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Why Doctors Don’t Want Free-Market Medicine
You may have heard that the AMA and “America’s physicians” favor universal health care. That’s true of the AMA, but that organization represents fewer than 20 percent of the nation’s doctors. And it’s true of many academic university physicians, but anecdotally it is obviously untrue of most doctors in private practice. Many of those docs desire to “get government out of medicine.”
But those physicians have a problem, of a sort that “getting government out of medicine” doesn’t solve.
I’ll describe the problem in a moment; but first, an economic interlude:
When special interests get special grants of power from government, they benefit, of course. But the benefits—what economists call rents—are not static. Over time they tend to dissipate, because the prices of the factors of production required to obtain them are bid up. A new market equilibrium is formed. Some examples:
- The chattel-slave system present during the first century of this country’s existence gave the lie to the noble words of the Declaration of Independence that all men are created equal. I have much sympathy for abolitionist William Lloyd Garrison’s famous epithet that, because it sanctioned slavery, the Constitution was a “covenant with death and an agreement with hell.” But slavery persisted. Economic historians have asked why. Nobel laureate economist Stanley Engerman, in his work Time on the Cross, coauthored with Robert Fogel, investigated the tricky economics of slavery. Do slaves financially benefit the slave owner? One would think they must, and at first that had to be true. But one had to purchase slaves. What is the “market price” of a slave? In theory it would be the same as with any other long-term capital good: the discounted marginal value of the revenue stream the slave could generate over his lifetime of work. People who bought slaves before markets were well established may have benefitted, but over time the economic benefits of slavery were transmitted down the structure of production. So the slave owner ended up paying, on average, the discounted value of what the slave would end up producing. This is not to say that slave-owners therefore had no interest in maintaining the slave system. While not making large profits in holding slaves, they were at risk of incurring large capital losses if slavery ended.
- Few people think today that Social Security is a good deal. Young people doubt it will be around when they retire. Middle-aged people and those recently on Social Security know they could have done better had they been allowed to invest the money themselves in a diversified low-risk portfolio. Granted, those who turned 65 in the early years after FDR began the program benefitted, as they received benefits without incurring costs. But those days are long gone. Now people on Social Security may only break even, and surely in the future they will suffer a financial loss. Nonetheless, current recipients don’t want the system to end, because they’d lose even the little money they’re counting on.
- In New York City and other large metropolitan areas, before you can legally drive a taxi, you have to purchase a medallion (license) from the government. The nominal price of a medallion is not high, but to restrict the supply of cabs the municipality sharply limits the number sold. So (as with ticket scalping) in the resale market the price is much higher than the face value, sometimes several hundred thousand dollars or more. The system benefitted the taxi companies operating at the time licensing was enacted—unsurprisingly, these were the very companies that lobbied for them—because restricting medallions restricted taxi supply and increased the amount the companies could charge their customers. But it didn’t help make a larger profit for the taxi owners who came along later, because the larger fees they were able to earn from a lower supply of cabs were offset by the exorbitant cost of the now-expensive medallions. And yet, although making only market incomes, the current taxi owners have every incentive to maintain the medallion system because eliminating it now would cause them an even greater loss when the market price of medallions fell to zero.
What does any of this have to do with medical care? Medical licenses are like taxi medallions. The AMA assiduously sought the licensing of medical professionals from its very beginning in 1847. At that time, ironically, schooled physicians had little more to offer patients than charlatans did and often caused more harm than good through what was known as “heroic therapy,” treatments like leeching and the use of arsenical purgatives. Finally, about a hundred years ago, medical services were cartelized. After the release of the Flexner Report (1910), the number of medical graduates declined by approximately half over the next decade, a decrease falling disproportionately on minority and female physicians.
How Much Training?
The question is not whether it’s a good thing to have better-trained doctors; the question is whether overtraining is possible, and how to know without market competition whether we’ve reached that point. A recent physician survey asked if doctors thought every M.D. needed all the training he received to be able to provide high-quality care. Many respondents answered no.
Perhaps doctors as good as those currently practicing could be trained in six or seven years—rather than the 12 or more today. Perhaps a combination of less human training but better computer diagnostics would be of value. Perhaps an apprenticeship model would work better than the current didactic educational model. Without a competitive market, there’s no way to tell.
No doubt most physicians are sincere when they say they can’t imagine a system with less training that would protect the patient from charlatans. But it’s also true most citizens under Soviet rule couldn’t imagine how shoes would reach market without central command, and no doubt at least some plantation owners were sincere in their concern that if slavery ended, the slaves would not know what to do or where to go.
Most everyone has met a bad doctor. And yet he, too, spent four years in medical school and passed the boards as presently constituted. If quality were the only consideration, isn’t that evidence that four years plus residency is not enough? Should medical school be eight years long? The point, of course, is that extra training before practice has a cost as well as a benefit.
Just as the economic rent (the excess earnings over the amount necessary to keep the factor of production in its current use) from taxi medallions was dissipated over time as the cost of obtaining the medallions increased, so too the economic rent of a medical license over time does not go to doctors but rather to those who can charge doctors more to meet the license and practice requirements. In the decades after Medicare spending increased the income of physicians, the price of medical school skyrocketed. So while licensed doctors made more money, becoming a doctor with a license cost more money. Doctors all complain about the high cost of malpractice insurance, but few realize that one reason such insurance commands a high price is that doctors can pay it.
Trouble Breaking Even
Current doctors have all paid huge costs to be where they are today. Yet many of them describe trouble breaking even financially, even though the average doctor makes a great income compared to the average American. Like those currently collecting Social Security, they would be hurt by a change in the system that lowered their incomes.
So most doctors do not really want “less government” in health care. They want the type of government control and regulation that restricts supply and limits innovation to that which directly benefits the medical cartel. They don’t want nurses doing things—even simple things—without physician supervision for the same reason dentists don’t want dental hygienists to do even simple basic cleanings without dental supervision. They prefer to view ancillary personnel as subordinates rather than competitors. Like most other licensed professionals, they complain only about the regulations that harm them to the benefit of others, not those that benefit them at the expense of others.
Society was better off ending slavery and would be better off ending the Ponzi scheme of Social Security and the legal cap on taxi medallions. But there are always special interests who will be hurt by socially beneficial reforms. No one likes to see himself as a special interest. But physicians as a group would likely be financially harmed by a true free market in health care, one that ended not only the burdensome regulation doctors all complain about but also the restrictions placed on who is legally allowed to offer services labeled as “health care,” restrictions that redound to physicians’ benefit.
Fortunately for the physicians, almost no one is calling for a free market in health care. Doctors want regulations that free them to practice as they wish, while still having the government assure that everyone can get health insurance and thus pay doctors for practicing as they wish. Patients want as much care as they need and desire, paid for by others. Insurance companies want to maintain their cozy relationships with state regulators, built up over years, and not have to compete nationally, and are therefore opposed to calls to end the prohibition of interstate sales of health insurance. Everyone calls for help from the State, which, as Bastiat pointed out, is the fiction by which everyone tries to live at the expense of everyone else.
Pingback by Interesting Links: 2 July 2010 – Economic Thought on 2 July 2010:
[...] Theodore Levy, “Why Doctors Don’t Want Free-Market Medicine“. [...]
Comment by Dennis on 5 July 2010:
As a member of the medical community, I applaud your article Dr. Levy. Not only can physicians not see that licensing and regulation actually hurts them, they generally believe that Medicare is a good thing. It seems that many physicians refuse to believe that Medicare probably has the greatest culpability where health care costs are concerned. Medicare has also led to a major increase in the number of subspecialists due to easy access for patients. Just look at the growth in the number of orthopods, ophthalmologists, and invasive cardiologists over the past 25 to 30 years. I have no problem with patients utilizing these specialties. It is simply immoral to force others to pay the bill.
Comment by kbrown on 5 July 2010:
Excellent article!! I’ve been hearing patients say this about restriction of medical licenses, and didn’t really get it, until now.
Comment by YHaw on 5 July 2010:
It’s misleading at best and inflammatory at worst to generalize the desires of “most doctors” wanting anything. Speaking as a former member of the AMA one of the biggest problems in maintaining membership is that physicians’ practice environments vary so widely it is impossible to let the conservative, moderate, or liberal physician to ever truly feel her/his needs are represented. The only thing they had in common was that they were opinionated, and that is why the AMA speaks for a small fraction of practicing physicians.
A reference is in order for the paper stating “most doctors” would prefer shorter training, because this opinion survery would be heavily influenced by physician specialty, personal debt, when in the last 20 years s/he trained because these would all be important confounding factors among others.
The taxi medallion analogy is also incorrect because there is no system in place that comprehensively regulates the absolute number of doctors in operation. Though the number of American medical graduates is limited to the size of medical school classes, there is not a meaningfully small restriction on physicians entering from abroad, a training route many American nationals pursue. Certification exams are based on knowledge and skill (not quotas), and are universally applied to all candidates. The argument that demand is artificially elevated based on knowledge requirements holds as much water as claiming that any law, commerce, or other professional school does the same thing. If there is any question that duration of training is important, history is rife with cases of physicians whose inadequate training led to disastrous consequences, the Libby Zion case, the sad story of David Reimer’s original injury, and instances of nonboarded doctors performing cosmetic surgery being examples.
To call physicians hypocrites for wanting less government involvement and yet ongoing regulation is to levy the same charge against any taxpayer, athlete, or motorist. Just as the characterization of physicians is oversimplified here, so have been the myriad reasons for remodeling the regulation of medicine. Regulation costs resources–personnel, money, time, etc. These are of course precious in today’s practices and may save some people from mistakes while compromising patient care for everyone. Vigilance and flexibility is needed in tuning the system to the needs of everyone, and if people are unhappy with these costs now clearly more work must be done.
Arguably, the proliferation of physician assistants, nurse practitioners and nurse anesthetists clearly underscores that most physicians are NOT opposed to access to other care providers who can make medical decisions, since these people are being hired by physicians in the first place. The question of expanding their privileges to me seems more grounded in whether or not they can carry the same medical legal responsibility with less training. Given that litigation against providers frequently expands to include all involved parties, the question of expanding physician extender autonomy in general is the same as whether or not to hire a new doctor to the practice and what risk s/he brings. In most cases there would likely be no difference in care, and these groups would likely seek fair compensation. If these extenders are “liberated” from physicians and be considered in a separate insurance risk category as independent of doctors, and if practices retain the right to determine the extent of extender duties based on risk, I think it would contribute greatly to their cause for automnomy. If this in turn leads to a change in the training of new physicians to meet the needs of the people, I would welcome it as well.
Comment by kbrown on 5 July 2010:
YHaw, respectfully, I think you missed the point of the article. I do want and plan to practice “free market” medicine, as do many other physicians, but it isn’t an easy road. I really would like to have “free market” health insurance, also, but it isn’t currently available to me. The market is terribly messed up, in large part due to government intervention over the years. That is the main point of the article, I think. A desire for liberty and a devotion to the idea that a doctor should only serve the needs of the patient and nobody else are necessary.
Comment by Camden McConnell on 6 July 2010:
In a similar vein, it is interesting to reflect on the U.S. invasion of Grenada in 1983. The ostensible reason offered was that the invasion was necessary to protect the lives of American citizens studying in Grenada. Who were these Americans and what were they studying? The answer is, they were medical students, studying medicine at St. George’s University, apparently a well-thought of medical school. These Americans represent a portion of those qualified and motivated would-be medical students who fail to obtain one of the limited number of spaces at American medical schools. And, who is behind the limitation on number of spaces? My understanding is that the AMA, through its accreditation for professional licensing is the hidden controller of all for American medical schools. If I am wrong, perhaps someone can enlighten me.
Comment by nbaesel on 7 July 2010:
This is a great article, there are some great insights here. I am an Acupuncturist by profession and I’ve been run through the state licensing grinder in three different states. The brutal irony is that the majority of states use a private certification from the National Certification Commission of Acupuncture and Oriental Medicine (NCCAOM) as the main requirement for licensing. The NCCAOM issues a quality credential based on educational requirements and required exams. What I can’t get over though, is why I need to get both a private certification (which is rather expensive to obtain) AND a state license that is really nothing more than a mandate to go get an NCCAOM cert. and then pay some steep fees to the government as well as fess up fingerprints etc. This license must then be renewed by keeping the NCCAOM cert. current (which requires CEU’s and $) and then paying the government for this privilege as well.
In one instance, the state of NV forced me to pay for, study, and pass the NCCAOM exam AGAIN. This was in spite of the fact I already possessed it and was current. The state claimed that because it had been more than 2 years since I’d passed it, I needed to do it again. I had to call the NCCAOM and explain it to them about five different times why I needed to pay for their test and take it again even though their records showed I had done this already and was currently in good standing. The irony of all this is that, in most states, MD’s can practice Acupuncture with as little as 200 academic hours of training and do not have to take the NCCAOM exam (which they would surely fail.) By contrast, I have 4000+ hours of accredited study and possess a MS degree in Oriental Medicine from the oldest Acupuncture college in the USA.
Comment by Joe on 7 July 2010:
The only thing the Federal government should of and lawfully could of done was eliminate State restrictions on interstate purchasing of insurance. This is one time when the commerce clause applies, naturally they ignore it.
Comment by YHaw on 25 July 2010:
Hello khbrown, it is clear from your article that you would like a free market system in place for provision and reimbursement for health care. However there is no system that restricts absolute physician numbers in the country, so the only significant limiting factor dictated by accrediting agencies is individual competence. Therefore it is not entirely fair to accuse medical associations of preventing free market practice when they don’t limit the total supply of physicians to the people.
Regarding Mr. McConnell’s post, the Liaison Committee on Medical Education licenses and accredits medical schools. It is supported in part by the AMA, but is a separate body with independent decision making. They do not govern osteopathic medical schools, so they do not control all US medical school openings. Many people who attend Caribbean medical schools return to the US to practice, so this also does not limit physician supply in the US. Hope this helps.
Comment by Hans on 26 July 2010:
Dr. Levy states: “The chattel-slave system present during the first century of this country’s existence gave the lie to the noble words of the Declaration of Independence that all men are created equal.”
Thomas G. West’s book, Vindicating the Founders: Race, Sex, Class, and Justice in the Origins of America offers a different viewpoint.
Quoting extensively from the Founders as well as from Abraham Lincoln, West concludes:
“Lincoln was right, and today’s consensus is wrong. America really was ‘conceived in liberty, and dedicated to the proposition that all men are created equal.’ Under the principles of the Declaration and the law of the Constitution, blacks won their liberty, became equal citizens, gained the right to vote, and eventually had their life, liberty, and property equally protected by law. But today the founding, which made all of this possible, is denounced as unjust and antiblack. Surely that uncharitable verdict deserves to be reversed.”
Comment by doofus on 2 August 2010:
I am a general internist in Texas, and while I and most of the readers of this website are all for less government, medical licensing should not be abolished for libertarian motives, just as completely doing away with all government regulation would be unwise. We’ll never get close to that end, not in this life, and most of us libertarians would be anarchists by most peoples’ standards.
The costs of the current medical licensing system, with its assurance to patients of some level of minimum competence of professionals (usually, not always) is probably less than the costs of a completely unregulated system. I don’t think the same arguments apply to all of the government licensing schemes for manicurists, hairdressers, and every other job under the sun. The costs of incompetence typically aren’t even comparable.
Medicare is a repressive and doomed system which has, however, especially in the early days of the program, enriched many physicians far beyond what a free market would pay them (still the case for some specialties). But now the worm has turned, and government price controls have produced a system in which many primary care physicians are earning about what a pharmacist makes. I’ll take my licks in the marketplace any day.
As for nurse practitioners and midlevels, I have worked with many of them. They are completely incompetent to provide safe and effective medical care. They have no idea what they are doing – absolutely none, and this opinion is widely shared by my colleagues. But if people want to see them for health care, let them do so and suffer the inevitable consequences.
Why do doctors employ them? Because the government which controls most payment in our health care system has deemed that midlevels get paid almost as much as doctors. The midlevel thing is almost competely driven by our idiotic government. So some physicians hire them at half a doctor’s salary and they bring in about as much money in fees as a doctor would. Big profit for the doctor, but doctors who do this are just perpetrating a dangerous fraud on patients in return for money. A pox on them. I’m not happy with my income, but I’m not willing to do anything dishonest to get paid more, especially something which might harm innocent people.
Comment by David Castlen on 19 August 2010:
I had a professor of economics while at Murray State University (1969) that used to say that the biggest union that has the greatest economic impact (negative) was the AMA. And he used the same argument that you have: restriction of entry via excessive requirements.
I cannot understand why your argument is not in the forefront of our current discussions about health care.
Thank you.
Comment by Joe Schmoe on 23 August 2010:
@ YHaw, can I ask you a few questions about your experience in the AMA? As an outsider to the industry I’ve certainly not any experience or knowledge to say for sure what’s wrong with Health Care costs in the US, but I’ve been reading a lot of different articles about all the different monopolies that exist in the industry and making projections on how they might affect the cost of Health Care. I was wondering if I could have insider confirmation on my fears.
For one, the monopoly that M.D.s have over practicing in the industry is undoubtedly the biggest factor in raising costs, thanks to the costs of malpractice insurance & entry requirements, as indicated in this article. I would happily accept basic healthcare & procedures (including basic drug prescriptions) from less-trained people and sign a waiver against suing for malpractice, and the fact that there is no choice in the matter is pretty ridiculous: if people are that scared of it they simply won’t go for it. But health care is not affordable for so many people and I don’t see any other way. What do you really need 15 years of training for?
Another monopoly I noticed regarding the AMA is that they have what they call the CPT system (current procedure terminology) that the Federal Government requires the use of for all claims from healthcare institutions for the govt’s Medicare & Medicaid programs (it’s a little more complicated but that’s the gist of it). I hazard a guess that the procedures that they approve for this CPT system are probably the most expensive & time consuming, and since every institution has the CPT system, what procedures they approve are probably what is considered the industry standard. How much, in your opinion, does the CPT system affect the cost of Health Care?
In addition, the high costs associated with the FDA’s drug approval process (and the in-my-opinion huge possibility that it’s been hijacked already by Big Pharma to pander to special interests) mean that the entry requirements are huge, encouraging an oligopoly of drug companies and jacking up the price of medicine, at least from my research. What is your opinion on this?
Finally, and you might hate me for using the word “allopath”, but I think there’s far to much emphasis placed on allopathic treatments in the U.S., partially because of the M.D. monopoly. I’m sure we could be much healthier if we adjusted our diets & used natural herbs, tried massage therapy over painkiller use, and focused on mental health as well (as I’ve seen plenty of studies linking stress and mental well-being to diseases like cancer). What is your opinion on this? Allopathic treatment seems to focus a lot on treatment and symptoms rather than prevention and causes, at least according to its critics!
Also, might I comment on a few of your posts for clarification?
“The taxi medallion analogy is also incorrect because there is no system in place that comprehensively regulates the absolute number of doctors in operation. Though the number of American medical graduates is limited to the size of medical school classes, there is not a meaningfully small restriction on physicians entering from abroad, a training route many American nationals pursue.”
Certainly not a hard cap, but I would argue that the influence of the giants of the industry on the schools is certainly great.
“The argument that demand is artificially elevated based on knowledge requirements holds as much water as claiming that any law, commerce, or other professional school does the same thing.”
I would agree with you, but most professional schools don’t have a state-granted monopoly. Professional schools have little incentive to limit supply if their degrees are competing with other degrees, as that lowers their profits. I can run my own business without any schooling at all, or with a community college degree, or with an undergraduate: I can’t run my own medical business without being an MD (or a DO). If any sort of payment goes on between any big players in the industry and the various schools that offer the degrees (which it probably does), the schools can disguise limited supply in the form of really tough tests, and nobody can criticize them on it.
“If there is any question that duration of training is important, history is rife with cases of physicians whose inadequate training led to disastrous consequences, the Libby Zion case, the sad story of David Reimer’s original injury, and instances of nonboarded doctors performing cosmetic surgery being examples.”
That would be comparable to claiming that we should regulate the automobile industry since people die in car crashes all the time. Or, we can leave it up to the industry who has several dozen safety accreditation organizations who will back the safety of the car with a star rating system (or whatever). Sure, some trial-and-error occurs, but, lacking government intervention, the market always solves the problem better than the government.
“Vigilance and flexibility is needed in tuning the system to the needs of everyone, and if people are unhappy with these costs now clearly more work must be done.”
The only way flexibility & vigilance can be achieved is through the free market, in my opinion. The government can never provide one-shoe-fits-all solutions and the market rarely fails at giving everybody what they want.
“The question of expanding their privileges to me seems more grounded in whether or not they can carry the same medical legal responsibility with less training.”
They would, in my eyes, have much less responsibility given that what they’d be doing would be far more standardized and simplistic.
Also, a minor comment for Doofus:
“As for nurse practitioners and midlevels, I have worked with many of them. They are completely incompetent to provide safe and effective medical care. They have no idea what they are doing – absolutely none, and this opinion is widely shared by my colleagues. But if people want to see them for health care, let them do so and suffer the inevitable consequences.”
I would argue against this from my perspective, as I have been treated almost exclusively by nurses for pretty much every minor thing I have gone to the hospital for, everything from broken bones, sprains, & infections, to general health advice like stretches to improve blood flow & heal damaged muscles. Obviously I would not leave surgeries or diseases in the hands of nurses but I’m young and it will be a while before that happens. I don’t know what the doctor of this establishment does, but I rarely actually see him and receive most of my basic care from the nurses!
The fact that they can command half a doctors pay is pretty startling, and the fact that the government orders & authorizes it is even worse. Something else to mull over, perhaps…
Comment by Brian on 24 August 2010:
One factor that has not yet been discussed is that government, not a market, has decided that 16 years of school is required before one can even begin to train as a physician (or lawyer or you name it). Of course I don’t know, but I suspect that a market driven system might come up with a “competitive” solution that would shorten those years, at least for some of the hardest working and/or smartest and/or most gifted.
Comment by Cole on 25 September 2010:
“medical licensing should not be abolished for libertarian motives, just as completely doing away with all government regulation would be unwise. We’ll never get close to that end, not in this life, and most of us libertarians would be anarchists by most peoples’ standards.
The costs of the current medical licensing system, with its assurance to patients of some level of minimum competence of professionals (usually, not always) is probably less than the costs of a completely unregulated system.”
I simply don’t understand this. What does medical licensing accomplish that passing medical school doesn’t? I’ve heard of plenty of bad doctors who were licensed, so it certainly isn’t a matter of quality. It doesn’t stop mistakes and malpractice from occurring. You may say that it prevents people who aren’t actually MDs from pretending to be so, but that’s not true either. Fraud is fraud, and therefore lying to a potential patient about having graduated medical school is no different from lying to a potential patient about being licensed, and the licensing system hasn’t prevented this sort of fraud from happening, and never will.
I have yet to see a consistently valid arguement for licensing in any industry.
Comment by Dr. Dan on 17 November 2010:
Cole, licensing of doctors is all about “protecting” turf and compartmentalizing healthcare to maximize consumers’ “consumption” of medical procedures and insurances. It helps big-industry get more “crops” from the “farms” that are Americans’ bodies… Think how selling a car in parts gets more than selling the whole car as a unit.
You are correct in that licensing does very little about competency but it definitely restricts ingenuity and better care. Licensing Boards come down hard and oppress any licensee who offers a better way and better results. It is all about making healthcare a commodity within each profession and limiting advancements within or between any profession, so that the turf lines between professions stay definitively marked…
The end-goal is to get more control of commerce and more control of people to maximize big-industry’s profits. All of this occurs under the watch of Joe Politician who in-turn gets funds for his re-election, compliments of big-industry…
Even so, American doctors and healthcare providers can still legally bypass the system if they want to and learn how to – and offer better care as a result, in a real free-market. Of course, they had better be more-than “good” but “great”. Why? Because Americans have been brainwashed into thinking the license is there to ensure professional competency. Competency-assurance is actually an afterthought of licensing at-best. The politicians tell people that down is up and up is down and the people believe it when they choose to live in a democracy. Yes, it is a CHOICE to live in a democracy in America, not a requirement. You can still live as a sovereign in America instead if you want to, and learn how to. You must however have a thick skin and almost make “Individuality” your middle name if you choose to live free.