The trouble with the medical cartel

Not too long ago there was a dentist practicing in Orlando, Florida and his clientèle were the uninsured working poor and others. His prices were very reasonable.  People who could not pay the high prices of the regular dentists got treatment from this man. A licensed dentist turned this man in to the authorities and it was found that he did not have a license to practice dentistry so they put him in prison and left the poor without any dental care. His clients testified in his behalf at trial to no avail. The only people helped in this travesty were the other dentists who were afraid of price competition.

People sometimes wonder why medical care costs so much in the USA and is so substandard. It was not normal in times past to only see the doctor for a few minutes and be charged sky high prices for that quick look over that he gave you. Look at this chart of Physicians’ salaries in the U.S. vs. various European countries and Canada which shows that MDs in the U.S. make about $200,000, which is between 2 and 5 times as much as doctors make in other western countries. That could well be part of the problem, but how did that come to be?

For centuries all professionals have sought to cartelize their occupation which is to say they want to limit competition. The stated reason is always protecting consumers or the general public but the real reason is always to make more money using the force of the state to make people give it to them.

Medical organizations argue that only by state laws and enforcement of licenses can the public be protected from bad doctors or dentists or what have you. But in fact the public is hurt due to higher prices and being less alert to the medical professional’s reputation: after all, the state has cleared him as trustworthy. With specialists consumers are very watchful. Any doctor may legally do plastic surgery but customers look for a highly qualified, well-recommended, board-certified surgeon who specializes in the field. There is no state certificate needed to protect people there — the market rules.

In our system we have restricted the number of medical schools which means that we restrict the number of doctors. A recent study said almost 60 percent of medical school applicants were turned down. The number of hospitals and the number of beds in a hospital is severely controlled and restricted by the government.

Mark Perry wrote:

Bottom Line: One reason we might have a “health care crisis” due to rising medical costs, and the world’s highest physician salaries is that we turn away 57.3% of the applicants to medical schools. What we have is a form of a “medical cartel,: which significantly restricts the supply of physicians, and thereby gives its members monopoly power to charge above-market prices for their services.

In his classic book Capitalism and Freedom, Milton Friedman describes the American Medical Association (AMA) as the “strongest trade union in the United States” and documents the ways in which the AMA vigorously restricts competition. The Council on Medical Education and Hospitals of the AMA approves both medical schools and hospitals. By restricting the number of approved medical schools and the number of applicants to those schools, the AMA limits the supply of physicians. In the same way that OPEC was able to quadruple the price of oil in the 1970s by restricting output, the AMA has increased their fees by restricting the supply of physicians.

Restricting the supply of medical care has a long history. It started as long ago as the fourth century B.C. with the school of medicine that Hippocrates founded on the Greek island of Cos. In more modern times, England’s Royal College of Physicians which is a state-approved licensing agency has long been a medical monopoly. In 1765 an American tried to start a medical licensing agency in the colonies based on the Royal College of Physicians but it failed due to the laissez-faire beliefs prevalent at the time.

Historian Jeffrey Lionel Berlant has written that in the early part of our nation’s history: “a license amounted to little more than a honorific title.” Unlicensed medical practitioners were common at the time and in the free-market 1830s, one state after another repealed penalties that did exist against unlicensed practice so that by the mid-19th century there were virtually no government barriers to entry.

Economist Reuben A. Kessel:

“Medical schools were easy to start, easy to get into, and provided, as might be expected in a free market, a varied menu of medical training that covered the complete quality spectrum.” Many were “organized as profit-making institutions,” and some “were owned by the faculty.”

But by the middle of the 19h century the American Medical Association was formed to raise doctors’ incomes. The strategy was the establishment of state licensing boards run by medical societies. A board of examination was to sit in judgement and to restrict entry and competition. The Flexner Report of 1910 further restricted entry into the medical profession causing the closing of all remaining non-AMA approved medical schools.

We have seen increasing government intervention in medicine and the AMA has worked in concert with the government on much of the governmental intervention into medical delivery. At all points in the medical system in the US one must be AMA approved or one can not practice medicine. Medical licensure is a grant of government privilege and like all government granted privelge is harmful to the public in many ways.

Now some will no doubt say that without the AMA protecting us that the nation would be over run with medical quacks and that people would die from medical malpractice. To that I simply say that we know from history that was not the case when America had a relatively free market in medical services. It is time to let the free market provide medical services again.