David R. Henderson  

Economists on Health-Care Licensing

PRINT
Helping Mortgage Borrowers, Re... The Argument from Hypocrisy...

Milton Friedman triumphs, kind of.

Loosening current licensing restrictions on the range of services that nurses, physician assistants, dental hygienists and pharmacists are permitted to perform would help patients on balance, because the additional safety risks would be small compared to the decreased costs in waiting time and fees.

This is one of the statements that the expert economists in the IGM Forum were asked to agree or disagree on, and give their reasons.

The bottom line? 52% agreed and only 2% disagreed with 29% being uncertain or having no opinion. (I can't tell you what the difference is between being uncertain and having no opinion. I also can't tell you why the percentages, which cover all the possible categories, don't add to anything close to 100%.)

One highlight:
As often happens and as often happened in the late 1970s when he and I were colleagues at the University of Rochester, Richard Thaler reveals his common-sensical inner libertarian, writing:

Pharmacists must be the most underemployed professionals. Lots of schooling to count pills. In France they actually do stuff.

This reminds me of a story. I was prescribed a drug some years ago and when I went to take it, I realized that I had not told the prescribing doctor about another drug I was taking. I wanted to know if there might be interactions. It was late at night and there was only one pharmacy open in the Monterey area. It didn't happen to be the pharmacy that had filled my Rx.

But I was concerned. I called up the pharmacy and felt duty-bound to tell the pharmacist that his pharmacy had not filled my Rx. "That's alright," he said, "Ask me your question." So I did and he answered with a lot of enthusiasm.

"Of course," I later thought, "he got a chance to use his expertise." So a part of my routine, when I give talks about how heavily health care is regulated in America, is to tell that story and explain what is probably a great deal of frustration on the part of many pharmacists. My line I end with is: "Look at all the years of training they get and once they get to their jobs, what do they do? Count."

[That's an exaggeration, I know. Occasionally they get to formulate drugs.]

Why do I say that Milton Friedman triumphs? Because he almost single-handedly, in the economics profession [the other one was the late Reuben Kessel] got the case against health-care licensing treated seriously with his chapter on it in Capitalism and Freedom.

HT to Daniel Klein.

UPDATE: Note this paragraph, though, from a recent article in which the authors, E. Frank Stephenson and Erin E. Wendt, scoured undergraduate labor economics textbooks for their treatment of occupational licensing:

Despite the importance of occupational licensing and a considerable body of
economic research, again, as shown in Table 1, five in-print undergraduate textbooks
in labor economics fail to do justice to the topic. We are not aware of any that does
better. [DRH note: Three of the five had no mention of licensing at all.]

"Occupational Licensing: Scant Treatment in Labor Texts." Econ Journal Watch. Volume 6, Number 2. May 2009, pp. 181-194.


Comments and Sharing





COMMENTS (22 to date)
Mercer writes:

I have often thought pharmacies are a good candidate for more automation. I have been in stores where four of them were behind the counter counting pills and filling bottles at the same time. Why couldn't some of them be replaced by robots?

Tony Licari writes:

David,

I have a friend that is a pharmacist. He jumped on me once for saying "what do you do besides count those pills?" Of course, he told me but then I asked "yeah, but do you use your degree as much as you thought." He replied "not even close."

On the initial question, I know a lot of seniors that INSIST on seeing a Doctor even if an RN, Nurse Practitioner or PA will do the trick. It reminds me of the old man in the movie Fargo who thinks anything can be solved by "calling a professional." There's something magical about that MD or DO.

Phil writes:

Was there a time when pharmacists did a lot more than they do now? My suspicion is that they did, and now they're not needed much, but the rent seeking goes on.

Speaking of rent seeking, in Ontario, there are a whole bunch of over-the-counter drugs that can't be sold unless there's a pharmacist on duty. This is just regular drugs on the shelf that you can take directly to the cashier without actually needing to deal with the pharmacist. I guess when you have nothing serious to do, you have to signal your status (and protect your job) in other ways.

KLO writes:

Richard Thaler must not be a football fan. Pill counting is infinitely more demanding than anything a backup quarterback does in a typical day. While a backup quarterback has to know the offense and be able to execute it with some degree of competence, for the most part he just stands on the sideline holding a clip board while wearing a baseball cap. Pretty good gig if you can get it.

David R. Henderson writes:

@Mercer,
Good point. Possibly even safer.
@Tony Licari,
Interesting story about your pharmacist friend.
@Phil,
Was there a time when pharmacists did a lot more than they do now? My suspicion is that they did, and now they're not needed much, but the rent seeking goes on.
Yes. Before 1938, Americans didn’t need to go to a doctor for an Rx but could go directly to the pharmacist.
@KLO,
Good counterexample. Actually, though, Dick is a football fan. In fact a few years ago, a mutual friend told me that he had flown to D.C. at his own expense to make a pitch to the Redskins about using basic economic reasoning to make different decisions.

John Thacker writes:

Something in the news on the topic:
Connecticut is apparently considering letting home aides administer medicine, whereas currently it requires a nurse. The "compromise" floated by the nurses in Connecticut involve requiring a nurse to "delegate" the responsibility.

Incidentally, I believe that the government is considering allowing this for Medicaid and Medicare patients, and is more willing to save money since the government pays for all of it. With private dollars, the state seems more willing to let good sounding regulation drive up costs.

John Thacker writes:

Something in the news on the topic:
Connecticut is apparently considering letting home aides administer medicine, whereas currently it requires a nurse.

Incidentally, I believe that the government is considering allowing this for Medicaid and Medicare patients, and is more willing to save money since the government pays for all of it. With private dollars, the state seems more willing to let good sounding regulation drive up costs.

Bob Murphy writes:

That's really interesting that so many economists are afraid to say the standards should be loosened. (I'm too lazy to follow the link, so maybe I'm being imprecise.) That would imply that either the current licensing is juuuust right, or that (more likely) they think it would help patients to tighten licensing standards. (I realize some said they had no opinion.)

Hein writes:

My name is Greg, and I am a pharmacist.

When I went to pharmacy school 20 years ago, I felt it was a good choice. I was learning a trade, something practical.

There was a point after college and getting married and having children that I found some free time.

For some reason, I started to be interested in economics. I read books, blogs, and any newspaper article I could get my hand on that dealt with economics.

It is a hard pill to swallow to realize that a large chunk of my pay is rent-seeking.

Another hard pill to swallow is to learn that my time and money spent in college was just signalling. I rarely use my "education" in my daily work. (But, at least my 'wasted' time paid off--see previous paragraph).

I have started to train myself for a new profession. He who hesitates is lost.

Thanks for listening.


Ken B writes:

An appalling case of enforcing the licencing rules.

Paul Ralley writes:

I would give this a B+ for accuracy for the UK.

There is definitely rent seeking behaviour here in the UK (only a pharmacist can open a pharmacy business, and there is a very limited supply of pharmacy licenses - i.e. the right to open a business)

The number of pharmacists is actually increasing though (i.e the people qualified to be a pharmacist), so more of the rent is captured by the owners rather than the workers (qualified pharmacists). Average wages are lower for newly qualified, locums and non owner-managers than 10 years ago (even in nominal terms)

Pharmacists very rarely make up formulations (except adding water to children's antibiotics). There are firms that do this for them on an ad-hoc basis.

However, they don't really count pills either, that's for dispensers. Pharmacists are required to check the medical accuracy of the prescription. That means ensuring that the dose, instructions and interactions are appropriate for the patient. The level of doctor (and nurse, and receptionist) errors in prescriptions is really high. Using a Gladwellian 'blink' these are picked up very quickly. Daily, a pharmacist will make many contacts with doctors, nurses, hospitals to correct prescriptions.

In a first-best solution, the prescribers would get dose, formulation and instructions right first time; in this world they depend on the pharmacists to check there work. I'm glad we have pharmacists deal with the world as they find it!

David R. Henderson writes:

@Hein (aka Greg),
Sure thing. Thanks for sharing. BTW, though, I was never claiming that pharmacists were rent seekers. Some are; some aren’t. I was actually sympathizing with their plight: being trained for something that they know really well and not being able to use their training nearly as much as they could.
@Paul Ralley,
What you say makes sense. I’m glad to see that pharmacists are monitoring doctors.
@Ken B,
I agree with you that that is appalling.

Ken B writes:

At the risk of being locked up for giving advice ... this is one reason I do fill all my Rx through one pharmacist I know and trust. This actually costs me money, as my insurer won't pay for my (cheap) blood pressure pills unless I get them via mail.

Dan P writes:

This article I find kind of funny. First, it's title includes "Health-Care". Pharmacies don't deal in healthcare, but more or less the drug industry, or medical care if you want to stretch it. Pharmacies are a classic example of what I call Symptom relief. They prescribe things that don't solve problems, or get to the root cause, but that temporarily relieve symptoms, usually with a cost that is unseen. From the fact that I can't get certain pain-killers without going to the counter and showing my identification, to the fact that most of the drugs prescribed have dire side effects that don't need to be put on the label because of the % of incidence of those effect, the whole industry is a sham. And then to say that the people working behind the counter need schooling for this industry? Licensed pharmacists means government employee. There is no other way to cut it. I avoid these places like the plague, and its a shame how far we have come from actual health care, which should take place at the individual level.

Biomed Tim writes:

@Greg Hein,

Obviously we need pharmacists, for instances where their expertise is crucial (such as the story highlighted in the above post) but like Mercer, I often wonder why the "pill counting" part couldn't be automated by a machine.

Does anyone have any insights on why we couldn't have a robot dispense the pills into a bottle, then have a human check it?

Hein writes:

@David Henderson

While I am not the one doing the rent seeking, the reality is that my pay would be considerably less if not for a number of things:

1. Licensing restrictions

2. The large amount of money redirected into health care by the government.

3. The fact that health care dollars paid by employers are exempt from income taxes. (I suppose this is the same as #2)

4. The laws that restrict access to pharmaceuticals unless approved by the FDA, prescribed by a physician, and dispensed by a pharmacist.

I do understand that we need to weigh the benefits vs. the costs of the above.

@Biomed Tim

The pharmacy that I work in has a robot that fills pill bottles. I do almost no counting of pills. With that said, the bulk of my workday requires little of what I learned in school. A large chunk of my day is navigating the complex web between physician, patient, pharmacy, and insurance.

It is out of the ordinary to have a retail transaction where the one who chooses the product (the physician) and the one paying for the product (the insurance co./govt.) aren't even in the room.

Mark Zdeblick writes:

Great, timely article.

I was at a conference at Stanford this last Saturday where a poignant example came up. There was a question about reimbursement and regulatory environment in Africa, and i related the experiences of non-profit The Healthstore Foundation, which has franchised over 60 pharmacies in Kenya over the last decade, serving about 500k patients. Each tries to be self-sustaining, ie., profitable, with a single nurse who diagnoses disease and sells medicines. We're trying to add a microscope to each pharmacy to be able to look at blood to confirm diagnosis, but there's a regulation requiring a separate technician to read the slide: nurses cannot by law read the microscope slide.

After i related the above, a comment came up justifying this regulation as addressing unemployment in Kenya, and arguing that such regulations increase employment. Thankfully, having read Milton, i was able to point out that in that environment, regulation does not increase employment, it turns the microscopes into an unaffordable luxury. The population, instead of getting access to an important sliver of modern health care, gets nothing.

Ken B writes:

@Biomed Tim: The Pyxis machine does just that. Many hospitals and health facilities use them or similar systems.

Ken B writes:

Dan P:

Pharmacies are a classic example of what I call Symptom relief. They prescribe things that don't solve problems, or get to the root cause, but that temporarily relieve symptoms, usually with a cost that is unseen.

I think part of DRH's complaint was precisely that pharmacies do not prescribe, and should. However I take it your larger point is 'drugs bad'. The great thing about a free society is you can reject any meds you want, just like you if lived in 1600. Think of it as the darwinian approach to disease treatment.

Michael writes:

My mother, a pharmacist of over 20 years in NYC, tells me she (a) has a technician count her pills for her and (b) spends most of her time being a liaison between the patient, doctor, and insurance company. In this capacity, she says she does put her education -- including her continuing education -- to regular use.

According to her, that's how pharmacists generally operate now. And they don't make drugs themselves.

She also says it's a common misconception that pharmacists know less than they actually do about medicine. I suspect it stems from the fact that we rarely see them putting their medical knowledge to good use.

I'm more than sympathetic to the Friedman licensing argument, but the anecdote in this post is apparently not quite accurate.

D P writes:

Ken B:

I think part of DRH's complaint was precisely that pharmacies do not prescribe, and should. However I take it your larger point is 'drugs bad'. The great thing about a free society is you can reject any meds you want, just like you if lived in 1600. Think of it as the darwinian approach to disease treatment.

No, I could care less about the drug aspect, in fact, all drugs should be legalized. I'm talking about the subsidization of the industry by licensing, regulations, patents etc.. If it was a free market, you wouldn't see half as many pharmacies as you do. This isn't a free society where you can't walk in and purchase whatever drug you want without first paying the toll of getting a prescription, usually by a doctor who is also licensed and overpaid. Also, treatment involves getting rid of the cause of the problem, not taking a drug to relieve a symptom.

John Fembup writes:

Biomed Tim asks "Does anyone have any insights on why we couldn't have a robot dispense the pills into a bottle, then have a human check it?"

I can confirm Ken B's response these systems already exist. The first one I saw was in 1993.

Such systems do more than just count.

Physicians complete Rx's via computer in the examining room or hospital room, which then go electronically to the automated dispensary. At that point, the selection of the medication, the pill counting, and labelling are done automatically. Other admin tasks are also included - e.g., print interaction warnings, update patient records, track inventory. In addition to hospitals, these systems are used by high-volume mail-service pharmacies and even by a very small number private, corporate-sponsored medical centers operated for their employees and families. As a practical matter these systems are normally focused on the most frequently-dispensed medications at the particular pharmacy. I know of no such systems that actually replace the pharmacist (or that call you to remind you to take your medicine.)

Comments for this entry have been closed
Return to top