How Physician Licensing Hurts Medicine and Helps Pseudoscience

JUNE 10, 2014 by DANIEL BIER

In 1900, average life expectancy in the United States was just 47 years, and one in 10 children died before their first birthday. Today, life expectancy is nearly 80, and infant mortality is down to half a percent. Vaccines have battered deadly diseases like polio, smallpox, measles, whooping cough, hepatitis, and tetanus to the brink of extinction. If ever there was a monument to human achievement, it is that, all around you, there are so many people alive and healthy—and so few sick and dying.

Modern medicine is an outstanding triumph of human intelligence and cooperation. As a result of unparalleled scientific and economic development, the West has wiped out infectious diseases, drastically reduced infant mortality, and made inroads in the diagnosis and treatment of all kinds of disorders.

Yet distrust of evidence-based medicine abounds, and pseudoscientific practices continue to thrive along its margins—in the United States alone, alternative medicine is a $34 billion a year business. Given the undeniable success of modern medicine, why do so many reject it in favor of unscientific remedies? While the answer surely lies in a combination of factors, including those of history, culture, and psychology, economics reveals another possible culprit for the success of pseudomedicine: occupational licensing laws.

In his 1962 book Capitalism and Freedom, economist Milton Friedman speculated about an economic factor behind public acceptance of quack medicine. Friedman argued that physician licensing regulations created an economic incentive for substitutes to conventional medicine. He argued that licensure drastically cut the supply of medical professionals, driving consumers to unregulated alternatives. 

“Whenever you establish a block to entry into any field, you establish an incentive to find ways of getting around it, and of course medicine is no exception. The rise of the professions of osteopathy and of chiropractic is not unrelated to the restriction of entry into medicine,” he argued. “On the contrary, each of these represented to some extent an attempt to find a way around restriction of entry.… These alternatives may well be of a lower quality than medical practice would have been without the restrictions on entry into medicine.”

Friedman explained that if licenses accomplish their purpose—keeping out marginal suppliers of medicine—then, for those who cannot afford a doctor, “the alternative is untrained practice by somebody; it may and in part must be by people who have no professional qualifications at all.” Friedman certainly had a point in 1962, but today, demand for alternative medicine comes primarily from people of greater means. Demand for basic care is inelastic and subsidized by the welfare state, while most alternative medical treatments aren’t covered by Medicaid, and the poor have less disposable income to spend on chiropractors, expensive supplements, and so on. In any case, licensing reduces supply, driving up the price of medical care, making substitutes look more attractive. The field becomes filled with quacks and snake oil salesmen, leading to more unqualified suppliers than would have prevailed under a free market with competitive private certification.

What is significant about the faith healer and the homeopath is not just that they tend to be cheaper than licensed doctors, but that they often fraudulently promise greater benefits for their service than even the best that medicine can provide. This situation would seem to indicate that the constraints imposed on the supply of health care by government may exacerbate the constraints placed on it by reality.

In nearly every case, what alternative medicine is actually selling is the placebo response, which is a real phenomenon that results from positive interactions with people you trust, whether they happen to wear lab coats or magic crystals. At the same time, because of the reduced supply, overqualified doctors spend a lot of time treating minor complaints. Their time is extremely valuable and in demand, creating high opportunity costs for talking with patients. Moreover, because third parties such as Medicare and insurance pay for nearly all health care, there is little competition between doctors, and almost none at all between doctors and less-skilled technicians who could treat simple complaints as effectively and at lower cost in a less-regulated environment.

These facts allow us to make two predictions that I believe are borne out. First, given the barriers to entry and cartel status of physicians, the quality of doctors' personal interactions with patients is likely to be lower than it would otherwise be. (For instance, one study found doctors listen to patients for just 23 seconds before interrupting them.) Second, people selling alternative and substitute services will compete on this margin by being friendlier, listening more, and promising extremely optimistic outcomes. The result for the patient is a placebo effect, and for society, a vast industry of well-intentioned but unqualified “alternative” providers.

The unfortunate fact is that the biggest shortage of health care is created by nature: Not everything can be fixed, and no one lives forever. As long as we seek immortality, people will continue to be duped by charlatans promising cure-alls and magic potions. This is because the unmet demand for perfect treatment is filled by a false supply. Superstition and wishful thinking rush into the gaps in our knowledge, and friendly quacks fill in the margins of health care, claiming to solve all the problems medicine hasn’t.

Some of this is unavoidable and probably harmless, but it can prove quite dangerous when enterprising hucksters convince sick people to drink water instead of taking antibiotics or to crack their backs instead of getting chemotherapy. By restricting the supply of professionals through licensure and other regulations, governments have made it harder for Americans to get access to health care, thus ironically leading people to even more low-quality alternatives to good medicine. Regulators’ good intentions rarely trump economic incentives. It’s time to fight fraud with freedom: Abolish the barriers to entry and let people choose the level of treatment that’s right for them.


July/August 2014



Daniel Bier is the editor of the blog Anything Peaceful. He writes on issues relating to science, civil liberties, and economic freedom.

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