Licensing and Laissez Faire
Case 4.2 Licensing and Laissez Faire
The United States is a capitalist country, and our system of medical care is, to a significant extent, organized for profit. True, many hospitals are nonprofit, but the same cannot be said of doctors, who, judged as a whole, form an extremely affluent and privileged occupational group. Sometimes physicians themselves seem a little uncomfort-able about the business aspect of their professional lives or worry that outsiders will misinterpret their attention to eco-nomic matters. For example, the professional journal Medical Economics, which discusses such pocketbook issues as mal-practice insurance, taxes, fees, and money management (“ Are You Overpaying Your Staff?” is a typical cover story), works hard at not being available to the general public. When a sub-scriber left his copy on a commercial airliner, another reader found it and sent the mailing label to the magazine; the maga-zine’s editor sent a cautionary note to the subscriber. The editor advises readers to “ do your part by restricting access to your personal copies of the magazine. Don’t put them in the waiting room, don’t leave them lying about in the examination rooms, and don’t abandon them in public places.” 73 Medical Economics probably suspects that even in our capitalist society many people, including probably most doc-tors, would not like to think of physicians simply as medical entrepreneurs who are in it for the money. And, indeed, many people here and many more in other countries criticize our medical system for being profit oriented. They think medical care should be based on need and that ability to pay should not affect the quality of medical treatment one receives. Interestingly, though, some people criticize medical practice in the United States as being insufficiently market oriented; prominent among them was the late Milton Friedman, a Nobel Prize– winning economist at the University of Chicago. Friedman was a long- standing critic of occupational licen-sure in all fields. His reasoning is straightforward: Licensure— the requirement that one obtain a license from a recognized authority in order to engage in an occupation— restricts entry into the field. Licensure thus permits the occupational or pro-fessional group to enjoy a monopoly in the provision of serv-ices. In Friedman’s view, this contravenes the principles of a free market to the disadvantage of us all. Friedman had no objection to certification— that is, to public or private agencies certifying that an individual has certain skills. But he rejected the policy of preventing people who do not have such a certificate from practicing the occu-pation of their choice. Such a policy restricts freedom and keeps the price of the services in question artificially high. When one reads the long lists of occupations for which some states require a license— librarians, tree surgeons, pest con-trollers, well diggers, barbers, carpet installers, movie projec-tionists, florists, upholsterers, makeup artists, even potato growers, among many others74— Friedman’s case gains plausibility. But Friedman pushed his argument to include all occupations and professions. Does this mean we should let incompetent physicians practice? Friedman would say yes. 75 In his view, the American Medical Association ( AMA) is simply a trade union, though probably the strongest one in the United States. It keeps the wages of its members high by restricting the number of those who can practice medicine. The AMA does this not only through licensure but also, even more effectively, through controlling the number of medical schools and the number of students admitted to them. Today, for instance, over 42,000 applicants vie every year for roughly 18,000 medical school vacancies. The medical profession, Friedman charged, limits entry into the field both by turning down applicants to medical school and by making standards for admission and licensure so difficult as to dis-courage many young people from ever trying to gain admis-sion. And, in fact, fewer students apply to medical school these days than in the 1990s. Viewed as a trade union, the AMA has been singularly effective. As recently as the 1920s, physicians were far down the list of professionals in terms of income; the average doc-tor made less than the average accountant. Today physicians constitute the profession that arguably has the highest status and the best pay in the country. The median income for pri-mary- care physicians is $ 157,000. For general surgeons it is $ 265,000. And in certain specialties, it is a great deal higher. Cardiologists, pain specialists, radiologists, hand surgeons, and others often earn over half a million dollars a year. 76 American doctors earn far more than their foreign counter-parts do, even in countries where average wages are similar to those in the United States. Still, the medical establishment remains worried. It believes that there are too many doctors in the United States, and that “ this surplus breeds inefficiency and drives up costs.” 77 The economic logic behind this proposition is murky. An increase in the supply of barbers, plumbers, or taxi drivers does not drive up the cost of getting a haircut, having your pipes fixed, or taking a cab. Why should it be different with doctors? Critics of the medical profession believe that its real worry is the prospect of stabilizing or even declining incomes. In any case, the doctors have written two prescriptions. The first is to reduce the number of medical students by closing some medical schools; the second is to make it more difficult for foreign doctors to practice in the United States. Although the medical establishment has often expressed concern about the quality of foreign medical training, today the worry is strictly a matter of quantity. “ We’ve got to stop the pipeline of foreign medical graduates,” says Dr. Ed O’Neil of the Center for the Health Professions at the University of California, San Francisco. “ They are a big chunk of physician oversupply. . . . We’re just trying to be rational.” 78 As for homegrown doctors, Congress followed medical advice. To stem the supposed glut, it decided a few years ago to pay hospitals around the country hundreds of millions of dollars to decrease the number of physicians they train. It now turns out, however, that the United States ( which already has fewer doctors per 1,000 people than do almost all European coun-tries79) is predicted to have a physician shortage of at least 125,000 by 2025.80 Medical licensure restricts the freedom of people to prac-tice medicine and prevents the public from buying the medi-cal care it wants. Nonetheless, most people would probably defend the principle of licensure on the grounds that it raises the standards of competence and the quality of care. Friedman would contest this. By reducing the amount of care available, he contended, licensure also reduces the average quality of care people receive. ( By analogy, suppose that auto-mobile manufacturers were forbidden to sell any car that did not have the quality of a Mercedes- Benz. As a result, people who owned cars would have cars of higher average quality than they do now. But because fewer people could afford cars and more of them would, therefore, have to walk or ride bicy-cles, such a regulation would not raise the quality of transpor-tation enjoyed by the average person.) Friedman charged, furthermore, that the monopoly created by the licensing of physicians has reduced the incentive for research, develop-ment, and experimentation, both in medicine and in the organization and provision of services. Since Friedman initially presented his argument, some of the alternatives to traditional practice that he proposed have come to pass; prepaid services have emerged, and group and clinic- based practices are on the increase. But what about his main contention that instead of licensure we should allow the marketplace to sort out the competent from the incompetent providers of medical services? Friedman’s critics contend that even if the licensing of professionals “ involves violating a moral rule” against restricting individuals’ “ freedom of opportunity,” it is still immoral to allow an unqualified person to engage in poten-tially harmful activities without having subjected the person to adequate tests of competence. 81 Despite the appeal of Friedman’s arguments on behalf of free choice, the danger still remains, they say, that people will be victimized by the incompetent. Consider, for example, the dietary supplements and bogus medications— things like “ healing gels” or “ iconic silver”— offered as preventions or cures for the H1N1 ( swine flu) virus. 82 Or the quack remedies and treatments peddled to AIDS patients here and abroad. Bottles of processed pond scum and concoctions of herbs, injections of hydrogen peroxide or of cells from the glands of unborn calves, the eating of bee pollen and garlic, $ 800 pills containing substances from mice inoculated with the AIDS virus, and even whacking the thymus gland of patients to stimulate the body’s immune system— all these are among the treatments that have been offered to desperate people by the unscrupulous and eccentric. Deregulation of the medical field seems most unlikely to diminish such exploitation.
1. What explains the fact that licenses are required for so many occupations? What do you see as the pros and cons of occupational licensure in general? Does it have benefits that Friedman overlooked?
2. Do you believe that licensure in medicine or any other field is desirable? If so, in which fields and under what circumstances? What guidelines would you use to deter-mine where licensure is needed?
3. Is occupational licensure consistent with the basic principles and values of capitalism? Is it a violation of the free- market ideal? How would you respond to the argument that licensure illegitimately restricts individual freedom to pursue a career or a trade?
4. Does licensure make the market work more or less effectively? Would you agree that as long as consum-ers are provided with accurate information, they should be permitted to make their own choices with regard to the services and products they purchase— even when it comes to medical care? Or is licensing necessary to protect them from making incorrect choices?
5. Friedman and others view the AMA as a trade union, and they believe that the high incomes of doctors are due more to artificial restrictions on the free market than to the inherent value of their services. Is this an accurate or fair picture of the medical profession? 6. Is licensing an all- or- nothing issue? Or is it possible that although only licensed professionals should be permit-ted to perform certain services, paraprofessionals and laypersons could perform less expensively but equally competently other services now monopolized by licensed professionals?
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