NPV) analysis for a range of annual costs of medical school attendance. Using this model, we determined the point at which pursuing a medical education is a “break-even” proposition from a financial perspective. Results: The NPV of a medical education was positive for all annual costs of attendance from $10,000 to $100,000 and ranged from approximately $39,000 to $674,000 depending on the discount rate. Assuming a discount rate of 8%, only at an annual cost of attendance of $139,805 was the NPV = $0, which represents the break-even cost of medical education for a prospective student. Conclusions: Medical education is a financially advantageous undertaking for costs of attendance that far exceed even the most expensive schools in the United States. Our analysis suggests that based on economics, the supply of future physicians ought to be secure.