Monday, September 10, 2012

Why Do Doctors in America Make So Much Money?


When I was in medical school I read  a book that influenced me greatly, called The Social Transformation of American Medicine, written by a sociologist named Paul Starr. Starr, now a professor at Princeton, and an icon of the American left, postulated that the fabulous economic success of American physicians was largely a product of fortunate circumstance and skillful self protection, beginning with  state licensing of doctors  in the 19th century. According to his thesis, licensing, while ostensibly designed to protect patients, effectively served as a barrier to competition , and thus lifted the wages of those able to obtain a license. As a guild comprised mostly of small businessmen, physicians were ultimately happy to embrace the benefits and status that licensing conferred.

Imagine my surprise (and perhaps Starr's as well) when I encountered following discussion of licensing on a libertarian website. It seems that on this questions both left and right agree. Guilds, whether composed of hairdressers of heart surgeons, will do what they can to limit competition and thus maximize their earnings and autonomy. And who can blame them? They are merely playing their role as rational economic actors. If the public  is protected from charlatans (as it surely is in the case of doctors) that's a secondary benefit
peripheral to the primary purpose of licensing itself.

You describe this paradox elegantly in your discussion of organized medicine's long and effective history of protecting its interests (even when its perception of that interest is misplaced), and the disadvantages to  consumers/patients that that limitation of completion produces. There is no reason why, for instance, it should be so difficult to get an appointment with a dermatologist, or why it should cost so much when you do get one. Derm, as its known, isn't that hard. Basically everybody with a rash gets steroids or antibiotics or both. But the American Academy of Dermatology has masterfully limited keep the number of training spots low enough to insure that this remains the perpetual state of affairs.

But I can't resist asking (sorry, it's congenital); isn't this what we docs are supposed to be doing in a liberated economy?  Isn't this what any self-interested group like, say stockbrokers will do if it can? And isn't the only effective countervailing force to restriction likely to be government (there, I have left myself well exposed  for your riposte)?

Those conditions are rapidly are changing you may be happy to know, as the status of American medicine is relentlessly eroded by forces much larger than itself. The number of American physicians in private practice has dropped to less than 50%, and is surely destined to drop even further. Wages, which peaked in the early  80s, are falling in sync. So no matter who controls the health care agenda, docs will be doing what we do for less. Whether we do it any better remains to be seen.

Meanwhile, on Aug 6, Deval Patrick signed S. 2400, "An Act Improving the Quality of Health Care and Reducing Costs through increased Transparency" into law.  



  1. I'm interested in your perspective on licensing. I find the libertarian argument against licensing pretty compelling, but in general it seems to me that the problem is that organizations convince governments to require the licensing they propose. Lawyers are a good example of this--it's required by law to get a license to practice law. Another more recent example is the attempt of the American Dietetic Association to require dieticians to be licensed in several states (which I helped fight against).

    Certainly there would be abuses even if these organizations didn't get their licenses required by law, and I am sympathetic to the argument of using government to combat those abuses (though I'd prefer to see it done as locally as possible, and sparingly). But the potential for abuse seems to become far worse when these organizations use the government to enforce their licensing requirements.

    I guess the problem seems to me to be that governments that are happy to impose regulation also seem to be easily swayed by organizations (whether corporations or professional associations), making it difficult for the average citizens to get what they think is fair treatment. So I'm not sure what a good solution is other than make the government more antagonistic to imposing regulation.

    So I guess what I'm getting at is: wouldn't the way to deal with monopolies-through-licensing be to make the government more hostile to imposing regulations, instead of less?

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  3. In a perfect (libertarian) world perhaps. In medicine, without some form of oversight, by licensing or otherwise, the potential for horrific mischief and damaged patients is more or less limitless. Certainly the solution that Paul Starr would chose would not be a "free" market one but the but the opposite, a top-down, single payer type system (see multiple previous posts from me on this blog and the opposing arguments from WP Knabe). That is indeed the direction Romneycare (oh the irony!) is moving toward in Massachusetts, which currently spends less per capita (and where doctors make less)that almost anywhere else in the country.