Arnold Kling  

Provider-Driven Health Care Regulation

How to Keep Up with So Many Bl... Ayn Rand, Economic/Political G...

Henry E. Jones, MD, writes,

in the late 1990s HMOs throughout the State panicked at the prospect of losing their patients to Internet physicians. Pharmacists panicked at the prospect of Internet pharmacies taking their business.

So the Medical Board of California was pressed into action. There is absolutely no evidence that medical diagnosis and treatment via the Internet is more dangerous than it is in other settings. Research shows that, because of computer assistance, the adverse drug reaction (ADR) rate for Internet prescribing is considerably lower than the ADR rate experienced in physicians' offices and hospitals. Nevertheless the Board was compelled to declare Internet physicians and Internet prescribing a threat to public safety.

With medical trade groups and others in the California healthcare industry, they launched a propaganda campaign to discredit Internet medicine almost before it could get started. The Board gave false testimony to the California Legislature (nothing too unusual about this) and successfully lobbied for laws outlawing Internet medicine. These laws were passed and went into effect January 1, 2001. These laws deny California healthcare consumers access to safe, effective, convenient, and less costly health services while protecting the profits of big intra-state healthcare providers.

Although Jones is a bit of a ranter, I think that the issue of regulatory capture is an important one. That is, most health care regulation is undertaken to protect provider rents, with consumers acting as stage props.

It seems plausible to me that the fundamental reason that health care and higher education are as expensive as they are is that the providers control the accreditation process. With government subsidizing demand and the providers restricting supply, conditions are ideal for increasing rents.
For Discussion. Are providers in health care and higher education better able to restrict supply than in other industries? If so, why?

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COMMENTS (4 to date)
Rick Stewart writes:

I don't think education providers are restricting supply very much, one can get degrees for practically nothing these days. If one wants a degree that carries a bit more weight in, for instance, the job market, one might have to pay a bit more, but still can find quite reasonable prices out there. I suspect high prices are more a reflection of the fact that the consumer (the student) is frequently not the payer (parents and/or scholarship providers usually are).

As for health care, it is easier for providers to restrict supply because getting my money back for faulty products (or even being able to sue for faulty services provided) doesn't quite overcome my resistance to being made ill(er) by unqualified health care providers. Sure I could get my hip replacement in Guatemala for a lot less than I will have to pay in Iowa, but, hmm ... perhaps not.

Russell Wardlow writes:

No better than the legal providers, at least. Restriction on the numbers of new law students in order to maintain salary levels of attorneys seems to be one of the unspoken missions of the Law School Admission Council. Ditto the relatively recently adopted rules in California and elsewhere that you can't take the bar exam without attending a ABA-accredited law school. These two facts are the double whammy that allows a pretty small group of people to define how large the pool of new lawyers will be.

I'd guess the same would be true for any industry composed of "professionals" subject to some sort of formal education-licensing process.

Lawrance George Lux writes:

The real key is 'regulatory capture'. Lobby funds determine freedom of choice in America, it is not restricted to any field alone.lgl

Mr. Econotarian writes:

Medicine is labor-intensive. If we think about the tremendous amount of savings Americans get from imported labor-intensive goods, we can see the tremendous possibility of "offshored" medicine.

My family includes a number of doctors in El Salvador. While I wouldn't go to Salvadoran hospitals myself for the most demanding medicine (car crash with severe brain bleeding, etc.), for most "run-of-the-mill" medicine they are fine. Infact, I'd say the doctors in El Salvador are not particularly less knowledgable than American ones, although my opinion of American doctor's scientific knowledge is fairly low, perhaps cheap foreign competition could increase it!

Already there is a market in offshored medicine from the socialized medical countries in Europe. To avoid waits, patients travel as far as India for rapid and affordable care.

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