Health Care Reform, Part 1

Introduction. This solution will argue that the most important problem in the health care industry in the US today is the numerous anti-competitive measures enacted on every level of government with the blessing of the American Medical Association. Part I describes several problems which fall under the rubric of government interventionism into the free market in medical care. Part II proposes solutions to those problems and examines the consequences of liberalization. Part III summarizes the results of my reasoning.

Part I. From its very inception the AMA, far from its stated mission as a private standards-setting organization, somewhat similar perhaps to the innocuous modern World Wide Web Consortium, has clamored for government protection of existing doctors of a particular school of medicine. The ultimate aim of the Association has been fueled by dissatisfaction with the market price of doctors' services and consisted in a desire to attain higher wages by forming a cartel. Here is a partial list of what has been accomplished in the name of a alleged consumer protection:

1. The number of medical schools has been dramatically reduced. For example, the number of medical schools increased from 50 in 1870 to 162 in 1906. But the impact of the dubious Flexner report issued by the Carnegie foundation (which at the time invested heavily into the orthodox allopathic medicine -- the only type the AMA represented) has been to lower the number of schools to 85 in 1920 and 69 by 1944. According to my information now there are 129 accredited M.D.-granting U.S. medical schools, still fewer that in 1906, when the population was only around 80 million, as compared to 300 million today. The number of students has been restricted, as well; in fact, a medical school is required, in order to obtain accreditation, to keep the number of students they enroll artificially small. Establishment medical schools (which are required to use AMA-approved curriculum) receive massive amounts of subsidies and are discouraged from becoming independent from support by governments and foundations and from becoming profitable through tuition and student fees.

2. The consumer has no say about the prices of doctors' services. Apparently, being able to negotiate the right price is "unethical" and illegal. Practically no doctor has been seen to lower his prices and advertise this fact in decades. In fact, there are no prices as such, only "professional fees" made uniform throughout the profession. These fees are raised early, often, and in secret. Advertising prompt and on-time service, as opposed to the current practice of letting patients sit in the waiting rooms for hours, is also proscribed as an ethical violation.

3. Medical licensure is no less pernicious. Charges such as "practicing medicine without a license" or practicing "below the standard of care" are often levied against competitors if they get too conspicuous. The cartel rarely shows mercy. Non-mainstream healthcare practitioners like homeopaths, naturopaths, chiropractors, herbalists, and many others are plying their trade almost underground, marginalized or altogether outlawed. Even MDs who simply try to innovate, e.g., with Internet-assisted diagnosis and drug delivery, can get into trouble with states' medical boards. Uniform government licensure is one-size-fits-all and even with that size, it is far too restrictive, fitting many fewer that "all."

4. No customer can seek treatment from the pharmacist which used to be normal and common behavior. Pharmacists cannot sell drugs without asking the doctor; they can't even refill a prescription without doctor's approval.

5. The AMA also took part in destroying the practice of a company or fraternal organization to contract out for physicians to take care of their members. This was a very low-cost option yet still attractive to doctors, possibly because of the security it offered. For that and other reasons the mystique of the medical profession could not reach its present absurd level, as much unparalleled as it is unjustified. Thus, even lodge practice had to go.

Part II. The following is proposed to remedy the present situation:

1. Because the AMA is a private organization, it should be left alone. What should be neutralized is its enforcement arm: the federal and state governments. Licensure is the doctors' attempt to cartelize the industry and restrict supply in order to receive above-market wages. But does it not at least weed out a few bad apples? Let us put it this way: there is crying need for diversity of the quality of training of doctors and cost of their services, as opposed to the only permitted "Cadillac standard." Not every malady requires the best doctor in town. Minor health problem, the cures for which are most in demand, can be taken care of by people with lower qualifications.

2. There is, however, a much more important reform to be pushed for. What I suggest is certainly not abolition of quality controls for doctors but their privatization. The market solutions are far superior to government ones. Indeed, one of the freest industries in the US is the computer industry, and, unsurprisingly, it also progresses and innovates faster than any other. Many computer companies, such as Microsoft, Sun, Cisco, and others offer numerous private certifications that individuals can acquire to enhance their reputation and therefore chances of being hired and their salary. We need the same kind of system in health care.

Under free market I expect that there will arise competing voluntary accreditation agencies which will certify doctors, if the latter so wish, and allow them to gain an edge on the competition. Better doctors will want to receive more stringent certificates of competence. In other words, it will pay for a doctor to apply to the most restrictive accreditation agency whose tests he is capable of surmounting. The market is expected to weed out bad certifiers and reward good ones. The Internet can allow customers easily to publish reviews of the doctors they employed through, for example, a rating system similar to one pioneered by eBay (though nothing in my solution depends in principle on high technology). In short, consumers can make discriminating medical care choices, just as they make discriminating choices in every other market. The clear perversity of even terrible doctors' getting high incomes will thereby be addressed.

Given also a reform of the insurance industry which I consider in my second solution, prices will become publicized, competitive, and generally significantly lower; and quality will properly vary according to what each client wants and how much he can afford. Every doctor would be like a computer consultant, and every sick person, like a client choosing the best value for himself out of the pool of applicants. Just as computer consultants solve people's information problems, so a medical consultant will solve people's health problems. It is expected that hiring a doctor under free market will be similar to hiring any professional. I expect that a background check, reputation review, interview, etc. will all be conducted by the customer. Such discernment, while entirely normal and praiseworthy, need not be taxing on the consumer, as institutions will arise which will make finding a suitable doctor a sufficiently easy task. It is true that health is often "more important" than your computer network, but that is precisely why governments cannot be trusted to handle the former and why maintaining 100% free market in all aspects of health care is so crucial.

3. It might be argued at this point that some of the foregoing concerns are no longer valid. Allopathic medicine has progressed considerably, and doctors finally know their stuff. First, people still die from the doctors' incompetence. Second, we see progress that has been made; we do not see the greater progress that would have been made had there been greater competition among physicians.

4. Finally, state medical boards should be abolished; barriers to entry into the medical schools market, lifted; and all government subsidies to medical schools, ended. It has been argued that subsidies to medical schools can be justified on grounds of efficiency, because of capital market imperfections. The problem is that lenders may not want to adequately provide loans for medical school students, because of the uncertainty of repayment in any individual case. Even though the typical graduate student can easily afford to repay the loan, they can rarely give the bank a collateral, and "one cannot repossess a human being." The problem then is all the students who wash out. They may receive comparatively much money in loans and be unable to repay it. The result is underinvestment in medical education and too few doctors from society's point of view. This argument fails, first, because banks give out risky loans all the time. They just charge a higher interest rate to the people they deem less creditworthy. They could do the same to medical students, e.g., by looking at their performance at school. Their parents could be co-signers on the loans. There could be private scholarships for poor gifted students. These are just some of the devices that creditors could use to ensure return on their investment and society, to ensure that students succeed. Government regulations prevent private solutions from being developed or used. But secondly, we need to ask: what if there was genuine competition among schools? Then there would be more schools and more varieties of schools. Both tuitions and average lengths of study would come down to accommodate both students' and patients' demands. Lenders would face fewer risks, because medical students would not borrow so much. The "imperfections" would either disappear or greatly lessen, and no subsidies would be needed. Here we see how one intervention begets another.

5. In the meantime, we can grant pharmacists, as those professionals already close in average competence to MDs, all the powers to prescribe and dispense medications that doctors now have. Doctors should be free from persecution if they try to gain competitive advantage by advertising their prices and service quality. Finally, tax-free health saving accounts should be encouraged as a way of getting Americans used to the practice of paying for routine medical expenses themselves rather than through insurance. (A subject I take up in the second solution.)

6. While the market takes over the job previously done by governments, and the institutions privately regulating the industry are developed, we admit that there may be temporary glitches. (This prospect, however, pales in comparison with the institutionalized robbery that is the health care industry today.) But even though freedom cannot be planned, if there is a will to effect the proposed changes, then good detailed plans of transition will not be hard to find.

Part III. Government interventions into health care are numerous. Even a single intervention can not only distort the workings of the market so as to make it inefficient but also generate a case for further interventions. In other words, there is a dynamics in the system such that the initial intervention produces results contrary to the common good and to the publicly stated aims of its very supporters; people clamor for something to be done; and the result is either a repeal of the intervention and a return to the unhampered market or a passage of further interventionist legislation. All the alleged peculiarities of health care that are claimed to support interventionism are, in fact, the results of other, unmentioned interventionist measures. If only the free market existed in its full actuality, the general welfare would be served far more efficiently than it is now under a "third way" or, for that matter, under a fully socialist system of health care provision.

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