During a national crisis, people usually turn to government. It is easy to sympathize with the clamour for government action, but there are often unintended consequences. Is government the solution to problems with health care in America, or is it the cause of these problems? With a history of interference leading to decreasing competition, increased prices, less innovation and diminished services in medicine today, let's take a look at the government track record.

1) Does the government have a good record at operating insurance?
Hardly. The two largest government insurance programs are Social Security for retirement and Medicare for elderly health care. Four-fifths of the $60 trillion in Federal debt liabilities--more than $400,000 per household in America--are due to mismanagement of these two programs alone. These two insurance progams are on track to bankrupt the nation. This is not a good recommendation for another government insurance program.

2) Does the government contribute to the rising cost of health care?
Yes. Rising costs are due to government interference with open competition and consumer choice. The power of competition is enormous and often underappreciated.

Health Care Guilds
Throughout history governments have restricted competition to benefit special interest guilds. Health care has been no exception. According to historian Ronald Hamowy, early medical licensing laws in America originated from Europe when physicians relied heavily on symptomatic treatments of bloodletting, blistering, and the administration of massive doses of compounds of mercury, antimony, arsenic, and other poisons.

These licensing laws were repealed when traditional forms of medicine were discredited and two popular new forms of medicine emerged, eclecticism and homeopathy, using more natural remedies. By 1870, these new philosophies of medicine were used by one out of every eight physicians in America.1

Entry into the market was open and low-cost access was available through an abundance of private medical schools. The number of medical graduates in the U.S. equalled the combined output of medical schools in Britain, France, Austria, and Germany.

Low-cost health care allowed more people to afford these services, but this was not welcomed by many physicians who wanted the government to restrict competition and to raise prices. Rather than proving themselves through voluntary certification, demonstrated effectiveness, and competitive choice, the American Medical Association (AMA) sought to eliminate rivals and to raise the income of their members.

A report by the educational committee at the founding convention of the AMA in 1847 stated, “No wonder, then, that the profession of medicine has measurably ceased to occupy the elevated position which once it did; no wonder that the merest pittance in the way of remuneration is scantily doled out even to the most industrious in our ranks...”2

Eliminating Options
The AMA, says Hamowy, responded in this manner: 1) Establishing over 400 medical licensing laws in order to restrict the number of new physicians; 2) Replacing the proprietary medical schools with non-profit institutions that trained fewer students at greater cost; and 3) Eliminating competing philosophies of medicine.3

Hamowy’s research found that these laws always included “grandfather clauses” exempting older AMA physicians from meeting the requirements. In 42 states the refusal or revocation of a license was not based on incompetence, but on violations of the AMA code. This code forbade such things as advertising or cooperating with heterodox practitioners. The ban on advertising made it impossible for consumers to make informed judgements about physician records of performance, success, or even prices. And the ban on working with “irregular practitioners” froze eclectics and homeopaths out of “approved” hospitals. Soon, all non-AMA forms of healing for compensation were outlawed.

Economist John Goodman observed that the targeted rivals of the AMA were probably of less harm to their patients than the orthodox practitioners of the day.4 Furthermore, standards that were recommended by the AMA were so stringent that few of their own convention delegates could have met the requirements and, if mandated to do so, nearly every medical school in the country would have been forced to close its doors.5

From 1881-83 the availability of physicians was cut by 40 percent in Minnesota. Commenting on these measures, the vice president of the AMA said, “The people have awakened to the fact that there are twice as many practitioners of medicine in this country as are commensurate with its legitimate wants.” And in 1891 the Journal of the American Medical Association boasted that, in Illinois, “The total number of physicians in the State is less now than it was twelve years ago.”6

Stranglehold On Schools
A cornerstone of the AMA strategy was to require graduation from AMA-approved schools. AMA examinations, regardless of their relevance to healing, were required by states in order to be allowed to practice medicine. Qualifying standards were often changed from year to year in order to control the number of applicants who would be admitted into the profession. Then came a strategy to eliminate half of the medical schools.7

Abraham Flexner was appointed by the AMA’s Council on Medical Education to inspect all medical schools for certification. Economist John Goodman reports that Flexner was not an expert in medicine nor in medical education. He had earned an undergraduate degree in the arts from Johns Hopkins University and he operated a private preparatory school in Kentucky. But his brother was the medical dean of the Johns Hopkins medical school, which was to be his model of comparison for all other schools.8

Flexner made a grand inspection tour of all medical schools, sometimes evaluating an entire school in an afternoon. There was no attempt to measure the calibre of the graduates, only the equipment and teaching techniques, which, according to economist Roger Leroy Miller, “is like assigning grades on the basis of how many hours a student spends studying for an exam rather than on the basis of his actual performance on the exam.”9

The Flexner Effect
Once the AMA evaluated all the schools on its own criteria, it obtained legislation from all state legislatures which denied the licensing examination to people not graduating from approved schools. The result was disastrous to many schools. The number of medical schools plummeted from 192 in 1910 to 69 in 1944. Even Flexner’s own brother was a graduate of one of the medical schools that was closed as a result of his recommendations.10

In 1928 the former head of the AMA’s Council on Medical Education said, “the reduction of the number of medical schools from 160 to 80 (resulted in) a marked reduction in the number of medical students and medical graduates. We had anticipated this and felt that this was a desirable thing.”11

Miller reports the number of physicians dropped during a 30-year period from 157 per 100,000 population to 132. The number of medical schools training Afro-Americans dropped from seven to two. The number of female physicians declined.12 And, says Goodman, the number of Jewish student admissions declined by twice the national average.13

Using similar methods of control, says Goodman, private proprietary hospitals declined in number from an estimated 2441 in 1910 to 1076 in 1946. Though there had been a rapid growth in the overall number of hospitals in earlier years, this trend came to a stop.14 As prices rose, many low income people could no longer afford any health care and had to resort to self-treatment. All patients were denied the benefits of improved innovation, quality, and service that come from competition.

Licensing Vs. Certification
There are surely problems that arise with open competition. This must be contrasted with problems existing in a monopolistic political system, dominated by those from within a privileged guild.

Is it possible to allow both the assurances of quality and the positive benefits of low cost, good service, and varied innovation? Yes. This is possible by replacing government licensing with competitive certification.

What’s the difference? With licensing, politicians, and government bureaucrats are the decision makers about what is to be allowed or not. The law simply outlaws patient choices. There is little or no real competition between providers; little or no information or Consumer Reports on the performance, quality, success rates, and prices of the most important of services: health care.

Certification allows consumers, with advisors of their chosing, to be the decision makers about their own health care. Patients own their lives, they are not wards of the state and of professional guilds.

Medical scientist Mary Ruwart explains that organizations certifying health care providers would need to monitor services in order to protect their “seal of approval.” “Licensing boards rarely do a good job of monitoring the quality of service provided by their practitioners.”15 Certifying organizations, on the other hand, must guard their quality in order to protect their reputation in a world of competitive choice.

Ruwart declares, “By saying ‘No!’ to the aggression of licensing laws, we increase the overall health care quality by increasing availability, decreasing price, encouraging innovation, and allowing full use of each individual’s skills. We prosper when we honor our neighbor’s choice!”16

Associations of providers must win the favor of consumers by proving to them that their remedies and their approach to medicine is worthy. They cannot simply outlaw their rivals. The implementation of a new government-mandated health insurance scheme may shift the payment of bills from some people to others. But this will not solve problems arising from a lack of competition and choice.

-GIR-

Professor Ken Schoolland teaches Economics and Political Science at Hawaii Pacific University and is the author of Jonathan Gullible: A Free-Market Odyssey. He is a member of the Grassroot Institute of Hawaii's Board of Scholars.

FOOTNOTES:
1. “The Early Development of Medical Licensing Laws in the United States, 1875-1900,” The Journal of Libertarian Studies, Vol. III, No. 1, Center for Libertarian Studies, New York, NY, 1979, p. 74.
2. Ibid., p. 76.
3. Ibid., p. 75.
4. Goodman, John C., The Regulation of Medical Care: Is The Price Too High?, CATO Institute, San Francisco, CA, 1980, p. 5.
5. Miller, Roger LeRoy, The Economics of Public Issues, 8th ed., Harper & Row Publishers, 1990, p. 78.
6. Hamowy, op. cit., p. 82.
7. Goodman, op. cit., p. 17.
8. Ibid., pp. 10-11.
9. Miller, op. cit., p. 77.
10. Goodman, op. cit., p. 13.
11. Miller, op. cit., pp. 77-78.
12. Ibid., p. 77.
13. Goodman, op. cit., pp. 30-31.
14. Ibid., p. 53.
15. Ruwart, Mary, Healing Our World: In an Age of Aggression, Sunset Press, 2003, p. 71.
16. Ibid., p. 73.