Occupational Licensing and Health Spending

(A version of this Health Alert was published by The Hill.)

In July, the Obama administration released an important report on the harmful effects of occupational licensing. Compiled by experts at the Department of the Treasury, the Council of Economic Advisers, and the Department of Labor, and bearing the imprimatur of the White House itself, the report concludes that:

There is evidence that licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across State lines.

Reducing the burden of licensing would give consumers more choices at lower prices. Nowher Nowhere is this need more pressing than in healthcare, where licensing restrictions dominate. According to the report, almost 90 percent of health professionals need licenses to practice.

This seems reasonable. After all, most people don’t want just any old Joe ripping out their wisdom teeth or handing out medicines for any ailment. However, even in these cases, the argument for licensing is overblown.

Physicians are licensed by state medical boards. However, no responsible physician believes he is competent to practice every type of medicine. Physicians specialize and earn certification by national boards in their specialties. These boards are organized and governed by the profession, not the state. Patients and referring physicians value board certification. Would you allow a doctor to cut into your brain who was not certified by the American Board of Neurological Surgery?

The federal government can do something to reduce the burden of licensing, even though individual states have always governed the practice. While the Constitution does not appear to allow the federal government a role in licensing, its dominant role in financing healthcare spending might present an opportunity to reduce the burden of licensing. Further, an approach that promised to reduce spending on Medicare and other federal health commitments should win bipartisan support in Congress.

For example, nurse practitioners are nurses with some authority to prescribe medicines. These are the health professionals we usually see when we go to convenient walk-in clinics in drug stores. According to the Convenient Care Association, the industry’s trade association, the first retail-based clinic opened in 2000. Today there are 1,900 clinics in 43 states, and over 25 million patient consultations have taken place. They offer immunizations and preventive screenings, as well as diagnoses and treatments for common problems such as cold and flu, skin irritations, and muscle strains or sprains.

In some states, however, the business opportunity for convenient clinics is limited by laws that restrict the nurse practitioners’ independence. The Convenient Care Association reports that its members have no clinics in seven states. For example, in California nurse practitioners must be overseen by physicians, with each physician limited to four nurses. This adds to the cost.

Such restrictions in turn cost the federal government money. About a decade ago the federal government agreed that Medicare would reimburse convenient clinics at 85 percent the cost of going to a doctor. When restrictive licensing prevents convenient clinics from serving Medicare beneficiaries, the state imposes a cost on the nation’s taxpayers that the federal government has a duty to resist.

There are two solutions that Congress and President Obama should consider, each of which can be implemented independently. First, allow “site-neutral” payment. Why pay more for a flu shot in a doctor’s office than at a convenient clinic?  Second, encourage Medicare beneficiaries to take advantage of convenient clinics by sharing some of the savings with them. Many shots and preventive screenings are fully covered by Medicare with no copay or deductible. Offer the Medicare beneficiary a small financial bonus for getting them at a convenient clinic.

There would be exceptions if medically necessary, but this should not obscure the main policy objective: to prevent states from artificially increasing Medicare’s costs through burdensome licensing restrictions. This should be common ground for President Obama and the Republican-controlled Congress.

Comments (8)

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  1. Jimbino says:

    Licensing does not serve the public and should be abolished across the board, as Milton Friedman argued in Free to Choose. I myself have participated in the design and testing of bombers, fighters, missiles, rockets, doomsday communications, nuclear weapons triggers and complex medical devices without ever having been licensed. We’d all be speaking Japanese if Oppenheimer, Bohr, Fermi and Feynman and the other Manhattan Project scientists had been required to have licenses.

    It will be a sad day when the gummint requires licensing of hookers like they do teachers. That would serve our sex needs just about as well as licensing of teachers serves the needs of educating our children.

  2. Devon Herrick says:

    In the social sciences, Public Choice theory of interest groups and regulatory capture posits that interest groups are better organized and will focus their energies on specific goals to the detriment of a disorganized public. It’s not hard to believe occupational boards are subject to regulatory capture. Occupational licensure boards are mostly filled with licensee from the occupation that is being licensed. For instance, the 19-member Texas Medical Board contains 12 licensed physicians and seven non-physicians — many of which are also protected by occupational licenses. Occupational boards naturally protect their own licensees. The North Carolina Dental Board tried to force non-dentists to stop teeth whitening, even though laymen could buy the kits over the counter.

    Paul Starr’s Book, The Social Transformation of American Medicine, documents that 100 year process by which medicine achieved it elevated social status, much of which was through regulatory capture.

  3. Kenneth A. Fisher, M.D. says:

    Obsessed with gov. driven care, rather give Medicare recipients the option of HSA/HDHP let each individual decide what is best for them. Relax primary care licensing, let the market work!

  4. Dennis says:

    As a physician I have argued against licensure for years. State licensure requirements are generally less stringent than specialty board requirements. Licenses in many states are for “the practice of medicine and surgery” meaning that a physician with no surgical training can legally perform surgical procedures. Medical licensing is not specialty specific nor does it delineate scope of practice. Both of these functions are accounted for by board certification and institutional priveleging requirements. Competence is assured by multiple layers including board examination & certification, residency program directors, quality reviews, morbidity and mortality statistics maintained by hospitals, specialty recertification, peer review processes, and many other mechanisms, and last but not least the tort system. Other than being a barrier to entry into the field and providing some revenue, state medical licensure adds no substantive value to the patient.

  5. Jimbino says:

    It is nigh impossible to find a competent physician or dentist, since the medical/dental industry does all it can to hide the information need to make a proper consumer choice.

    I once appealed to the Texas Dental Board to redress an attempt by a dental office to defraud me (a “bait-and-switch”), but upon realizing that the Board existed only to protect dentists, I filed suit, whereupon I got my settlement, which of course I can’t discuss, in keeping with the gummint’s interest in hiding all information from the consumer.

  6. Wanda J. Jones says:

    John and Colleagues;

    A direct assault on licenses will bring out the interest groups with their signs and shouts. An alternative could be to permit healthcare systems that take risk contracts to request and receive waivers while being allowed to educate people within their system and give them competency certificates. This could be under the radar for some time. I’m also for multi-skilled people who can work at more than one position within one employers’ provider network. I’d love to hear comments on these ideas. The latter one already works in many places, without fanfare.

  7. charlie bond says:

    Hi John,

    Medical and other professional licensure was the product of decades of social debate in this country. Doctors live in a bubble of trust. Patients come to them and allow the doctors to examine them and question them; they reveal their inner most secrets with the trust that the doctor will do what that doctor would do for his/her mother, spouse or child. That trust is based, not only on the patient’s faith the physician’s compassion, but on the patient’s reliance on the doctor’s training and skill. That training and skill are measured by state licensure requirements. Those requirements are imposed state by state because all health care is local and standards do vary from locale to locale.

    It is ironic that the bureaucrats point to state licensure as a cost culprit, while they continue to pile on regulation after regulation imposing data-collecting requirements that do not measurably improve quality or lower cost, but instead make the delivery of care more inefficient and more costly.

    The idea at the end of your article is one that I have been propounding for years: Our highest national priority should be reducing the cost of health care. EVERYONE should be incentivized in this national pursuit. Patients are the greatest driver of costs and their behavior is the greatest predictor of outcomes. Currently accountable care organizations are accountable to the payers, not the public. ACO regulations are grossly flawed by their failure to provide for patient incentives and other ways to include patients in the quest to cut health care costs. If we are to truly re-design health care, we have to start with motivating patients. What better way than to allow them to share in savings they help generate? Anyone having any questions or interest in this area is most welcome to contact me, as I view patient gainsharing to be one of the most important potential changes we can make to lower cost while achieving better quality care.
    Charlie Bond