@kdrum Missing the Point. Doctors May Control the Cartel, but Government Gives it Power.

The other day, Kevin Drum wrote a post wondering why we had so few doctors per capital in the United States and observing, reasonably, that this might be one reason to explain why physician compensation rates were higher here than in other countries.

He and Matt Yglesisus argued that this smaller number of doctors and higher compensation rates were due to a physician-operated cartel.  This is a proposition I and most libertarians would agree with.  In fact I, and many others apparently, wrote to him saying yes there is a cartel, but ironically it owed its existence to government interventionism in the economy and health care.  In a true free market, such a cartel would only have value so long as it added value to consumers.

Drum seems to have missed the point.  In this post, he reacts to themany commenters who said that government power was at the heart of the cartel by saying no, it's not the government because doctors control the nuts and bolts decisions of the cartel.  Look!  Doctors are in all the key positions in the key organizations that control the cartel!

Well, no sh*t.  Of course they are.   Just as lawyers occupy all the key slots in the ABA.  But neither the ABA nor these doctors cartels would have nearly the power that they have if it were not for government laws that give them that power (e.g. giving the ABA and AMA monopoly power over licensing and school credentialing).  I had never heard of the RUC before, which apparently controls internship slots, but its ability to exercise this control seems pretty tied to the billions in government money of which it controls the distribution.

Let's get out of medicine for a second.  I am sure Best Buy wishes it had some mechanism to control new entrants into its business.  Theoretically (and it may have even done this) it could form the Association of Bricks and Mortar Electronics Retailers (ABMER).  It could even stake a position that it did not think consumers should shop at upstarts who are not ABMER members.  Take that Amazon!  Of course, without any particular value proposition to do so, consumers are likely to ignore the ABMER and go buy at Amazon.com anyway.

Such cartel schemes are tried all the time, and generally fail (the one exception I wonder about is the Visa/Mastercard consortium, but that is for another post).  Anyway, the only way the ABMER would really work is if some sort of government licensing law were passed that required anyone selling consumer electronics to be ABMER members.  And my guess is that the ABMER might not invite Amazon.com to join.  All of a sudden, Amazon is out of the electronics business.  Or maybe it just gets forced to deliver all its product through Best Buy stores, for a fee of course.

Crazy stupid, huh?  The government would never write licensing laws to protect a small group of incumbent retailers, right?  Well, tell that to Elon Musk.  Tesla has been trying for years to bring its cars to consumers in innovative ways, but have time and again run up against state auto dealership laws that effectively force all cars to be sold through the state dealer cartel.  Or you can talk to California wine growers, who have tried for years to sell directly to consumers in other states but get forced into selling through the state liquor wholesaler cartels.

All these cartels are controlled and manned by the industry, but they are enforced -- they are given their teeth -- by the government.

Here are a few off-the-top-of-my-head examples of cartel actions in the medical field admittedly initiated and supported and administered by doctors, that are enforced by state and federal law:

  • Certificate of need laws prevent hospitals from expanding or adding new equipment without government permission.  The boards in this process are usually stacked with the most powerful local hospitals, who use the law to prevent competition and keep prices high.  This is a great example where Drum could say that the decisions are essentially being made by hospitals.  Yes they are, but they only have the power to do so because the government that grants them this licensing power over competitive capacity.  Without this government backing, new hospitals would just laugh at them.
  • Government licensing laws let the AMA effectively write the criteria for licencing doctors, which are kept really stringent to keep the supply low.  Even if I wanted to only put in stitches all day to busted up kids, I would still have to go through 8 years of medical school and residency. Drum and Yglesias focus on the the number of medical schools and residencies.  I do not know if these are an issue or not.  But what clearly is an issue is the fact that one has to endure 8 expensive years or more just to be able to hand out birth control or stitch up a skinned knee.
  • Government licensing laws help doctors fight a constant rearguard action against nurse practitioners and other less expensively trained folks who could easily do half or more of what doctors do today.
  • The FDA and prescription drug law not only helps pharma companies keep profits up, but also increases business to doctors as people have to have a prescription for certain drugs they could easily buy on their own (e.g birth control pills, antibiotics).
  • The government limits immigration and thus labor mobility, reducing the ability of doctors from other countries to move here.

I am sure there are more.

There is no denying that in the middle of every industry cartel are insiders who are maneuvering to increase the rents of the incumbent players.  In fact, I am sure that every industry has participants who dream about getting off the competitive treadmill and creating a nice industry cartel, and would be the first to sign up.  But none of these dreams are ever going to happen unless they are enabled by the coercive power of government.

Of course, the consistent answer is, well, we just have the wrong guys running things.  If we had the right guys, it would work great.  But this kind of co-option always happens.   Look at taxis and liquor license holders and the entire banking sector.  Five years ago I would bet that progressives thought they finally had that right guy in the administration.  And look what has happened.  Banking cronyism is as strong as ever.  Obama's signature health legislation is full of crony giveaways.  In 6 months the health insurers are going to be running the entire PPACA infrastructure to their own benefit.

update:  This post is verging on the "is cronyism capitalism's fault" argument.  Rather than go into that again, it is here.

Update #2:  Related

Arkansas orthodontist Ben Burris was hauled in front of the state dental board in September after dentists in northeast Arkansas complained that he was offering dental cleanings to the general public in his Braces by Burris orthodontics clinics. The price for dental cleanings was $98 for an adult and $68 for a child, which Burris has said is about half of what dentists in northeast Arkansas typically charge.

Burris said most of the patients who need cleanings don’t have a dentist, but are checked by one of the three orthodontists in his clinic. Also, Burris said he offered the service because it was good for his business and good for the public. Some of his competitors “have gone absolutely ballistic” over the price and complained to the board, Burris said.

MP: Of course, the Arkansas dental cartel has no basis to complain directly about the low prices for dental cleaning at Braces by Burris clinics, so they are instead complaining that the clinic’s low-cost teeth cleaning services violate the states Dental Practice Act, which prohibits orthodontists and other specialists from practicing “outside their specialty.”

  • MingoV

    "He and Matt Yglesisus argued that this smaller number of doctors and
    higher compensation rates were due to a physician-operated cartel. This
    is a proposition I and most libertarians would agree with."

    I get tired of reading this myth. Here's the real story. The federal government provided more and more funding for medical schools starting in the 1960s. The schools became addicts. In the 1970s, the federal government decided (based on garbage data) that we soon would have too many physicians. The government assigned a quota to each medical school. Schools that accepted too many students would lose some of their funding. No schools went over their quotas. In the 1980s, the quota for entering medical students was about 16,000 per year. It remained at that level until 2010 when the Obama administration realized that ObamaCare would drive physicians out of practice.

    Hospitals that train residents get full funding for doing that via Medicare. The federal government capped the number of funded residency positions per hospital. In the early 1990s, the federal government reached the incorrect conclusion that we had too many specialists. The federal government reduced the number of specialty residency positions it would fund and increased the number of non-specialty (internal medicine, family practice, pediatrics, and OB/GYN) positions it would fund.

    These two interventions resulted in too few physicians and far too few specialists. These outcomes were not due to the AMA or physician cartels. The AMA has affiliations with the organizations that accredit medical school and develop board examinations. Those affiliations do not give AMA control over those activities. The AMA has absolutely nothing to do with physician licensure which is controlled by each state. Obtaining licensure is not difficult (except for the typical bureaucratic hassles) for any physician who graduated from a US medical school and passed the relevant board exam. Medical licensure does not cause a significant barrier to practice.

    Note: I'm a pathologist and former member of a medical school admissions committee.

  • skhpcola

    Warren's continued admiration for that Drumb retard is puzzling. It certainly isn't opposition research. If I were to visit a website often and concluded that most (if not everything) of the information contained therein was bullshit or propaganda or bullshit propaganda, I'd find somewhere else to be entertained or informed. Not so much with Warren. He reads Drumb and Yglesias and other leftist trash like he's an evangelical reading the gospels. At least, that's what he's doing when he's not engaging in flaccid puffery about his supposed liberaltarian bona fides.

  • Eric H

    That's a nice story, but about 3 generations short of where this all started.. Alternatively, you could check out Organized medicine in the Progressive Era: The Move Toward Monopoly (James Burrow) or Ronald Numbers' Almost Persuaded for a more detailed history of how the profession, led by the AMA, secured physician control of physician licensure by way of various government acts.

    I recall reading a study on the effect of licensure in dentistry that showed a clear increase in compensation (probably in David Friedman's econ textbook), and there's this from Le Wik entry on occupational licensing: "Kleiner and Krueger (2010 and 2013
    show that after controlling for education, labor market experience,
    occupation, and other controls, licensing is associated with a 15 to 18
    percent wage premium in the labor market. This estimate may partially
    reflect a premium for higher unmeasured human capital, but it is also
    consistent and likely in large part due to rents." These are not isolated - there is a wealth of data on how licensing actually produces the rents desired by the licensees. One telling piece of data is that the call for licensing almost never comes from consumers. You can guess where it starts.

  • jdgalt

    When "cronyists" pay lobbyists to buy favorable laws, everyone involved in the chain is "to blame" and doing wrong. But sending any of them to prison, even were it politically possible, would be trying to hold back the tide with a sieve.

    The only way to end this problem is to change the constitution so that congresscritters no longer have favors to sell.

  • Craig L

    You make no sense.

  • skhpcola

    Thank you for your weighty and well-considered contribution. You must be another Coke and Pepsi opponent that feels superior to mere mortals.

  • obloodyhell

    }}} Government licensing laws help doctors fight a constant rearguard action against nurse practitioners and other less expensively trained folks who could easily do half or more of what doctors do today.

    As well as jack up prices by often requiring PNs to operate under a doctor's auspices, giving the Doctor the "middleman" handout for doing nothing at all.

  • NL7

    Note that nurses and other medical providers are often subject to various caps and quotas. In California I know that they have far more nursing grads than available slots to take the licensing exam (or at least they did for many years).

    Another important reason to deregulate the medical cartels is other professions see it as a model. I've heard countless lawyers and law students complaining that the ABA is not as effective as the AMA at regulating the number of new entrants and students into the field. Lots of lawyers think the ABA needs to emulate the AMA and flat out dictate the number of law school slots. The ABA previously lost a legal battle in this arena, and I think the politics are worse because people like doctors far more than lawyers, but as long as there's a working professional guild monopoly, the other guilds will eye it with envy.

  • obloodyhell

    Not sure it's a matter of the Constutution, but yes, reduced government does the job we want -- less opportunities for corruption -- and yes, one way or another, this is corruption.

  • obloodyhell

    I will grant that Warren doesn't always stand up for his libertarian ideals*, but he does so more than most, so your vitriol is just stupidly trollish.

    **Most notably on recent support for Gay marriage in Arizona. Yeah, one more set of "special rules" to be used against everyone who isn't a member of the protected class.

  • NL7

    Arguing with dumb things your ideological opponents say is an enormous part of blogs. Are you criticizing blogs generally for paying attention to opponents? Or are you nitpicking with the choice to read opponent blogs directly instead of waiting for the most offensive stuff to get re-posted by other blogs before commenting?

    Also, I've been a reader of this blog since maybe 2005. I'm not sure where you're getting "liberaltarian" from; if anything, he's obsessively anti-partisan.

  • obloodyhell

    }}} These outcomes were not due to the AMA or physician cartels.

    Yeah, they had NO input into these decisions. NO politicians or bureaucrats associated with the crafting of these laws and regulations EVER consulted anyone in the medical profession. No. Never. Not once.

    *OW*.

    You should stop that, it hurts when people make my eyes roll that far back in my head.

    If you actually believe this above crap you're spouting, well, I have a GREAT DEAL on some land. Guaranteed 400% -- no, make it 500% -- return in only 16 -- no, make it 12 months!!.

    No? Well, how about this -- I know this really really RICH guy. He's trapped in a prison in Spain, you see, and can't get enough money to bail himself out. If you'd loan him the money, he'd happily pay you back four -- no, make it FIVEfold!! -- just out of sheer gratitude...

    If none of those appeals, just LMK, I am sure I can find something that will make someone as gullible observant as you a lot of money!!

  • obloodyhell

    }}} One telling piece of data is that the call for licensing almost never comes from consumers.

    But... but.... it's... it's to protect the consumers!! So that makes it okay!!

    Yeah. Yeah. That's the ticket!!

  • skhpcola

    Not being trollish, just kvetching about Warren's latest installment of his bromance with Drumb. And there is no such thing as "obsessively anti-partisan," just as rabid atheists aren't actually devoid of religion, they just worship different gods. Warren delights in believing that he's superior to people that pragmatically choose to participate in the political system, although he is more closely aligned with the leftist ideology of contemporary D-00shbags. Pining for carbon taxes is one major reason that I believe that...there have been others.

  • Gdn

    I recall that for a while we had one US agency paying hospitals to eliminate "excess" residencies being paid for by another agency under Medicare as part of a plan to save Medicare money.

  • irandom419

    A friend's sister married a cardiac surgeon from overseas, but he found
    he would have to redo his residency uncompensated. But he discovered a loophole,
    you can be a hospital administrator without being licensed to practice
    medicine.

    Medicare funds residencies:

    https://www.aamc.org/advocacy/gme/71178/gme_gme0012.html

    First new medical school in 40 years:

    http://medschool.ucr.edu/