Licensure

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Physician licensure and quality: Part III

November 27, 2006 in Academic Articles, Licensure | Permalink

What is the purpose for licensing physicians?  For the general public, the answer seems obvious: society must prevent individuals from consuming low-quality health care.  From the economist’s point of view, this reasoning is not very compelling.  If individuals are looking out for their own best interests, it would be illogical for them to consume low-quality medical care if this is this is not in their best interests.  A seminal paper by Thomas Moore (1961) claims that there are three major classes of justifications for licensing. 

I. Lack of information or misinformation.  

One possibility for why licensing is needed is that individuals do not have complete information of the quality of their doctor.  From my experience, this seems entirely reasonable.  Did my health improve because of my doctor’s adroitness or did my body heal itself?  Am I getting since because I am getting old or because my physician is not caring for my health adequately?  The question remains, however, whether licensure is the proper means through which to cure this informational problem. 

I agree with Moore who claims that licensure is sub-optimal.  Licensure only “establishes minimum qualifications for entrants” and does not “give any information concerning the difference between practitioners above the minimum entrance requirements.  Further, licensure restricts the supply of medical care, thus increasing the price.  Certification would allow the consumers to see which doctors are high and low quality, without restricting the individual’s choice of physician.  On the positive side, in modern medicine certification may be more of a de facto quality control than licensure.  A family practice doctor is not legally prohibited from performing cardiac surgery, but most consumers and insurance companies will only pay for cardiac surgery performed by a board-certified cardiologist. 

Moore claims that certification should be used in industries with the following characteristics: 1) greater variation in service quality, 2) greater possibility of harm from poor service, 3) more training needed to evaluate the quality of the service rendered, and 4) fewer frequency of contact between the consumer and the provider.

II. Paternalism

Moore divides the paternalistic argument into two groups.  The first claims that “the individual, if he had perfect knowledge…would know what is best for himself” but the individual does not have perfect foresight; the second claims that even if the individual had perfect information they “would still not be the best judge of his own welfare.”  One can make a compelling case for licensure based on the first scenario.  If I believe that alternative medicine gives me the best chance of improving my health, but in reality traditional medicine offers me the greatest likelihood of health gains, it may be welfare improving for the government to outlaw alternative medicine (i.e.: license medical providers only of the traditional variety).  This is of course predicated on the fact that the government actually know best and acts altruistically.  If alternative medicine provides a superior quality of care to traditional medicine, however, outlawing alternative medicine would be welfare destroying.  The argument Moore makes in his paper is similar to mine, but he claims that “individuals are overly optimistic in evaluating the expected results of their actions” and thus may not be acting optimally.  By licensing, the government may eliminate choices which short-sighted individuals may elect, but which are not welfare maximizing.  [For an example how to model myopic behavior, see the hyperbolic preferences model developed by Laibson]

I would reject the second class of paternalistic arguments (‘big brother knows best always’) as coercive.  As Moore states, “If the individual is not the best judge of what is best for him, then what is best and who is to decide?”

III. Externalities

One common reasoning cited for the imposition of licensure is externalities.  In particular, many people claim that if an individual receives poor medical care and they become very sick, the state may begin to pay for this person’s medical treatment.  This is a fiscal externality which could have been avoided had the individual received higher quality care in the first place. 

Two issues would make a careful observer tentative to accept this reasoning.  First, if one assumes an individual wants to improve their health, than they would have an incentive to seek better quality care; it would be perverse to purposefully seek low-quality care in the effort to later receive government assistance.  More compelling is the author’s argument that “it is therefore necessary to argue as well that the harm done through purchasing from ‘incompetent’ practitioners is greater than the possible harm done through not purchasing the service at all.”  In a more contemporary setting, this is analogous to requiring a such a high level of care that insurance becomes unaffordable to many people. 

A true externality argument could be made in the case of contagious diseases, but in the West treating these diseases make up a relatively small portion of total healthcare spending. 

  • Moore, Thomas (1961) “The Purpose of Licensing” Journal of Law and Economics, vol 4, pp. 93-117.

 

Physician licensure and quality: Part II

November 22, 2006 in Economics - General, Licensure | Permalink

When traveling from San Diego to Milwaukee for Thanksgiving, my flight was delayed two hours.  While this was an inconvenience, it did provide me with the opportunity to finish the book Capitalism and Freedom by Milton Friedman.  The book espouses a libertarian point of view; this point of view is one which is currently held by many economists but one which at the time of publication (1962) was revolutionary in the face of the growing sympathy towards socialism and the Soviet Union. 

The book also examines the merits of the system of licensure which is practiced in the field of medicine.  Below are some excerpts:

“In practice, the major argument given for licensure by its proponents is…a strictly paternalistic argument that has little or no appeal.  Individuals, it is said, are incapable of choosing their own servants adequately, their own physician or plumber or barber.  In order for a man to choose a physician intelligently, he would have to be a physician himself.  Most of us, it is said are therefore incompetent and we must be protected against our own ignorance.  This amounts to saying that we in our capacity as voters must protect ourselves in our capacity as consumers against our own ignorance, by seeing to it that people are not served by incompetent physicians or plumbers or barbers.”

“If ‘medical practice’ is to be limited to licensed practitioners, it is necessary to define what medical practice is, and featherbedding is not something that is restricted to the railroads.  Under the interpretation of the statutes forbidding unauthorized practice of medicine, many things are restricted to licensed physicians that could perfectly well be done by technicians, and other skilled people who do not have a Cadillac medical training.”

“If you are a member of the profession and want to stay in good standing in the profession, you are seriously limited in the kind of experimentation you can do.  A ‘faith healer’ may be just a quack who is imposing himself on credulous patients, but maybe one in a thousand or in many thousands will produce an important improvement in medicine.  There are many different routes to knowledge and learning and the effect of restricting the practice of what is called medicine and defining it as we tend to do to a particular group who in the main have to conform to the prevailing orthodoxy, is certain to reduce the amount of experimentation that goes on and hence to reduce the rate of growth of knowledge in the area.”

Physician licensure and quality: Part I

November 20, 2006 in Licensure, Supply of Medical Services | Permalink

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.

  1. 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.
  2. 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.
  3. 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.

Is the AMA interested in quality of care or physician profits?

February 4, 2006 in Licensure, Supply of Medical Services, Textbook Review | Permalink

The American Medical Association (AMA) is a national physicians organization founded in 1847 by Nathan Smith Davis.  While, the AMA exists explicitly to serve the interests of physicians, politicians often seek advice from the AMA when setting health care policy.  Conventional wisdom is that the AMA is dedicated to providing the best care for patients.  The mission statement on the AMA website states:

The American Medical Association helps doctors help patients by uniting physicians nationwide to work on the most important professional and public health issues.

But is the AMA interested in quality of care or simply increasing physician profit-mostly through erecting barriers to entry into the profession?

There are a few examples which make clear that the AMA is dedication mostly to the interests of its members-doctors.

  • The AMA claims that the difficultly of entering the medical profession is to ensure that incompetent doctors do not practice.  If this was the motivation of the AMA, one would expect to see the AMA favor re-examination and re-licensure of physicians.  Some physicians have been trained 30 to 40 years ago.  The AMA has never proposed physician re-examination.
  • In the 1970s, Congress enacted the professional standards review organization (PSROs) legislation in an attempt to develop physician peer review to maintain quality.  If the AMA is most interested in patient quality, this seems like a sensible bill to support.  The AMA opposed the legislation. 
  • For years the AMA had banned advertising under their “Principles of Medical Ethics.  The major reason for this restriction was to prevent physicians from competing on price or informing the public regarding quality measures.  In 1982, the FTC ruled against the AMA and stated that:
    • “prices of physician services have been stabilized, fixed, or otherwise interfered with; competition between medical doctors in the provision of such services has been hindered, restrained, foreclosed and frustrated; and consumers have been deprived of information pertinent to the selection of a physician and of the benefits of competition.”
  • On the their website, the AMA states that their advocacy efforts are directed a variety of objectives.  Let us list their advocacy agenda and see how each one will benefit physician directly:
    1. Medical liability reform – This will lower the cost of practicing medicine for physicians.
    2. Medicare Physician Payment Reform – In essence, the AMA is asking Congress to give more generous payments to doctors who serve Medicare patients.
    3. Expanding Coverage for the uninsured and increasing access to care – While at first this objective seems noble, it will also increase the demand for physician services as consumers become price insenitive with third parties paying doctors’ bills.
    4. Improving the health of the Public – Commendable.
    5. Patient safety and quality improvement in health care – Commendable
    6. Managed Care Reform – The physicians wish to advise patients which procedures are necessary regardless of the cost.  Managed Care takes into the cost of each procedure and thus may limit a physician’s choice to advise expensive medical options.
    7. Regulatory Relief – Similar to point one, this will lower physician costs.

Further, there are three major barriers to entry in the medical profession which the AMA in essence controls.  The first is licensure.  The AMA sets the requirements for a license to practice medicine and can suspend or revoke a license once it has been granted.  Secondly, the AMA’s Council on Medical Education approves the number of medical schools in the US.  By not approving additional medical schools, the AMA can reduce the supply of physician care.  If fact, between 1905 and 1944, the number of medical schools in the US decreased from 162 to 69.  Finally, the AMA has increased the length of medical training, thus making it more financially difficult for prospective students to enter the medical field.  With fewer doctors, there is less competition and thus prices (and physician profits) will increase.

While, this post has not been kind to the AMA, I do not wish to state that the AMA sole goal is maximize profits of its members at the expense of patient health.  I simply hope that the public realize that the AMA is not simply a benevolent, consumer driven organization, but one who vigorously defends the interests of its members.  One should think twice as to whether AMA policy truly helps patients or simply helps member physicians.

 

Much of the background for my analysis was found in Health Care Economics by Paul J. Feldstein, 6th edition; Thompson Delmar Learning, 2005.

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