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With the advent of the MD/MBA joint-degree came an "official" acknowledgement from our educational institutions that perhaps it is not inherently "wrong" for physicians to be profit-oriented and maintain an entrepreneurial mind...running their practices, heading their departments, managing their hospitals, and directing their health systems. (Note: those managing hospitals and health systems are, in fact, usually not physicians -- but that is a talking point for another day.)
As I tend to proclaim in my SDN posts, while a great asset, the MBA-facet of the joint degree is not a necessary (or a sufficient) credential to successfully run a private practice (or a department). So, why get one? Well, the answer to that is beyond the scope of this particular article. Therefore, let us assume for the sake of this discussion that you already have a well-thought out response to "why" you want to seek an MBA. I think it is reasonable to also assume that your answer [no matter how simplistic, intricate, straightforward, or convoluted] will be a comprehensive summation of your perceived pros of the degree. Aggregating these aforementioned pros into one streamlined entity, let us call the amalgam that is hot out the mold the "benefit".
If you have any background in business whatsoever, between the title of this article and the key term from our sentence above, you know where we are heading next: the cost. Is the MBA worth it? We already have half the equation in hand (read: the benefit). But, the other half... What is the cost?
I urge you to run the numbers specifically for your own program of interest (some will be cheaper, some more expensive). For our intents and purposes, we are first going to set the scenario and parameters for our two friends: Donald and Daffy. They will be attending a top 10 MBA program and both will take out 150k in loans solely for medical school.
Donald entered Dartmouth medical school as a traditional biology major. He has no formal training/experience in business (inside or outside the classroom). Nevertheless, Donald does fully know what an MBA is and feels that, by earning this additional degree, he will be well-suited to run a private practice in his specialty of choice. Moreover, he secretly thinks, "Donald, MD, MBA" just "looks plain cool".
Daffy, similar to Donald, entered Dartmouth as a biology major; although, he also has a minor in business administration -- with a handful of courses ranging from accounting to marketing to an elective course in managing new ventures. Daffy, like Donald, fully knows what an MBA is and hopes to open a private practice in his specialty of choice; however, he always feels the bite of the entrepreneurial bug on the back of his neck and feels that a role in healthcare venture capital is in his future.
Stepping away from our two friends for a moment, I quickly looked up the current COA (cost of attendance) for Dartmouth's MBA program ($85,950 for year 1 and $88,400 for year 2). It is relevant to now point out that Dartmouth offers both the "traditional" 5-year MD/MBA program (where the MBA curriculum is essentially condensed to a single calendar year) and a more expansive 6-year MD/MBA program.
Returning to Donald and Daffy, our two heroes now proceed onward down different paths toward earning their MBA degrees. Donald, with his complete lack of business knowledge and uncertainty of special interests (such as "financial management", "international business", "entrepreneurship", etc.), has decided to take the 6-year MD/MBA route (hoping to lay a solid foundation with a full breadth of introductory courses before exploring a wide variety of upper level coursework). Daffy, on the other hand, feels that his basic knowledge is reasonable and is fully cognizant of his special interest in "entrepreneurship and new ventures"; Daffy enrolls in the 5-year MD/MBA program.
At first glance, our watered-down cost-benefit analysis appears to be obvious:
Donald's "benefit" is that he wants a broad business education that will render him well-suited to run a private practice (and the extra degree offers him a feeling of self-satisfaction).
Daffy's "benefit" is that he wants to develop a deeper, specialized knowledgebase in "entrepreneurship and new ventures"; he wants to be positioned to become an expert in this domain.
Donald's "cost" appears to be $85,950 (year 1) + $88,400 (year 2) = $174,350
Daffy's "cost" appears to be $85,950 (year 1).
Stop! We have made a very big mistake.
The numbers, being oh-so-important in our analysis, need to be revisited. Not only did we fail to account for the opportunity cost that both Donald and Daffy will be individually paying (e.g. lost wages from extra time spent in school, lost interest earned on savings from the lost wages, etc.), but we also neglected the fact that [thanks to our departure from subsidized graduate loans] interest has been accruing on both their medical school loans and business school loans during the extra time spent in school.
I am going to run the numbers below in a grossly over-simplified fashion. For example, Stafford graduate loans currently have an interest rate of 6.80%; however, they also have a cap allowance of $224,000. Obviously, both of our MD/MBA heroes will be surpassing that limit, ergo, in reality, they would have to get an alternative loan for the additional funding (likely at a higher interest rate). Furthermore, in reality, Dartmouth mixes some of their business courses in other years of the MD/MBA program rather than separate "all business" years. We are going to ignore these pesky facts...this is not accounting class; today, I am not a bean counter. In fact, I am going to round to the thousands place.
At the end of Daffy's 5-year MD/MBA program (MS1, MS2, MS3, BS1, MS4), with 6.8% unsubsidized loans, he owes a total of $285,000.
At the end of Donald's 6-year MD/MBA program (MS1, MS2, MS3, BS1, BS2, MS4), with 6.8% unsubsidized loans, he owes a total of $402,000.
To put those into perspective, we need to find the difference between [the values above] and [what they would have owed regardless by taking out 150k in loans for the MD degree (their alternative option)]. Both heroes, doing solely the 4-year MD, would have each owed $178,000.
So, thus far, we have Daffy's MBA cost at $107,000 and Donald's MBA cost at $224,000. However, they will not be paying these extra loan amounts off the first day out of school. No, they will likely take a while...10 years is an often cited period for repayment, so let us stick with that.
At the end of repayment, Daffy will have paid $148,000 and Donald will have paid $309,000. We will ignore the time value of money and what they could have invested that money into instead of pay off their extra debt.
Let's throw in a little opportunity cost, assuming they are the same age at enrollment and both retire at 60, Daffy has lost 1 year of wages and Donald has lost 2 years of wages. Now, at this point, we could get technical. We could establish their specialties, their taxing bracket, their deductibles, their return on savings, etc. (for the year/s of lost wages)...or we can save a lot of time and just estimate them at $150,000 per year (post-tax, all-inclusive of compounding investments, etc.). With that said, Daffy has an opportunity cost of $150,000 from lost wages and Donald has an opportunity cost of $300,000 from lost wages.
Okay, so what was each of our friends total cost?
Daffy: $148,000 (actual) + $150,000 (opportunity) = $298,000.
Donald: $309,000 (actual) + $300,000 (opportunity) = $609,000.
So was the MBA worth its cost for these two professional students? At first glance [and after you pick your jaw off the floor], perhaps a resounding "no" came out of your mouth. Nevertheless, this is where we need to go back, consider the benefits, and consider what we do not know... We do not know the future. Did Daffy ever pursue his interests in venture capital? Maybe his newfound acumen led him to a once-in-a-lifetime opportunity and he became a millionaire: his investment paid off. Maybe his MBA only made him an extra 30k [post-tax, no investments] per year (note: quantifying like this will never be that simple in real life), in which case he broke even after ~10 years (assuming he didn't pay extra on his loan) and started earning a profit, subsequently. Maybe he never broke even.
What about Donald? Well, as I mentioned at the beginning of this article, Donald did not really need an MBA to run a successful private practice. Nevertheless, maybe he had some groundbreaking ideas that changed the way he offered his services and he did turn a profit from his $609,000 investment (but, most likely not). However, Donald had that extra little facet of his benefit -- he wanted the MBA because he thought it was "cool". It offered him some sort of intangible worth. Was that self-fulfillment enough to cover his $609,000 investment or did he make the worst financial decision of his life? The answer to that question depends completely on the answer to another question: Was his last name Duck or Trump?
As I tend to proclaim in my SDN posts, while a great asset, the MBA-facet of the joint degree is not a necessary (or a sufficient) credential to successfully run a private practice (or a department). So, why get one? Well, the answer to that is beyond the scope of this particular article. Therefore, let us assume for the sake of this discussion that you already have a well-thought out response to "why" you want to seek an MBA. I think it is reasonable to also assume that your answer [no matter how simplistic, intricate, straightforward, or convoluted] will be a comprehensive summation of your perceived pros of the degree. Aggregating these aforementioned pros into one streamlined entity, let us call the amalgam that is hot out the mold the "benefit".
If you have any background in business whatsoever, between the title of this article and the key term from our sentence above, you know where we are heading next: the cost. Is the MBA worth it? We already have half the equation in hand (read: the benefit). But, the other half... What is the cost?
I urge you to run the numbers specifically for your own program of interest (some will be cheaper, some more expensive). For our intents and purposes, we are first going to set the scenario and parameters for our two friends: Donald and Daffy. They will be attending a top 10 MBA program and both will take out 150k in loans solely for medical school.
Donald entered Dartmouth medical school as a traditional biology major. He has no formal training/experience in business (inside or outside the classroom). Nevertheless, Donald does fully know what an MBA is and feels that, by earning this additional degree, he will be well-suited to run a private practice in his specialty of choice. Moreover, he secretly thinks, "Donald, MD, MBA" just "looks plain cool".
Daffy, similar to Donald, entered Dartmouth as a biology major; although, he also has a minor in business administration -- with a handful of courses ranging from accounting to marketing to an elective course in managing new ventures. Daffy, like Donald, fully knows what an MBA is and hopes to open a private practice in his specialty of choice; however, he always feels the bite of the entrepreneurial bug on the back of his neck and feels that a role in healthcare venture capital is in his future.
Stepping away from our two friends for a moment, I quickly looked up the current COA (cost of attendance) for Dartmouth's MBA program ($85,950 for year 1 and $88,400 for year 2). It is relevant to now point out that Dartmouth offers both the "traditional" 5-year MD/MBA program (where the MBA curriculum is essentially condensed to a single calendar year) and a more expansive 6-year MD/MBA program.
Returning to Donald and Daffy, our two heroes now proceed onward down different paths toward earning their MBA degrees. Donald, with his complete lack of business knowledge and uncertainty of special interests (such as "financial management", "international business", "entrepreneurship", etc.), has decided to take the 6-year MD/MBA route (hoping to lay a solid foundation with a full breadth of introductory courses before exploring a wide variety of upper level coursework). Daffy, on the other hand, feels that his basic knowledge is reasonable and is fully cognizant of his special interest in "entrepreneurship and new ventures"; Daffy enrolls in the 5-year MD/MBA program.
At first glance, our watered-down cost-benefit analysis appears to be obvious:
Donald's "benefit" is that he wants a broad business education that will render him well-suited to run a private practice (and the extra degree offers him a feeling of self-satisfaction).
Daffy's "benefit" is that he wants to develop a deeper, specialized knowledgebase in "entrepreneurship and new ventures"; he wants to be positioned to become an expert in this domain.
Donald's "cost" appears to be $85,950 (year 1) + $88,400 (year 2) = $174,350
Daffy's "cost" appears to be $85,950 (year 1).
Stop! We have made a very big mistake.
The numbers, being oh-so-important in our analysis, need to be revisited. Not only did we fail to account for the opportunity cost that both Donald and Daffy will be individually paying (e.g. lost wages from extra time spent in school, lost interest earned on savings from the lost wages, etc.), but we also neglected the fact that [thanks to our departure from subsidized graduate loans] interest has been accruing on both their medical school loans and business school loans during the extra time spent in school.
I am going to run the numbers below in a grossly over-simplified fashion. For example, Stafford graduate loans currently have an interest rate of 6.80%; however, they also have a cap allowance of $224,000. Obviously, both of our MD/MBA heroes will be surpassing that limit, ergo, in reality, they would have to get an alternative loan for the additional funding (likely at a higher interest rate). Furthermore, in reality, Dartmouth mixes some of their business courses in other years of the MD/MBA program rather than separate "all business" years. We are going to ignore these pesky facts...this is not accounting class; today, I am not a bean counter. In fact, I am going to round to the thousands place.
At the end of Daffy's 5-year MD/MBA program (MS1, MS2, MS3, BS1, MS4), with 6.8% unsubsidized loans, he owes a total of $285,000.
At the end of Donald's 6-year MD/MBA program (MS1, MS2, MS3, BS1, BS2, MS4), with 6.8% unsubsidized loans, he owes a total of $402,000.
To put those into perspective, we need to find the difference between [the values above] and [what they would have owed regardless by taking out 150k in loans for the MD degree (their alternative option)]. Both heroes, doing solely the 4-year MD, would have each owed $178,000.
So, thus far, we have Daffy's MBA cost at $107,000 and Donald's MBA cost at $224,000. However, they will not be paying these extra loan amounts off the first day out of school. No, they will likely take a while...10 years is an often cited period for repayment, so let us stick with that.
At the end of repayment, Daffy will have paid $148,000 and Donald will have paid $309,000. We will ignore the time value of money and what they could have invested that money into instead of pay off their extra debt.
Let's throw in a little opportunity cost, assuming they are the same age at enrollment and both retire at 60, Daffy has lost 1 year of wages and Donald has lost 2 years of wages. Now, at this point, we could get technical. We could establish their specialties, their taxing bracket, their deductibles, their return on savings, etc. (for the year/s of lost wages)...or we can save a lot of time and just estimate them at $150,000 per year (post-tax, all-inclusive of compounding investments, etc.). With that said, Daffy has an opportunity cost of $150,000 from lost wages and Donald has an opportunity cost of $300,000 from lost wages.
Okay, so what was each of our friends total cost?
Daffy: $148,000 (actual) + $150,000 (opportunity) = $298,000.
Donald: $309,000 (actual) + $300,000 (opportunity) = $609,000.
So was the MBA worth its cost for these two professional students? At first glance [and after you pick your jaw off the floor], perhaps a resounding "no" came out of your mouth. Nevertheless, this is where we need to go back, consider the benefits, and consider what we do not know... We do not know the future. Did Daffy ever pursue his interests in venture capital? Maybe his newfound acumen led him to a once-in-a-lifetime opportunity and he became a millionaire: his investment paid off. Maybe his MBA only made him an extra 30k [post-tax, no investments] per year (note: quantifying like this will never be that simple in real life), in which case he broke even after ~10 years (assuming he didn't pay extra on his loan) and started earning a profit, subsequently. Maybe he never broke even.
What about Donald? Well, as I mentioned at the beginning of this article, Donald did not really need an MBA to run a successful private practice. Nevertheless, maybe he had some groundbreaking ideas that changed the way he offered his services and he did turn a profit from his $609,000 investment (but, most likely not). However, Donald had that extra little facet of his benefit -- he wanted the MBA because he thought it was "cool". It offered him some sort of intangible worth. Was that self-fulfillment enough to cover his $609,000 investment or did he make the worst financial decision of his life? The answer to that question depends completely on the answer to another question: Was his last name Duck or Trump?
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