Milton Friedman, in his influential work Free to Choose, puts forth the premise that restrictions on medical licensure and the numbers of physicians in training by the AMA is one of the principal reasons for spiraling health care costs and diminishing quality. In a truly free health care market, the consumer would be free to choose from a large number of health care providers – physicians, non-physician health care providers such as nurse practitioners, midwives, chiropractors, and alternative medicine providers. Competition would drive down prices, and those providers with the highest quality and best service would succeed.
While I respect Milton Friedman, and believe in the power the free market, the law of supply and demand only works in a truly unrestricted free market.
American medicine is far more regulated than Soviet state industry ever was. The idea that physicians fees and resulting healthcare costs will magically drop if somehow the AMA loosens up the supply of physicians (which I am not all convinced is done for purely economic reasons, although no fan of the AMA in general — and not a member) is a fantasy. The vast majority of physicians fees are fixed either by federal regulation or contractual agreement with insurance companies. At the same time, physicians are businesses like any other, with rapidly escalating overhead costs which are beginning to bump against their virtually fixed – or falling – receipts. The reasons for this have been well described, and include spiraling malpractice premiums, unfunded federal mandates such as federal compliance and HIPAA, increasing health insurance costs for employee benefits, as well as a relatively scarce pool of highly qualified employees such as nursing and billing specialists. Opening the floodgates of physician supply will not drop prices, since prices are not determined by the usual supply and demand principles, but rather by federal law and an increasingly monolithic health insurance industry.
In my state, Washington, there were over 80 insurance carriers providing health insurance in the late 1980s. There now are three or four. Single insurers now cover huge swaths of the patient market, and therefore physicians have no flexibility to negotiate contracts. Imagine walking away from a bad insurance carrier contract, when 40-50% of your patients are covered under that plan (and will switch doctors if you’re no longer on their plan), and you begin to get the idea. Keep in mind that doctors are currently prohibited from collectively bargaining with insurance carriers under antitrust laws, and you can see how unbalanced the marketplace truly is.
Increasing the supply of physicians would in fact likely result in a rise in healthcare costs, as desperate physicians increase volume in an attempt to compensate for worsening financial viability.
Another myth related to the economic arguments for licensure liberalization is that of alleviating the problem of physician shortages in underserved markets, such as rural America. No offense to folks who live in small towns, but I doubt that physicians will flock to tiny rural villages simply because the AMA lets more doctors be trained. Cities have large populations precisely because they offer greater benefits to those who live there — financial, cultural, convenience, lifestyle. While the urban lifestyle is not for everyone, economics and personal lifestyle preference dictate physician distribution far more than absolute numbers.
Licensure restrictions — while certainly having the potential for conflict of interest and market domination – do in fact serve to standardize quality and predictability of physician care, albeit imperfectly. Anyone who has struggled to figure out who a good physician might be for their particular medical problem can imaging the situation when all bets are off — is the physician you selected adequately trained to bypass your coronary arteries, or remove your brain tumor, or simply a charming, good-looking con man? A low-cost brain surgeon somehow doesn’t sound like such a great bargain. Airline fares would drop, too, if you loosened the license requirements for pilots and flooded the market. No more overpaid pilots. All aboard, anyone?
Further undermining this argument is the fact that a vibrant market in alternative health care already exists. Billions of dollars are spent on remedies, herbs, manipulations, and treatments which are rarely beneficial, often worthless at best or harmful at worst, promoted using misleading advertising or by playing on false hopes or patient desperation (how many weight-loss products are there? How many work?) This is the free market at work, at its best – unregulated, unlicensed, unrestricted, unaccountable. Let the buyer beware.
There is no free lunch. Quality health care is expensive, and requires reasonable regulation — and therefore restriction – of providers to minimize the risks associated with highly complex advanced health care. Conspiracies about the AMA are superficially attractive, but it’s time to look elsewhere for answers to our growing health care crisis.