David R. Henderson  

Supply-Side Medical Reforms

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Whatever one thinks of the recent health care bill passed by the House of Representatives, one of my biggest disappointments is the lack of discussion of supply-side initiatives among even health economists who know many of the facts.

One refreshing exception is Dean Baker of the Center for Economic and Policy Research, who advocates allowing more doctors to immigrate. Back in February, in a short post titled "Why Do Proponents of More Immigration Never Mention Doctors?", he wrote, in response to the question in his title:

It really is hard to understand, the potential gains are enormous. If we got the pay of our doctors down to the levels in other wealthy countries it could save us close to $100 billion a year. Our doctors average more than $250,000 (that's after paying for malpractice insurance and other expenses), with doctors in places like Germany and Canada getting about half of this amount.

The barriers may not be as large in other highly paid professions (we prohibit foreign doctors from practicing here unless they complete a U.S. residency program), but the economy would benefit enormously from exposing all the highly paid professions to international competition. It is bizarre that this topic never gets raises even in pieces like this one in the NYT touting the virtues of immigration.


I'll match him and raise him. How about even letting more people already here become doctors, nurse practitioners, etc.? Does it really take 8 to 10 years of school and training after high school for someone to learn to be a good proctologist? Hard to believe. How about letting people get certificates certifying that they know how to do certain things? We can have competition of certificate providers who have an incentive to establish a reputation. Look at almost any doctor's office wall today and you'll see that we already have that--certificates that they are trained in certain areas. But let's cut out the requirement that they go to medical school and allow competing certifiers.

Milton Friedman wrote about this long ago in Capitalism and Freedom. There's just as strong a case for it now.

And while we're at it, let's get rid of the certificate-of-need laws that say that companies have to get government permission to start hospitals, expand hospitals, build stand-alone surgery centers, etc.

Do all these reforms, and you could well cut health care prices by 50% or more.


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COMMENTS (19 to date)
AntiSchiff writes:

I don't see why a medical degree isn't enough to practice. Requiring free, instant internet registration for doctors might be fine, so that they can lose registration if they prove themselves a net liability to patients.

There shouldn't be global residency requirements, but rather let institutions that hire doctors decide how much hands-on experience is needed.

I would add to the list of reforms here eliminating the need for prescriptions to buy medication and eliminating direct subsidies for them, so that people can buy them OTC and there are incentives for prices to come down, along with savings on unnecessary doctor visits.

There's a lot of low-hanging fruit in terms of savings in the American healthcare system and we should take advantage of as many of those as possible before remaking the system.

Purpleslog writes:

The limit on Doctors, isn't that of Med School slots, it is that of Residency/Fellowship slots. If more Residency/Fellowship slots are created, then there will be a larger pool of real doctors in the US (whether they went to US or International Medical Schools). Want more primary care docs? Fund more residencies in Family Med, Internal Med, and Pediatrics. Also, the US should embrace the Direct Practice model for primary care (better + cheaper, but needs more docs and NP/PAs).

Aaron Wiegel writes:

I also wonder if getting a bachelor's degree before medical school is really necessary. Engineers seem to get by with a(n intense) 4-year education right after high school. As far as I'm aware, medical school is also immediately after high school in Britain. That could remove one potential barrier by not having to spend 7+ years in school before residency.

Weir writes:

Why do we never mention doctors? People like us?

For the same reason we want to be doctors in the first place. We're a status-obsessed species, and that goes double for people in highly paid professions. The whole point is to set us off from them.

They're protectionists, unlike us. They're nationalists, but we aren't like them. We are, at worst, guilty of feather-bedding or rent-seeking. We can come up with economic explanations for what we're doing, but for what they're doing, we offer sociological explanations, like cultural anxiety or patriarchal privilege.

Eugene Debs says in 1888 "we have what may be called an 'aristocracy of labor'—an aristocracy in which one department of labor looks with proud disdain upon another department of labor," and that disdain hasn't gone away.

john hare writes:

I believe 50% price cut is extremely conservative for a serious top to bottom reduction in imposed requirements. I pay cash in almost all medical situations, and my costs are far below that of people on insurance or payments. I consider this to be an indication of possible cuts available. If there were 2-4 years of required training for the type care I pay cash for instead of the 8-10 now, my $300.00 visits could easily go to $50.00-$75.00. Same for prescription prices. A bit of buyer beware instead of massive FDA requirements that are sometimes still ineffective could easily beat the 50%.

This is for the straightforward issues, complex problems may respond differently. I don't want an internet expert doing open heart on me.

pyroseed13 writes:

I agree with this, but I find it sort of amusing that libertarians who are always saying "immigrants don't lower wages" are now explicitly acknowledging that foreign competition for doctors would actually lower the wages of doctors, and therefore the costs of medical services.

David R. Henderson writes:

@pyroseed13,
I agree with this, but I find it sort of amusing that libertarians who are always saying "immigrants don't lower wages" are now explicitly acknowledging that foreign competition for doctors would actually lower the wages of doctors, and therefore the costs of medical services.
I’ve always thought that if the government allowed only a certain segment of people--say, in one profession--to immigrate, then wages in that profession would fall. I doubt that many pro-immigration libertarian economists would say that allowing, say, 200,000 more doctors into the country, when we now have well under 1 million, would not lower the salaries of doctors.
The claim that allowing immigrants more generally into the country would not lower wages is a different one. That’s because they bring demand generally, as well as supply. Nevertheless, I’ve always thought--and still think-- that the more-general immigration would lower wages somewhat.

ZC writes:

How do you address the medicolegal risks in the scenario you propose of 'letting people get certificates', presumably in a very short time period, to do certain things? You mentioned proctology. So, someone gets a fly by night 'certification' to do colonoscopy. What malpractice carrier would insure them and what hospital would hire them, knowing that when they cause a complication like perforating a colon or miss a cancer, they'll be an easy mark for a malpractice attorney to score a huge settlement given their limited training relative to typical providers of such services.

R Schadler writes:

Finally, at least a small comment on the SUPPLY of medical care. Let's look at the obvious sources: doctors, nurses, hospitals, clinics, medical equipment, medicines.
What might be done to increase all of these, via government policies and private sector initiatives?
Instead, demagogic politicians talk about insurance coverage -- which is simply one, but very widespread way, of paying for actual care. Medical care is the goal, not a piece of paper that says you have some kind of insurance. Having a piece of paper gives some psychological comport; but still requires finding a doctor who will address you medical needs.
Granted medical care does not fully conform to standard service goods, and thus markets are not a pristine solution, but PRICING transparency is also needed (and might be a legitimate regulatory function).

Michael Hubbard writes:

@Henderson,

By more general immigration lowering general wages, do you mean just nominal or real as well?

Bob S writes:

I believe medical labor costs may be part of the supply side problem but that obscenely overpriced institutional charges (hospitals, labs, etc.) are an even greater proportion of the ripoff. Insurance companies are financial victims of these institutions. We, the people, are then victimized by the insurance companies. High premiums not only cover the statistical cost of risk underwriting but also huge investments into commercial real estate and the high cost of lining the pockets of politicians. Since we are footing the bill, we should have the power to clean up the costly corruption.

john hare writes:

@Bob S
I don't believe insurance companies are the victims at all. Anything that drives up costs drives up premiums. It is easier to make a huge profit off of a billion dollars in premiums than a hundred million even if the payouts are ten times higher.

For a sports analogy. The worst team in the league is not victimized by the teams that clobber them on a regular basis. If those other teams didn't exist, there would be no games and no multi-million dollar contracts and revenues.

In some cases, losing is winning.

Floccina writes:

Aren't these state issues? And isn't true the bigger the share of health care paid for through the federal Government, the less the incentive for state politicians to regulate with full costs in mind?

Should we push for Medicare money be sent to the states with a mandate to provide insurance for all people in the state over 65yo?

David R. Henderson writes:

@ZC,
How do you address the medicolegal risks in the scenario you propose of 'letting people get certificates', presumably in a very short time period, to do certain things? You mentioned proctology. So, someone gets a fly by night 'certification' to do colonoscopy. What malpractice carrier would insure them and what hospital would hire them, knowing that when they cause a complication like perforating a colon or miss a cancer, they'll be an easy mark for a malpractice attorney to score a huge settlement given their limited training relative to typical providers of such services.
Exactly. So the problem solves itself.
@Hubbard,
By more general immigration lowering general wages, do you mean just nominal or real as well?
I mean real. Of course, if nominal wages fell, real wages in a positive-inflation world would fall too.
@Fioccina,
Aren't these state issues?
Not immigration, but many of the other issues are. That’s why I said, "one of my biggest disappointments is the lack of discussion of supply-side initiatives among even health economists who know many of the facts.” There’s nothing in being a health economist that requires you to think only in terms of federal government policies.

Larry writes:

I'm charmed by the notion of paying docs by the minute, as we do with lawyers and accountants. No more bias towards "procedures" and no more bias towards gaming the coding system. It also lets docs be more innovative, without waiting for the coding system to catch up.

Separately, we need "single payer" for extreme outlier patients like the one that blew up the pool in Iowa by costing $1M/month.

ZC writes:

@DRH
'Exactly, so the problem solves itself.'

So the 'problem' solved is that your idea doesn't work? If you can't get credentialed to practice anywhere (no hospital or reasonable practice would sign off on the first 'nontraditional, weekend shortcut knee surgeon' as they are highly liability averse and that would be a HUGE liability), then you can't practice.

Apparently you view it as, "The market will decide who is insurable," but what you're obviously unaware of is how medical care is actually delivered and paid for in this country. Your whole premise is that some fly-by-night people could offer cheaper care. First, you should understand that provider costs are only a minority of health costs. So even if you flooded the market with providers, costs would only marginally decrease. But, your new 'cut rate, minimally trained' providers would be charging/getting paid less, while taking on more liability...liability so large that they'd be uninsurable, or at least unisurable at anything close to the rate for traditionally trained providers, so there go your cost savings.

Yep, looks like the problem solves itself, such an idea is completely impractical. I guess when you come from a world where credentials are almost completely signaling, it's challenging to understand one where credentials document standards of ability and competency.

David R. Henderson writes:

@ZC,
Your whole premise is that some fly-by-night people could offer cheaper care.
There’s your error. You seem to have trouble thinking that there is no space between fly-by-night people and people who have less than 8 years of training.

Grant Forbes writes:

I believe letting in these foreign doctors could prove to result in numerous benefits for the American consumers. Not only did they come from countries where they are paid less, but they will be able to add more competition in the states. If a new German doctor comes in town and only takes about $120,000 home a year, he will be slashing prices for medical trips/expenses. This will also in turn keep other domestic doctors on their toes, if they start charging the normal amount but do the same job as his doctor neighbor making half, the competition will spur. More foreign doctors would create a higher desire to lower prices in order to attract clients from around their area. Basically, we would be increasing our support of doctors while not touching the demand. An increase of doctors would make the marketplace more fierce as each doctor does what they can price wise to keep clients and attract new business. Lastly, having foreign doctors in this country would simply be adding more people with lots to contribute to society and furthermore carry on the traditions of classic Capitalism.

Michael Hubbard writes:

Hmm, I was thinking somehow the reduction in costs and increased specialization could outweigh the nominal wage reductions and disrupt the inflation.

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