Do licensing laws help or hurt?

One of the earliest examples of government interference in health care is the laws requiring  individuals to obtain a state license before they are legally allowed to practice medicine.  Even many who oppose every other government interference in the health care market support medical licenses as necessary to protect public safety.

But is medical licensing really necessary? Many libertarians, including Milton Friedman and Murray Rothbard, have examined the issue and found that not only does medical licensing not benefit consumers but, by limiting the supply of medical professionals and raising the costs of health care, licensing actually harms consumers.

Dr. Mary Ruwart explains how licenses hurt consumers in this excerpt from hee book Healing our World published by the Foundation for Economic Education:

The observation that licensing laws lower the overall quality of services delivered takes on a very personal meaning when we realize that one of the most highly regulated (licensed) sectors of our economy is health care. For most of us, medical care will be the major factor determining how long and how well we live. Licensing limits the availability of a service, thereby lowering the overall quality delivered. Thus, we would expect our health care to be of substantially lower quality than it could be in the marketplace ecosystem undisturbed by aggression.

Indeed it is. Dental hygiene is poorer in states with the most restrictive licensing requirements for dentists because fewer people can afford regular checkups. For the same reason, the incidence of blindness increases in areas with the most stringent licensing for optometrists.2

Currently, licensing laws for physicians are even more restrictive than those for dental and eye care. Consequently, physician licensing might be expected to cause even greater harm. Indeed, it does. As we’ll discover, medical licensing not increases prices and lowers quality service, it puts a great deal of stress on our medical providers. As a consequence, physicians have one of the highest suicide rates in the country.

The Marketplace Ecosystem: Honoring Our Neighbor’s Choice

In the mid-1800s, doctors learned their profession not only in medical schools, but also by apprenticing with another practitioner, or by developing their own therapies.3 Many individuals limited their practice to specific areas, such as midwifery, preparation of herbal remedies for common ailments, or suture of superficial wounds. Such diversity in the training and type of practice encouraged innovation and allowed individuals to patronize the health care provider who seemed best suited to their immediate needs. Good healers were recommended by their clients, while those unable to help their patients lost business and referrals. Physicians reaped what they sowed. Patients voted with their dollars, thereby regulating the quality of health care. The customer ruled.

Aggression Disrupts the Marketplace Ecosystem

As long as health care providers did not lie about their qualifications and past performance, the marketplace ecosystem evolved a natural balance. Some individuals, however, misrepresented their skills to attract patients. By lying about their expertise, they disrupted the marketplace ecosystem with the aggression of fraud. Patients who entrusted themselves to such individuals sometimes risked their very lives. Americans were in a quandary. They wished to honor their neighbor’s choice, but didn’t know how to deter aggressors. Had they understood the other piece of the puzzle—the power of having aggressors compensate their victims as described in Chapter 13 (“The Other Piece of the Puzzle”)—the balance of the marketplace ecosystem would have been rapidly restored.


How Licensing Laws Lower Quality

By the early 1900s, every state had agreed to the aggression of physician licensing. Healers who did not meet its requirements would be stopped—at gunpoint, if necessary—from treating patients who still wanted their services. The patient’schoice was no longer honored, even if the unlicensed healer was able to cure them!

The consumer no longer ruled; the licensing boards did.

The licensing boards soon refused to license health professionals who had not been trained at “approved” medical schools. Only half of the existing medical schools were granted approval, so most of the others closed their doors.

By 1932, almost half of the medical school applicants had to be turned away. Those who apprenticed, went to unapproved schools, or developed their own therapies were forced to stop healing, even if their treatments were successful. Specialists, such as midwives, were usually forbidden to practice unless they had a full-fledged medical degree. As a result, the number of medical doctors per100,000 people fell 20%.

Medical knowledge expanded, but a smaller number of physicians were available to perform the ever widening range of services. Although medical treatments got better all the time, the doctor shortage prevented some people, especially the poor, from taking advantage of the latest medical technology.10 Only in the 1970s did the physician-to-population ratio finally return to what it had been in the early 1900s. By then, the time that the physician spent with each patient had dramatically increased because more preventative care and diagnostic tests were available.

Naturally, with more work and fewer physicians, the price of medical care soared. One measure of the doctor shortage is the long workweek of the average physician, estimated at 60 hours for practicing physicians and 80 hours for those in training. A transplant surgeon with whom I collaborated once asked why I went into research instead of medical practice. My reply, only half-joking, was that I was unable to function competently after 48 hours without sleep. He admitted in all seriousness that one needed such an ability to get through hospital training and to practice in the more demanding specialties, such as transplantation.

Such a long workweek can result in serious mistakes. When my mother was in her late 50s, she went to her doctor because she had discovered a small lump in her breast. The doctor, although aware that five of my mother’s relatives had died of cancer, did not even order a mammogram. Embarrassed by the doctor’s lack of concern, my mother did not confide in anyone until the tumor had spread. A few short years later, my mother drew her last breath.

The saddest part of this story is how commonplace it is. My mother’s best friend and my mother-in-law had almost identical experiences and met the same premature fate. Another friend survived a rapidly growing oral cancer only because his dentist insisted on its removal in spite of his physician’s advice to “wait and see.”

Cancer is the second most deadly disease in the United States. Any practicing physician can certainly identify a malignant
growth. Were the doctors whom my family and friends visited just too harried to provide that care? Is physician overwork causing major medical mistakes?

Some Californians think so. In 1990, they tried to pass a law prohibiting hospital physicians from working longer than 80 hours a week! More aggression is not the answer, however. When doctors are forced to work fewer hours, the physician shortage only gets worse….

A Better Way

Without licensing laws, how do we find competent electricians or surgeons before we put our lives in their hands? One time-honored way to find competent service providers is by referral. However, we might not know someone who can recommend a qualified practitioner.

Does this mean that we would have to spend hours of research to find a competent one? Thankfully, the answer is a resounding, “No!” Independent rating services already provide an alternative to licensing. For example, we don’t worry that electrical equipment will be faulty, yet our appliances and electrical hardware are not licensed or regulated by government. Instead, a private certifying company, Underwriters Laboratories Inc. (UL), has tested more than six billion individual products and grants its UL Seal of Approval to those that meet its exacting standards.47 Manufacturers pay an evaluation fee to fund the testing.

The entire process is voluntary in most countries, including the United States. If you or I wish to purchase an uncertified electrical appliance, our choice will be honored. However, most retailers won’t sell an appliance or electrical component without the UL assurance of quality. As a consequence, manufacturers routinely apply for UL certification. The marketplace ecosystem works behind the scenes to protect the consumer, while honoring the choice of those who wish to use an uncertified product.

Why would anyone want to buy an uncertified electrical device? A few consumers might need specialty or custom products that sell in too low a volume to recoup the certification fee. They could still buy such items because the final decision rests with them.

Because the UL mark is prominently displayed on most appliances and electrical hardware, consumers need only look at a product to assure themselves that it is UL certified. No extensive research is necessary.

What keeps UL honest? Why wouldn’t it simply give its Seal of Approval to any manufacturer that could pay the testing fee? Because the UL mark is voluntary, product makers will seek it out only as long as it represents quality. If UL certifies defective products, its mark will become worthless; manufacturers will turn to other certifying agencies, which already compete with UL. The dominance that UL now enjoys in the electrical certification market results from its excellent service to the public. UL, like most companies in the marketplace ecosystem, reaps what it sows.

Instead of using the aggression of licensing laws, electricians could be certified by professional organizations, or even by UL itself, in order to ensure quality service. The electricians’ Seal of Approval could be prominently displayed on their business cards, advertising, and even their vehicles to let consumers know that they provide quality service. In addition, such certification would test knowledge necessary to do the job, rather than incidentals, such as citizenship or union membership.

Areas with certification have more service providers than areas with licensing laws or without certification. More service providers will mean lower costs and greater availability of quality service for everyone!

Similarly, health care providers could be voluntarily certified by their professional organizations rather than licensed through aggression. For example, the AMA might rate practitioners by a variety of criteria, giving “certification” or ratings to those who met its standards. Such ratings would be proudly displayed in advertising and phone listings. Discriminating consumers could simply look for service providers who received high ratings or multiple approvals.

Such a program could be funded through assessment fees just as UL is. Professionals would gladly pay a fee for a certification that meant more business. A professional organization such as the AMA would profit when it expanded, rather than limited, its membership.

The AMA would have to be careful not to certify carelessly. Otherwise, consumers would no longer trust their Seal, causing practitioners to seek another certifying organization. Specialties that the AMA might not certify (e.g., herbalists and homeopaths) could obtain appropriate certification from their own professional organizations.

To protect its Seal of Approval, UL monitors its certified products to make sure that they continue to live up to its standards. Organizations that certify health care providers would need to do the same to protect their seal as well. Licensing boards rarely do a good job of monitoring the quality of service provided by their practitioners.

In 1985, for example, malpractice insurers sanctioned physicians for poor quality service four times as often than state licensing boards did. The insurance companies already do a better job of encouraging high-quality service—and of sanctioning poor quality—than the licensing boards. The marketplace ecosystem would give the consumer even more protection with independent certification.

Like every other service and product today, consumer satisfaction with service provided by medical practitioners can be easily posted on the appropriate Internet blog. Such information is available to potential patients immediately.

Read the whole article here.

One way medical license laws harm consumers is by restricting the ability of individuals to obtain routine medical services from nurses and other medical professionals who lack an MD.

A particular outrageous example of this comes from Arkansas where the medical licensing board has told an orthodontist to stop offering low-cost dental services to poor children:

In 2013, Dr. Ben Burris ran afoul of Arkansas' law when he started offering low-cost teeth cleanings at his orthodontic offices. Ben's practice, Braces By Burris, has 11 offices around the state. In part because of his success Ben feels a strong need to give back to the community so he started offering simple teeth cleanings for $99 for adults and $69 for kids, a fraction of what other dentists charge for the same service. He saw the program as a great way to expand access to care for Arkansans.

Within weeks, Ben was told by the Arkansas State Board of Dental Examiners that he was breaking the law and that his license would be revoked if he continued offering the cleanings.

Arkansas prohibits licensed dental specialists like orthodontists from doing work outside of their specialty even though they are qualified to practice general dentistry. These kinds of restrictions arbitrarily limit access to care and drive up prices for consumers.

Faced with the threat of seeing his practice ruined and his 100+ employees out of work, Ben suspended the program.

Now Ben and his colleague Dr. Elizabeth Gohl are fighting back. Together with the Institute for Justice they filed a federal lawsuit on May 27, 2014 to defend their right — as licensed dentists — to perform basic dental services.

The 14th Amendment protects the right of professionals to offer services that they are perfectly qualified to perform. This case is about eliminating irrational protectionist laws and expanding access to affordable dental and medical care for Americans everywhere.

Read more about this case at IJ.org.

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