In most markets, quality regulation is not used. If you buy a pair of pants that is lower quality than you had anticipated, you simply will not frequent the store again. If the firm continues to offer low quality pants (at insufficiently low prices), few consumers will patronize the store and the firm will go out of business. The creation of a “fashion police” which would insure an adequate level of quality is unnecessary in a capitalistic society. The market will act as the quality arbitrator. Having a pants quality oversight board would be costly and would bestow political powers to those who where placed in charge of this fashion police.
In the medical field, however, conventional wisdom holds that believe that quality assurance is needed. Physicians must be licensed (graduate from medical school) in order to provide services. One rationale for this regulation is that a poor outcome from a medical provider can so adversely affect the lives of the consumer that regulation is imperative in order to prohibit physicians on the lower end of the quality distribution from practicing. A second rationale for the regulation is that consumers are not experts in the medical field and can not properly evaluate the quality of care they are receiving. An outside board is needed to evaluate quality for them.
Lee Benham describes the way physicians control quality in “Licensure and competition in medical markets” a chapter in the book Regulating Doctors’ Fees. There are three main mechanisms of quality control and Benham analyzes each in tern.
- Ethical Standards: Physicians are inculcated throughout medical school with a rigorous education in medical ethics. Yet even if all physicians abided by the ideal ethical standards, the quality of medical care may not improve greatly. The physicians are not trained in management, auditing, or decision analysis and thus directing the appropriate amount of resources to each patient may not occur even in the presence of a completely ethical physician.
- Medical Training – Medical School provides a rigorous education to all physicians. It is very difficult to gain entry into medical school–in 1988 only 10% of applicants with a GPA below 3.0 were admitted. Thus doctors are the cream of the undergraduate crop. Once the physicians arrive in medical school, however, the total attrition rate is less than 3%. Further, physicians have a disincentive from taking any difficult classes not required for medical school (such as mathematics or statistics) since these classes are generally difficult and receiving a poor grade in a class not required for medical school can lessen the chance one will gain entry into medical school. Yet statistics training is often needed to evaluate the efficacy of a medical procedure.
- State Licensing Boards: These are the weakest link of the quality control scheme. Benham reports that Florida spent only $41.70 per doctor in monitoring costs in 1983. Further, since these boards are made up of physicians, state licensing boards are self-policed. Of 270 allegations of physician misconduct brought to the attention of the Wisconsin Medical Board in 1982, only 1 was raised by the state medical society and the defendant in the case was a chiropractor.
Is licensing succeeding? I am not sure. It is likely that physician quality has improved as a result of licensing, but licensing likely has also increased the cost of medical care. Also, even if average physician quality has improved, there are still many incompetent doctors practicing. California’s Board of Medical Quality Assurance director Robert Rowland stated that “10 percent of the physicians who are practicing now should not be practicing without some kind of restraints–either a rehabilitation program, limits on surgery, or some other oversight practice.” The New York state commissioner of health, David Axelrod, said “As many as ten percent of the state’s 45,000 practicing physicians are either mentally or physically impaired or incompetent at some point in their careers.
- Frech, H. E. (1991) Regulating Doctors’ Fees: Competition, benefits and controls under Medicare, American Enterprise Institute, Washington, D.C., pp. 75-96.