End state licensing of physicians

The just-released White House report, “Occupational Licensing: A Framework for Policymakers” takes on an important labor market issue. But like many other reviews of licensing, it exempts physician licensing from its critiques. The exception is based on the premise that physician licensing “plays an important role in protecting consumers and ensuring quality.” This is not true.

The benefits of state licensing are overstated. Licensing authorities verify education and training, but little else. State licenses do not indicate an individual physician’s specialty-specific skills. Specialty certification is the purview of medical specialty boards, which are private.

State boards fail to identify and sanction the majority of physicians who put patients at risk. The boards have been criticized for protecting physicians by keeping investigative findings from the public and for long delays in resolving investigations, during which physicians continue to practice. State licensing does not assure quality, just ask a medical malpractice insurance professional who insures “hard-to-place” doctors.

Consumers are protected by an interdependent system of private oversight motivated by concerns over reputation and liability. The participants in this system include hospitals, health maintenance organizations, health insurance providers, medical malpractice insurance companies, and private certification organizations.

Before they associate with, hire, reimburse, or insure medical professionals, these private entities verify a professional’s education, training, credentials, and certification. The oversight includes a review of prior sanctions (loss of hospital privileges, Medicare fraud, etc.), malpractice judgments, an individual’s criminal background, and more. Unlike state licensing, it is an on-going process that doesn’t stop once a relationship has been established.

Hospital privileging assesses a physician’s current skills and defines the boundaries of what a physician is allowed to do in a hospital.  When new procedures are introduced, malpractice insurance companies assess the relevance of a physician’s training. Where appropriate, liability insurers limit an individual physician’s practice or dictate evidence-based standards of care that must be met for coverage to apply. Malpractice insurers work with high risk physicians to reduce their practice risk.

Just as the benefits of state licensing of medical professionals are overstated, the costs are, perhaps dramatically, understated. Unlike other sectors of the economy, where innovation has led to significant changes in industry structure and the delivery of goods and services we purchase, health care remains mired in a regulatory straight jacket that makes it difficult to develop alternative structures and systems of care that would increase access, reduce costs, and improve outcomes.

The American Medical Association and state medical lobbies spend a great deal of money lobbying to defend the traditional structure of healthcare in which doctors oversee care and strictly dictate the parameters of medical education and training. These groups push to limit competition, as is seen by state-level lobbying efforts to restrict telemedicine, retail clinics, and the practice of non-physician clinicians. These actions reduce access to care and preclude low-cost delivery systems.

It’s exciting to read the results of efforts to use telemedicine to increase access to care in rural areas and to reduce stroke-related disabilities and death. But tragic to know that state regulatory policies preclude the expansion of these lifesaving efforts. Similarly, the expansion of retail clinics, which offer convenience at a lower cost, has been hampered by state licensing laws. 

State medical professional licensing does not protect consumers or insure quality. The fact that healthcare involves “public health and safety concerns” is not a justification for licensing, but all the more reason to eliminate regulatory constraints that preclude innovation.

Healthcare costs continue to grow and put pressure on government budgets. The options are to impose cost controls, which are likely to reduce access to care and quality, or to encourage the development of alternative structures and systems of care that meet the needs of American consumers. Eliminating licensing of medical professionals would remove one formidable barrier to innovations that would make healthcare more accessible, affordable, and valuable to consumers.

Svorny is a professor of Economics at California State University, Northridge and an adjunct scholar at the Cato Institute.