The Medical Monopoly

[Guest guest]

The Medical Monopoly:

 

Protecting Consumers Or Limiting Competition?

 

Thanks to The Cato Institute for the use of this article!

Cato Policy Analysis No. 246

 

 

by Sue A. Blevins

 

Sue A. Blevins is a writer and health policy consultant based in

Boston.

 

http://www.chiro.org/alt_med_abstracts/ABSTRACTS/The_Medical_Monopoly

..shtml

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Executive Summary

 

 

Nonphysician providers of medical care are in high demand in the

United States. But licensure laws and federal regulations limit

their scope of practice and restrict access to their services. The

result has almost inevitably been less choice and higher prices for

consumers.

 

Safety and consumer protection issues are often cited as reasons for

restricting nonphysician services. But the restrictions appear not

to be based on empirical findings. Studies have repeatedly shown

that qualified nonphysician providers--such as midwives, nurses, and

chiropractors--can perform many health and medical services

traditionally performed by physicians--with comparable health

outcomes, lower costs, and high patient satisfaction.

 

Licensure laws appear to be designed to limit the supply of health

care providers and restrict competition to physicians from

nonphysician practitioners. The primary result is an increase in

physician fees and income that drives up health care costs.

 

At a time government is trying to cut health spending and improve

access to health care, it is imperative to examine critically the

extent to which government policies are responsible for rising

health costs and the unavailability of health services. Eliminating

the roadblocks to competition among health care providers could

improve access to health services, lower health costs, and reduce

government spending.

 

Introduction

 

 

 

I am myself persuaded that licensure has reduced both the quantity

and quality of medical practice. . . . It has forced the public to

pay more for less satisfactory medical service.

 

--Milton Friedman

 

 

 

Although broad-based health care reform has temporarily moved to the

back of the public agenda, there remain serious problems of cost and

access in the American health care system. The underlying reason for

those problems is the lack of a functioning free market in health

care in this country. There is privately owned health care, but

there is not a living, vibrant free marketplace in health care like

there is in other products and services.

 

Healthy markets have certain common characteristics. On the supply

side, there is a choice of providers, in competition with one

another, trying to gain customers on the basis of price and quality.

And on the demand side, there are consumers seeking the best deal

for their dollar. In today's health care system, neither of those

conditions obtains.

 

During the 1994 health care reform debate, much attention was given

to the demand side of the market.(1) That attention led to the

development of ideas such as medical savings accounts to make health

care consumers more cost conscious.(2)

 

However, true reform requires that the supply side of the health

care market be addressed as well. Currently, a wide variety of

licensing laws and other regulatory restricions limits the scope of

practice of nonphysician professionals and restricts access to their

services. Moreover, at the same time that it is restricting the

practices of nontraditional health care professionals, government is

providing subsidies for the education and training of physcians who

fit the medical orthodoxy. The result has been the creation of a de

facto medical monopoly, leading to less choice and higher prices for

consumers.

 

Therefore, true health care reform must involve ending the

government-imposed medical monopoly and providing consumers with a

full array of health care choices.

 

The Demand for Alternative Therapies

 

Every year millions of Americans seek providers who offer health

care therapies that are neither widely taught in medical schools nor

generally available in U.S. hospitals. Researchers from Harvard

Medical School studied the health care practices of U.S. adults and

estimated that 22 million Americans sought providers of

unconventional care in 1990. The study, reported in the New England

Journal of Medicine, estimates that in 1990 Americans made more

visits to providers who offered unconventional therapies than to all

primary care physicians--425 million compared to 388 million visits.

(3)

 

Researchers estimate that 34 percent of Americans used at least 1 of

16 unconventional therapies, such as chiropractic, herbal, and

megavitamin therapies, in 1990.(4) Back problems were the most

commonly reported " bothersome or serious " health problem for which

consumers sought nontraditional services.(5)

 

There is a great willingness to pay out-of-pocket for providers who

offer unconventional health services. The Harvard researchers found

that total projected expenditures on providers of unconventional

care amounted to $11.7 billion in 1990. Nearly 70 percent--$8.2

billion--of that amount was paid by the consumer, rather than

insurers or government. By contrast, only 17 percent of the bill for

total physician services was paid out-of-pocket in 1990.(6)

 

According to U.S. Census data, receipts for nonphysician providers

(7) grew by 83 percent--from $10.3 billion to $18.9 billion--between

1987 and 1992,(8) while physician receipts increased by 56 percent,

from $90 billion to $141 billion. Census data show that employment

by nonphysician establishments grew by 50 percent, while jobs in

hospitals and physician offices increased less than 20 percent

between 1987 and 1992.

 

Medical schools are responding to the consumer demand for

unconventional health services. To date, 34 out of the 126 medical

schools nationwide have started or are developing courses that focus

on " alternative medical practices. " (9)

 

It should be noted, however, that medical schools rely heavily on

federal subsidies, while training for nonphysician providers is

predominantly funded with private money. For example, all of the 17

chiropractic schools in the

 

Table 1

Supply of Selected Health Care Providers, United States

Type of Provider Number

Acupuncturists (nonphysician) 6,500

Chiropractors 45,000

Doctors of osteopathy 32,000

Homeopathists 3,000

Massage therapists 9,000

 

 

Midwives

Certified nurse 4,000

Lay 6,000

Total 10,000

 

 

Medical doctors

Primary care 195,300

Nonprimary care 391,700

Total 587,000

Naturopathic doctors 1,000

Nurse practitioners 21,000

Source: Data on acupuncturists, homeopathy, N.D.s (1992),

chiropractors, D.O.s (1993) and massage therapists (1994) from

Office of Alternative Medicine, NIH, Alternative Medicine: Expanding

Medical Horizons, NIH publication no. 94-066 (Washington: Government

Printing Office, December 1994); data for M.D.s (1992) from Martin

Gonzalez, Socioeconomic Characteristics of Medical Practice 1994

(Chicago: AMA, 1994); data for midwives (1995) from Diana

Korte, " Midwives on Trial, " Mothering, (Fall 1995); and data for

N.P.s (1991) from Mullan et al., p. 145.

 

 

 

(a) The estimated 3,000 health care practitioners who are licensed

to use homeopathy include acupuncturists, chiropractors, dentists,

naturopaths, nurse practitioners, osteopaths, physicians, physician

assistants, and veterinarians. Office of Alternative Medicine,

National Institute of Health, p. 82.

 

United States are privately funded; none are state owned.(10) By

contrast, 76 of the 126 medical schools are state owned.(11)

 

At a time when government is looking for ways to reduce health

spending, it should examine closely the supply side of health care

reform. Some experts have raised concerns about an oversupply of

highly trained specialists who rely heavily on government funding

for training, while at the same time licensure laws and federal

reimbursement regulations restrict nonphysician providers from

entering the health care marketplace. An overview of the current

supply of selected health care providers is presented in Table 1.

 

Any serious reform of the U.S. health care system must address the

medical monopoly. Barriers to entry into the health care marketplace

are partially responsible for high health costs and lack of access

to primary and preventive health care.

 

Individual Choice and Freedom to Contract

 

Professional licensure laws and other regulatory restrictions impose

significant barriers to Americans' freedom of choice in health care.

Clark Havighurst, the William Neal Reynolds Professor of Law at Duke

University, has pointed out, " Professional licensure laws have long

made the provision of most personal health services the exclusive

province of physicians. Obviously, such regulation limits consumers'

options by forcing them to use highly trained, expensive personnel

when other types might serve quite well. " (12)

 

Yet the freedom to contract--the right of individuals to decide with

whom and for what services they will dispose of their earnings--is

one of the fundamental rights of man. As Chief Justice John Marshall

said in Ogden v. Saunders, " Individuals do not derive from

government their right to contract, but bring that right with them

into society . . . [e]very man retains [the right] to . . . dispose

of [his] property according to his own judgment. " Indeed, legal

philosophers and ethicists, such as Roger Pilon, Richard Epstein,

and Stephen Mecado, convincingly argue that the rights of property

and contract are fundamental rights upon which all others are based.

(13)

 

Accordingly, individuals should have the legal right to decide with

whom they will contract for the provision and coordination of their

health care services: doctors, midwives, nurse practitioners,

chiropractors, spiritual healers, or other health care providers.

Any restriction denies Americans the right to make decisions about

their own bodies.

 

The Rise of Medical Licensure

 

Although protection of the public is often cited as the reason for

medical licensing and limiting access to unconventional therapies,

history indicates that professional interest was more of an

overriding concern in the early enactment of those laws. The latter

theory reflects economist Paul Feldstein's perspective that health

associations act like firms: they try to maximize the interests of

their existing membership.(14)

 

Medical licensure was first introduced in England in 1442 when

London barbers were granted charters to perform certain procedures.

The charters authorized " barbers " to treat wounds, let blood, and

draw teeth.(15)

 

In the United States, the earliest health professional licensure law

was enacted by Virginia in 1639. That law dealt with the collection

of physician fees, vaccination, the quarantine of certain diseases,

and the construction and management of isolation hospitals. Other

early colonial acts denied nonphysician practitioners any standing

in civil courts to collect fees. In 1760 New York City became the

first American jurisdiction to prohibit practice by unlicensed

physicians. Subsequently, many other cities and states introduced

licensing requirements.(16)

 

During the early part of the 19th century, the United States

experienced an era known as " free trade in medicine. " A historical

vignette in the Journal of the American Medical Association explains

that during the mid-1800s, botanics and homeopathy were in great

demand.(17) Those alternative health practices were a powerful

counterforce to regular medicine. Most state licensure laws that

granted special privileges to physicians were repealed because of

the widespread consumer demand for botanicals. During the period,

the United States was one of the healthiest nations, with the

world's lowest infant mortality rate.(18)

 

However, the self-interest of physicians soon began to assert

itself. The repeal of licensure laws " triggered a movement that led

directly to the formation of the American Medical Association. " (19)

The AMA was determined to protect physicians from competition by

nonphysician health care providers. Consequently, licensure laws

arose again, beginning about 1870. By 1895 nearly every state had

created some type of administrative board to examine and license

physicians.(20)

 

Another study of the early development of medical licensing laws in

the United States reports that the goals of the AMA in supporting

licensing appear to have been to (1) restrict entry into the

profession and thereby secure a more stable financial climate for

physicians, (2) destroy for-profit medical schools and replace them

with nonprofit institutions, and (3) eliminate other medical sects

such as homeopaths and chiropractors.(21)

 

History reveals that the AMA was influential in linking physician

licensure with strict educational standards that (1) restricted

entry into the health care marketplace and (2) increased the cost of

medical education.(22)

 

Paul Starr, in his Pulitzer prize-winning The Social Transformation

of American Medicine, examined the consolidation of medical

authority between 1850 and 1930. Starr notes that before 1870,

requirements for physician training were minimal and that many

medical schools were for-profit.(23)

 

Medical education began to be reformed around the late 19th century.

Starr describes the competitive climate of the period: " Despite the

new licensing laws, the ports of entry into medicine were still wide

open, and the unwelcome passed through in great numbers. . . . From

the viewpoint of established physicians, the commercial schools were

undesirable on at least two counts: for the added competition they

were creating and for the low image of the physician that their

graduates fostered. Medicine would never be a respected profession--

so its most vocal spokesman declared--until it sloughed off its

coarse and common elements. " (24)

 

In 1904 the AMA established a Council on Medical Education with a

mandate to elevate the standards of medical education. Two years

later the council inspected the 160 medical schools throughout the

United States and approved of only 82 schools: 46 were found

imperfect, and 32 were declared " beyond salvage. " But organized

medicine's professional code of ethics " forbade physicians from

taking up cudgels against each other in public, " and the report was

never published.(25)

 

Instead, the AMA commissioned an outside consultant to investigate

and report on the status of medical education in the United States.

Abraham Flexner of the Carnegie Foundation for the Advancement of

Teaching was commissioned to do a study of medical education.

Flexner, an educator with a bachelor's degree from Johns Hopkins,

visited each of the 160 U.S. medical schools and released his

recommendations in 1910.

 

Flexner decided that the great majority of medical schools should be

closed and the remainder should be modeled after Johns Hopkins.(26)

The AMA used the Flexner report in its campaign to abolish medical

schools outside its control. With physician licensure already in

place, it was relatively easy for the AMA-dominated state

examination boards to consider only graduates of medical schools

approved by the AMA or the Association of American Colleges, whose

lists were identical. In many states the requirement was statutory.

(27)

 

One result was a significant decline in the number of proprietary

schools, which had been very prominent until the early 1900s.

Although the number of medical colleges had decreased from 160 to

131 between 1900 and 1910, the release of the Flexner report

facilitated the closure of an additional 46 medical schools between

1910 and 1920.(28)

 

By 1930 only 76 medical schools remained in the United States. In

1932 the chairman of the Commission on Medical Education--Harvard

University president A. Lawrence Lowell-- reported that " the

definition of standards and the efforts of leaders in the medical

profession were very influential in eliminating the proprietary and

commercial medical schools. " (29) Lowell also concluded in the 1932

report on medical education that " the budgets of many schools have

increased from 200 to 1,000 percent during the last 15 years. " (30)

 

Women and African-Americans were disproportionately affected by

Flexner's recommendations. In 1905 and 1910 women medical students

numbered 1,073 and 907, respectively. Five years after the Flexner

report was released, the number of women medical students had been

cut nearly in half--from 907 to 592.(31) Starr notes, " As places in

medical school became more scarce, schools that previously had

liberal policies toward women increasingly excluded them. " (32)

 

There were seven predominantly black medical schools in existence

before the Flexner report, but only two remained after its release.

(33) As a result, the number of doctors serving African-American

communities declined. For example, blacks in Mississippi had 1

doctor for every 14,634 persons(34) compared to 1 doctor for every

2,563 persons nationwide in 1930.(35)

 

Many small towns and rural communities were affected by the new

educational standards and associated licensure laws. AMA president

William Pusey concluded that " as you increase the cost of the

license to practice medicine you increase the price at which medical

service must be sold and you correspondingly decrease the number of

people who can afford to buy this medical service. " (36)

 

The Flexner report also had a significant impact on nonphysician

health care providers. Within 10 years after the Flexner report,

approximately 130 laws were passed regulating at least 14 health-

related occupations.(37) Some nontraditional specialties were

virtually wiped out. Take homeopathy, for example. By the end of the

19th century, an estimated 15 percent of physicians practiced

homeopathy, the use of natural remedies to stimulate the body's

natural healing responses. There were 22 homeopathic medical schools

and over 100 homeopathic hospitals in the United States.(38) Early

supporters of homeopathy included Thomas Edison, John D.

Rockefeller, and Mark Twain.(39) Four years after the Flexner

report, the president of the Institute of

 

Table 2

Graduates of Selected Medical Schools and Nationwide Total Examined

by State Boards in 1931

Medical School Number Examined Percentage of Failures

Albany Medical College 8 14.3

Boston University School of Medicine 55 10.9

Georgetown University School of

Medicine 139 17.3

Hahnemann Medical College and Hospital

of Philadelphia 89 3.4

Howard University College of Medicine 63 11.1

New York Homeopathic Medical College

and Flower Hospital 88 11.4

Syracuse University College of Medicine 46 8.7

Total examined nationwide and

percentage of failures 5,576 6.3

Source: A. Lawrence Lowell et al., Final Report of the Commission on

Medical Education (New York: Association of American Medical

Colleges, 1932), appendix, Table 87.

 

 

 

Homeopathy, Dr. DeWitt Wilcox, shared his perception of organized

medicine:

 

The American Medical Association is fast degenerating into a

political machine bent on throttling everything which stands in its

way for obtaining medical supremacy. It has made an unholy alliance

with the Army and Navy Medical Departments, and together they

propose to own and control every medical college in this country,

all the State, municipal and university hospitals, and get within

their grasp all the examining and licensing boards in the United

States.(40)

 

By the late 1930s the practice of homeopathy had largely disappeared

from the United States. The new rating system for medical schools

was influential in eliminating homeopathic colleges nationwide.(41)

 

It is commonly thought that homeopathy disappeared because of its

poor quality of education. But history shows that physicians

graduating from two of the last homeopathic colleges--Hahnemann

Medical College and New York Homeopathic College--passed

examinations at a rate comparable to physicians from schools that

were maintained (see Table 2).

 

Medical Licensing Today

 

Today states use three mechanisms for regulating health

professionals: (1) licensure, the most restrictive form of

regulation, makes it illegal to practice a profession without

meeting state-imposed standards; (2) certification, granting title

protection to persons meeting predetermined standards (those without

the title may perform services, but may not use the title); and (3)

registration, the least restrictive form of regulation, requiring

individuals to file their names, addresses, and qualifications with

a government agency before practicing.(42)

 

Professional health care associations have been influential in

setting the standards for licensure laws in the United States.

Feldstein has identified ways in which health care associations

limit competition: the first approach, Feldstein notes, is simply to

have substitute providers declared illegal.(43) If substitute

providers are prohibited, or if they are severely limited in the

tasks they are legally permitted to perform, then there will be a

shift in demand away from their services. That approach has been

used with lay midwives. In addition, states impose

professional " scope-of-practice " regulations that prevent nurse

practitioners from functioning independently as primary care

providers.(44)

 

Another approach to limiting health care competition-- used when

licensure and scope-of-practice restrictions fail--is to restrict or

limit substitute providers' services from payment by government

health programs. That approach has been used by organized medicine,

for example, to limit access to chiropractic treatment. Medicare

regulations prohibit reimbursement to chiropractors for services

they are licensed to perform in all 50 states. The federal

reimbursement regulations appear not to be based on empirical

evidence: the federal government's Agency for Health Care Policy and

Research recently released national guidelines that recommend spinal

manipulation as a safe and cost-effective treatment for acute back

problems.(45)

 

The following examples show how the medical monopoly has used the

power of government to restrict the practice of a variety of

nonphysician health care providers.

 

Midwifery

 

At least 36 states restrict or outright prohibit the practice of lay

midwifery.(46) Consequently, only 5 percent of all births are

attended by midwives in this country,(47) compared with 75 percent

of all births in European coun- tries.(48) Americans' low usage of

midwifery does not corre- late with high-quality birth outcomes: the

United States has the second highest caesarean rate in the world(49)

and the fifth highest infant mortality rate among Western industri-

alized nations.(50)

 

There are an estimated 10,000 midwives in this country who fall into

two categories: the certified nurse-midwife and the lay midwife

(or " direct-entry " midwife). Certified nurse-midwives are registered

nurses with two years of advanced training who most often work under

the supervision of a physician and practice in clinic or hospital

settings. Certified nurse-midwives represent approximately 4,000 of

the 10,000 midwives nationwide.

 

By contrast, lay midwives enter the profession directly from

independent midwifery schools or through apprenticeship. They are

trained to meet individual state requirements for licensure,

registration, or certification. But unlike certified nurse midwives,

most lay midwives practice independently in consultation with

physicians, not under direct physician supervision. About half the

6,000 lay midwives are associated with religious groups,(51) and a

majority of home births in the United States are attended by lay

midwives.(52)

 

Safety is most commonly cited as the reason for prohibiting or

restricting lay midwifery in 36 states. Those licensure laws and

regulatory restrictions, however, do not appear to be based on

empirical findings of childbirth outcomes.(53) For example, the

National Birth Center study on nearly 12,000 nonhospital births

found a neonatal mortality rate for midwife-assisted births

comparable to that of hospital births.(54) Another study examined

1,700 home births attended by lay midwives in rural Tennessee.

Researchers found at-home midwife-assisted births to be as safe as

physician-attended hospital deliveries.(55)

 

Many people attribute midwives' record of success to the fact that

they do not assist with high-risk deliveries. To address that issue,

researchers excluded physicians' high-risk cases from their study of

lay midwives in rural Tennessee. The American Journal of Public

Health reports that even with comparable low-risk deliveries, lay

midwife- assisted home births were as safe as physician-assisted

hospital births. Moreover, physician-attended hospitals births were

10 times more likely to require intervention (forceps, vacuum

extractor, or caesarean section) than midwife-assisted home births.

(56)

 

Those findings are supported by international studies. In the

Netherlands--where more than 32 percent of births are attended by

lay midwives at home--research shows that the perinatal mortality

rate was lowest in cities that had the highest proportion of home

births.(57) A study on Dutch births by the British journal Midwifery

concluded that perinatal mortality was " much lower under the

noninterventionist care of midwives than under the interventionist

management of obstetricians. " (58)

 

Midwives are considerably less expensive than traditional obstetric

care providers. According to the Health Insurance Association of

America, the average physicianattended birth costs $4,200; Midwives

Alliance of North America reports that the average cost of a midwife-

assisted birth is $1,200.(59) Americans could save $2.4 billion

annually if only 20 percent of American women increased their access

to midwives.(60)

 

Most important, though, is that women report significant personal

and psychological benefits from midwife-assisted births. Since the

early 1970s, a home birth renaissance has been sparked by feminist

politics, the women's health and holistic health movements, back-to-

nature ideology, and health consumerism.(61) A study of the home

birth movement in the United States concludes, " Members have chosen

their alternative form of care not through faulty understanding of

medical principles and practices, but as a result of active and

reasoned disagreement with them. The home birth movement is one of a

number of lay health belief systems currently flourishing among

middle class populations. " (62)

 

As a result of midwives' success, a wide range of health

organizations, including the American Public Health Association,

National Commission to Prevent Infant Mortality, and World Health

Organization, advocates the expanded use of midwives. The strongest

advocacy has come from the women's health movement with support from

the Boston Women's Health Book Collective, National Black Women's

Health Project, National Women's Health Network, and Women's

Institute for Childbearing Policy. The benefits of a low-

intervention approach to childbirth are also supported by the

General Accounting Office and the Office of Technology Assessment.

(63)

 

Despite midwives' record of safety and mothers' reports of

psychological and personal benefits, the medical community continues

to enforce licensure laws that restrict women's birthing options.

(64) A past president of the American College of Obstetrics and

Gynecology (ACOG) denounced home birth as a form of " maternal

trauma " and " child abuse " during the late 1970s.(65) A decade later,

ACOG released statements that " discouraged the use of birth centers

until better data were available. " (66)

 

Midwives are continually placed under considerable legal and

biomedical scrutiny. An award-winning women's health writer, Diana

Korte, recently examined the number of midwives on trial across the

country. According to Korte, at least 145 midwives in 36 states have

had legal altercations with the medical authorities. One case

involved the arrest of a rural Missouri midwife.

 

At 2:00 a.m. on a January morning in 1991, seven law enforcement

officers in bulletproof vests ransacked the birth center of a rural

Missouri midwife, removed all of her computer disks, and destroyed

files and other materials. Although the Missouri Nursing Board had

previously authorized the birth center, the county prosecutor

charged the midwife with eight felonies and several misdemeanors for

practicing medicine without a license.(67)

 

Parents rarely make complaints about midwives: most legal

altercations stem from the medical community.(68) Archie Brodsky, a

senior research associate at the Harvard Medical School's Program in

Psychiatry and the Law, noted that 71 percent of obstetrician-

gynecologists had been named in one or more liability claims as of

1987. By comparison, only 10 percent of midwives had experienced

legal claims at that time; lay midwives are even more rarely sued.

(69)

 

The medical community often refuses to provide back-up support to

women who choose to deliver at home, despite midwives' record of

safety and low malpractice claims. A recent pilot study of

childbirth choices found that 20 percent of mothers delivering in

the hospital setting would have preferred a nonhospital delivery,

but no medical backup support was readily available.(70) Another

study at the Medical College of Pennsylvania found that women met

forceful resistance from physicians when they disclosed their plans

for home delivery. Accordingly, the study notes,

 

A number of women found it ironic, and even unconscionable, that

physicians who criticized home birth as unsafe also refused to

provide the prenatal care which all would agree would increase the

safety of pregnancy and birth under any circumstances. Some

concluded on these grounds that these physicians' motivation must

have more to do with self-interest (in terms of power, authority,

and money) than with interest in the health and safety of their

patients and their babies.(71)

 

It should be noted, however, that fear of malpractice may have

played a large part in the physicians' decisions to refuse back-up

support. Further, as Figure 1 illustrates, medical attitudes about

midwifery and home births vary greatly among physicians and

geographical areas. States that grant legal status to lay midwives

in the form of licensure, certification, or registration include

Alaska, Arkansas, Arizona, Colorado, Florida, Louisiana, New

Hampshire, New Mexico, Montana, Oregon, South Carolina, Texas,

Washington, and Wyoming.(72)

 

Nurse Practitioners

 

Figure 1

Legal Status of Direct-Entry Midwifery in the United States, April

1995

[Map omitted.]

 

Particularly in underserved areas and long-term care facilities,

registered nurses with advanced training--nurse practitioners--are

able to provide most basic health servic es provided by physicians,

and at lower costs. The American Nurses Association estimates that

of the 2.1 million registered nurses nationwide, approximately

400,000 deliver primary care.(73) Many of them are practicing in

managed-care organizations under the supervision of physicians. Some

21,000 nurses have received advanced training at graduate schools of

nursing and are licensed nurse practitioners.

 

Research shows that between 75 and 80 percent of adult primary care,

and up to 90 percent of pediatric primary care, services could be

safely provided by nurse practitioners.(74) A study by the Office of

Technology Assessment found that the outcomes of nurse practitioner

care were equivalent to those of services provided by physicians,

and that nurse practitioners were actually more adept in

communication and preventive care. The Office of Technology

Assessment study also indicates that increasing access to nurse

practitioner services could be especially advantageous for the home-

bound elderly.(75)

 

Another study examined the outcomes of a nurse-managed clinic that

was opened to provide primary care services to more than 2,000 low-

income children and their families in an underserved Texas

community. Research shows that after the clinic was opened in 1991,

emergency room visits by pediatric Medicaid recipients decreased by

27 percent at the largest emergency room in the county. In addition,

the pregnancy-induced hypertension rate was reduced from 7 to 3.3

percent over a three-year period, preventing costly hospitalizations.

(76)

 

The economic loss from inefficient use of primary care nurse

practitioners is estimated to be between $6.4 billion and $8.75

billion.(77) A meta-analysis conducted by the American Nurses

Association in 1993 showed that nurse practitioner care resulted in

fewer hospitalizations, higher scores on patient satisfaction, and

lower cost per visit-- $12.36 compared to $20.11 for physicians.(78)

In addition to projected savings on direct health services, the

taxpayer burden for training nurse practitioners is approximately

one-fifth the cost of training physicians.(79)

 

Despite empirical evidence that nurse practitioners can safely

provide primary care, many states impose scope-of-practice

regulations that prevent nurses from practicing independently as

primary care providers. Nurse practitioners derive their authority

from various state nurse practice acts.(80) However, some states

give their medical boards regulatory control over boards of nursing.

That gives one profession full veto power over the rules and

regulations of its competitors.

 

Moreover, scope-of-practice regulations often dictate that nurses

must work in coordination with physicians. For example, 48 states

grant nurse practitioners prescriptive authority but mandate that

nurses must have a written practice agreement or work in

collaboration with a physician.

 

As of January 1995, only 10 states granted nurse practitioners the

legal right to prescribe drugs independent of a physician.(81)

Moreover, even some of those states limited the independent nurse

practitioner's prescription authority by law to 72 hours.(82) What

that means for competition is that consumers--for example, elderly

Medicare recipients who live in rural areas--would have to visit

independent nurse practitioners every three days to renew

prescriptions. Barbara Safriet, associate dean of Yale Law School,

argues, Medical practice acts remain overly broad and indeterminate,

with concomitant and unnecessary restrictions in the licensure and

practice acts of nonphysician providers. If we are to achieve our

goal of offering high-quality care, at an affordable cost, to

everyone who needs it, we must ensure that all health care providers

are able to practice within the full scope of their profesional

competencies.(83)

 

States' scope-of-practice regulations shield the full market demand

for nurse practitioner services because nurses are not legally free

to compete in the health care market. A 1993 Gallup poll found that

86 percent of consumers would be willing to use nurse practitioners

for basic health care services. Only 12 percent stated that they

would be unwilling to see a nurse practitioner.(84)

 

This analysis does not in any manner call for increased government

regulations that would force Medicaid or Medicare recipients to

substitute nurse practitioner care for physician services. Instead,

it argues that Americans should not be restricted from choosing low-

cost alternative practitioners and forced to subsidize an oversupply

of highly specialized physicians. Let nurse practitioners legally

compete in the health care market and allow consumers to choose

among qualified health providers on the basis of quality and cost.

 

Chiropractic

 

The chiropractic profession has faced significant challenges by

organized medicine for over 100 years. For example, between 1963 and

1974 the AMA operated a Committee on Quackery with an intent

to " expose the charlatanism of chiropractic. " The AMA urged members

to lend " their full 1support to the continuing vigorous attack on

medical quackery and to the education program on the cult of

chiropractic. " (85)

 

Although the AMA certainly had every right to criticize medical

practices with which it disagreed, the organization soon resorted to

lobbying the government for restrictions on chiropractic practice.

Today, chiropractors are subject to numerous restrictions on their

scope of practice.(86)

 

In addition, the AMA recommended that Congress exclude payment for

chiropractic services from federally supported health programs.(87)

As a result, Medicare recipients are restricted from using the full

range of chiropractic services. Medicare policy limits patient

access to chiropractors this way: Medicare reimburses chiropractors

for performing " spinal manipulation " but requires that a diagnostic

spinal x-ray be taken before chiropractic treatment. The catch is

that Medicare does not reimburse chiropractors for performing x-

rays, even though they have the training and are licensed to perform

x-rays in all 50 states.(88) That policy gives the medical

profession control over managing back problems among elderly

Americans.

 

Ironically, the federal government's Agency for Health Care Policy

and Research (AHCPR) recently released national pain guidelines that

recommend spinal manipulation for the common complaint of acute low

back pain.(89) It is estimated that 80 percent of all adults suffer

from back pain at some time in their lives,(90) and an estimated 91

percent of older adults (ages 65 to 74) report back problems.(91)

The AHCPR estimates that Americans could save over $1 billion

annually by using noninterventionist approaches for managing back

pain, even if only 20 percent of practitioners followed the agency's

recommendations.(92)

 

International research supports the U.S. findings that chiropractic

is a safe and cost-effective method for managing back pain. A study

published by the British Medical Journal reports that chiropractic

treatment was more effective than outpatient hospital management of

low back pain. British researchers estimate that if the 72,000

patients who show no contraindications to manipulation but are

referred to hospitals for back care each year were instead referred

to chiropractors, the British health system could reduce days of

sickness absence by 290,000 and could save 2.9 million pounds in

social security payments over a two-year period.(93)

 

Consumers are quite satisfied with chiropractic treatment. The

Western Journal of Medicine reports that patients of chiropractors

were three times more likely than patients of family physicians to

report that they were very satisfied with their treatment for low

back pain--by a score of 66 to 22 percent.(94) A 1991 Gallup poll

found that 90 percent of patients regard their chiropractic care as

effective and that approximately 80 percent consider the treatment

costs reasonable.(95)

 

In 1976 four chiropractors filed an antitrust lawsuit against the

AMA, 5 of its officers, and 10 other medical organizations including

the American Hospital Association, charging them with criminal

conspiracy to destroy chiropractic. Plaintiffs alleged a conspiracy

that included (1) preventing medical doctors and doctors of

osteopathy from associating professionally with chiropractors, (2)

defining it as unethical for MDs to accept referrals from

chiropractors, and (3) prohibiting chiropractors from using hospital

diagnostic laboratory and radiological facilities, among other

things.

 

In 1987 the AMA was found guilty of illegal conspiracy: the AMA's

anti-quackery activity was in violation of U.S. antitrust laws,(96)

yet restrictions on chiropractic scope of practice and reimbursement

remain in place.

 

Vitamins and Herbs

 

For years mainstream medicine has suggested that individuals who use

unconventional therapies--such as vitamin therapies and herbal

products--are not acting according to scientific rationale and

therefore need to be protected by the government.(97) The president

of the National Council Against Health Fraud (NCAHF), William

Jarvis, has suggested that regulators are failing to protect the

public against quackery. Jarvis explains that " the real issues in

the war against quackery are the principles, including scientific

rationale, encoded into consumer protection laws, primarily by the

U.S. Food, Drug, and Cosmetic Act. More such laws are badly

needed. " (98)

 

Jarvis suggests that promoters of a free-enterprise society are

paving the way for organized quackery. He notes that " in recent

years, a free-market ideology, advanced by Friedman in his book Free

to Choose, has gained an influential following " and that " the only

way to enjoy both the benefits of a free-enterprise health

marketplace and avoid the abuses of quackery is to balance the

situation with sound consumer protection laws, enforcement, and

education. " (99) More recently, a member of NCAHF and president of

the Consumer Health Information Research Institute has received a

special citation from the FDA for combating health fraud.(100)

 

One way the FDA combats health fraud is to pull herbal products from

the shelf if manufacturers make specific health claims about their

usefulness without first obtaining FDA approval. Some providers have

even been subject to criminal prosecution. But getting herbal

remedies through the drug approval process is unrealistic.

Botanicals are not patentable (although they can be patented for

use); and the cost of their approval as drugs would be difficult to

recover. The total cost of taking a new drug to the market in the

United States is close to $400 million, and it takes nearly 15 years

to complete the procedure.(101)

 

Meanwhile, Americans are expressing an increased interest in

nutritional and herbal therapies. And according to the World Health

Organization, about 4 billion people--80 percent of the world

population--use herbal remedies for some aspect of their health

care. Yet in the United States the FDA often considers herbal

remedies to be worthless or potentially dangerous.(102)

 

Health care regulators defend their position as necessary to protect

consumers. But contrary to conventional expectation, users of

unconventional therapies are well educated and have higher-than-

average incomes.(103) Even in countries with socialized health

systems that provide access to conventional medical care for all

citizens, users of unconventional therapies and practitioners are

usually from higher social classes.(104) A study of complementary

medicine in the United Kingdom suggests that patients from higher

social classes presumably have the opportunity to research and

explore the possibilities of complementary medicine and to pay for

it.(105)

 

Protecting Consumers or Limiting Competition?

 

There is little actual evidence that medical licensing improves

quality or protects the public.(106) Medical econo- mist Gary

Gaumer, reviewing all the available literature on medical licensing,

concluded,

 

Research evidence does not inspire confidence that wide-ranging

systems for regulating health professionals have served the public

interest. Though researchers have not been able to observe the

consequences of a totally unregulated environment, observation of

incremental variations in regulatory practice generally supports the

view that tighter controls do not lead to improvements in the

quality of service.(107)

 

Even the Federal Trade Commission has concluded that " occupational

licensing frequently increases prices and imposes substantial costs

on consumers. At the same time, many occupational licensing

restrictions do not appear to realize the goal of increasing the

quality of professionals' services. " (108)

 

Licensing laws may actually put the public more at risk by lulling

consumers into a false sense of security. Terree Wasley points out

in What Has Government Done to Our Health Care? that most state

licensing laws permit all licensed physicians to perform all types

of medical services, even those for which they are not specifically

trained.(109) For example, in Massachusetts physicians are licensed

to perform acupuncture even though they may not have received

special training.(110) That situation disturbs nonphysician

acupuncturists who receive more hours of acupuncture training than

do most licensed physicians.(111)

 

Feldstein points out that licensure laws focus at the point of entry

into the medical profession, not on continu- ous monitoring. Once

medical professionals are licensed, there are no requirements for

proving that they are fully trained to perform the most up-to-date

procedures.(112) Some states do not require continuing education, so

there is no guarantee that a physician is current with the most

recent techniques and information.(113) Feldstein points out that

 

state licensing boards are responsible for monitoring physicians'

behavior and for penalizing physicians whose performance is

inadequate or whose conduct is unethical. Unfortunately, this

approach for assuring physician quality and competence is completely

inadequate. . . . Monitoring the care provided by physicians through

the use of claims and medical records data would more directly

determine the quality and competence of a physician.(114)

 

In his 1987 Cato Institute book, The Rule of Experts: Occupational

Licensing in America, S. David Young, a professor of accounting and

finance at Tulane University, reviewed the literature on a wide

variety of occupational licensing restrictions, including medical

licensing, and found that " licensing has, at best, a neutral effect

on quality and may even cause harm to consumers. " (115)

 

While the public safety benefits of medical licensure are clearly

questionable, nearly all economists recognize that professional

licensure laws act as a barrier to entry that decreases competition

and increases price. As Victor Fuchs wrote in 1974, " Most economists

believe that part [of physician's high incomes] represents a

monopoly return to physicians from restrictions on entry to the

profession and other barriers to competition. " (116)

 

One of the earliest studies of the impact of licensure on physician

income was done in 1945 by Nobel Prize-winning economist Milton

Friedman and Simon Kuznets. Friedman and Kuznets found that the

difference in income between professional and nonprofessional health

care workers was larger than could be explained by the extra skill

and training of the professionals. A large portion of the variation,

they concluded, was due to licensing restrictions. In addition, they

concluded that the difference in mean income of physicians and

dentists was caused by greater difficulty of entry into medicine

than into dentistry.(117)

 

Friedman and Kuznets's conclusions have been confirmed by numerous

other studies. For example, William White examined the effect of

licensure on the income of clinical laboratory personnel and found

that in cities with stringent licensing restrictions income was 16

percent higher than in cities with less stringent restrictions, with

no variation in the quality of testing.(118)

 

Lawrence Shepard examined the fees of dentists in states that

recognized out-of-state licenses and those that did not. He found

that in states that did not recognize out-of-state licenses, dental

fees were 12 to 15 percent higher.(119) A study of Canadian health

care indicated that occupational licensing, combined with mobility

restrictions and advertising restrictions, increased health care

costs by as much as 27 percent.(120) Gaumer found that both fees and

provider incomes were higher in states with more restrictive

licensure requirements.(121)

 

Interesting confirmation that physician licensure is related more to

a desire to increase physician incomes than to concern over public

health and safety can be found in a 1984 study by medical economist

Chris Paul, who found that the year that a state enacted physician

licensing was related to the number of AMA members in the state.

(122) Paul concluded that decisions by states to require licensing

of physicians were more likely a result of special interests than of

the public interest.

 

As the Friedmans note, " The justification [for licensure] is always

the same: to protect the consumer. However, the reason is

demonstrated by observing who lobbies at the state legislatures for

imposition or strengthening of licensure. The lobbyists are

invariably representatives of the occupation in question rather than

its customers. " (123)

 

Subsidies and the Medical Monopoly

 

In addition to using government to restrict competition, the medical

monopoly also turns to government for subsidies. For example, most

physician training is subsidized by the federal government.

 

In 1927 student fees accounted for 34 percent of medical school

revenues.(124) Today less than 5 percent of medical school revenues

comes from tuition and fees. Instead, medical schools rely heavily

on federal and state support.(125) In 1992 total medical school

revenues amounted to $23 billion.(126) State and local governments

provided $2.7 billion.(127) The federal government paid at least

$10.3 billion to medical schools and hospitals for medical education

and training (Table 3). Additional revenues were obtained from

charges for services, endowments, and private grants.

 

Table 3

Taxpayer Support for Physician Education and Training, 1991-92

Medicare 5.2

Federal research, training, and teaching 5.1

Federal research, training, and teaching 2.7

State and local governments 13.0

Sources: Fitzhugh Mullan et al., " Doctors, Dollars, and

Determination: Making Physician Work-Force Policy, " Health Affairs

Supplement (1993), p. 142; and Janice Ganem et al., " Review of U.S.

Medical School Finances 1992-93, " Journal of the American Medical

Association 274 (1995): 724.

 

 

 

Medicare payments to hospitals represent the largest source of

federal funding for medical education and training.(128) Medicare

pays for physician education and training in two ways: First,

hospitals receive direct payments from Medicare based on the number

of full-time-equivalent residents employed at each hospital. Second,

Medicare increases a hospital's diagnostic-related group payments

according to an " indirect " medical education factor, based on the

ratio of residents to hospital beds.(129)

 

The average Medicare payment to hospitals was more than $70,000 per

resident for both direct and indirect education subsidies in 1992.

An estimated 69,900 full-time-equivalent interns, residents, and

fellows were eligible for Medicare reimbursement in 1991.(130)

 

Medicare paid hospitals $1.6 billion for direct medical education

expenses and dispensed $3.6 billion for indirect medical education

adjustments in 1992.(131) Of the total $5.2 billion that Medicare

paid to hospitals for training, approximately $0.3 billion was

appropriated for training nurses and allied health professionals.

(132)

 

Medical schools and teaching hospitals receive additional federal

funding from the National Institutes of Health, the Department of

Veterans Affairs, the Department of Defense, and the Health

Resources and Services Administration (Title VII) program. Federal

funding for research, training, and teaching amounted to at least

$5.1 billion in 1992.(133) That money was awarded to medical schools

and affiliated hospitals in the form of grants and contracts.

Supporting biomedical research in medical schools is one way the

federal government supports medical education without appearing to

do so directly.(134)

 

As Feldstein has pointed out, " There is no reason why medical

students should be subsidized to a greater extent than students in

other graduate or professional schools. " (135) That point has also

been suggested by Uwe Reinhardt, a professor of political economy at

Princeton University, who recently noted,

 

In the context of academic medicine, this inquiry should begin with

the question of why the education of physicians is now so heavily

supported with public funds, when similar support has never been

extended to other important professions, for example, students in

law schools or graduate programs in business. . . . In truth, the

case for the traditional heavy public subsidies to medical education

and training has simply been taken for granted . . . it never has

been adequately justified.(136)

 

A less direct form of subsidy is the ability of the health care

establishment to direct government payments from the Medicare and

Medicaid programs to " approved " providers and hospitals. As already

discussed, chiropractors and other nontraditional providers have

generally been excluded from Medicare reimbursement. Furthermore, in

order to be eligible to participate in Medicare, a hospital must be

accredited by the Joint Commission on Accreditation of Health Care

Organizations (or the American Osteopathic Association in the case

of osteopathic hospitals). The JCAHO, which the Wall Street Journal

describes as " one of the most powerful and secretive groups in all

of health care, " (137) is a private organization with a board

dominated by members representing the AMA and the American Hospital

Association.

 

As several medical economists studying the issue have warned, in as

much as Medicare is a major source of hospital revenues, " the

influence of the JCAHO can be used to limit hospital competition and

to protect physicians [against competition] from other groups of

providers by denying them access to hospitals or influence within

hospitals. " (138) Thus the medical monopoly is able to use federal

funds to reward its members and restrain its competitors.

 

Conclusion

 

What should government do if it is serious about cutting health

spending and improving access to affordable health care? The first

step should be to eliminate the anti-competitive barriers that

restrict access to low-cost providers, namely licensure laws and

federal reimbursement regulations. Americans should not be forced to

substitute providers against their will; rather, they should be free

to choose among all types of health care providers.

 

Instead of imposing strict licensure laws that focus on entry into

the market but do not guarantee quality control, states should hold

professionals equally accountable for the quality of their outcomes.

That will reduce the need for strict licensure laws and other

regulations that are purported to protect the public at large.

 

The time is right for eliminating barriers to nonphysician health

care providers. Many Americans are seeking low- cost nontraditional

providers and even choose to pay out-of- pocket for their services.

Breaking the anti-competitive barriers of licensure laws and federal

reimbursement regulations will provide meaningful health reform,

increase consumer choice, and reduce health care costs.

 

Notes

 

This study was supported, in part, by the Institute for Humane

Studies, George Mason University.

 

(1) For a detailed discussion of the demand side of health care

reform, see Stan Liebowitz, " Why Health Care Costs Too Much, " Cato

Institute Policy Analysis no. 211, June 23, 1994.

 

(2) For a complete discussion of medical savings accounts, see John

C. Goodman and Gerald L. Musgrave, Patient Power: Solving America's

Health Care Crisis (Washington: Cato Institute, 1992).

 

(3) David Eisenberg et al., " Unconventional Medicine in the United

States: Prevalence, Costs, and Patterns of Use, " New England Journal

of Medicine 328, no. 4 (1993): 246-52.

 

(4) Eisenberg et al. examined therapies not widely taught in U.S.

medical schools no generally available in U.S. hospitals. Therapies

included acupuncture, biofeedback, chiropractic, commercial weight-

loss programs, energy heal ing, exercise, folk remedies, homeopathy,

hypnosis, imagery, lifestyle diets (e.g., macrobiotics), massage,

megavitamin therapy, prayer, relaxation techniques, self-help

groups, and spiritual healing.

 

(5) Daniel Q. Haney, " Study Finds Adults Pay $14 Billion Annually on

Offbeat Medicine, " Philadelphia Inquirer, January 28, 1993, p. A6.

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