Is it time to abolish medical licensing?

Physicians need a license to practice medicine in the United States, but a new paper challenges the assumption that licensing requirements necessarily benefit consumers, Lee Simmons writes for the Stanford Graduate School of Business.

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The case for licensing

In the United States, it's illegal for a physician to practice medicine without a license—and to get one, doctors must undergo "more than a decade of training" and "pass rigorous board exams."

There are many reasons why the public might support professional licenses, Lee writes. For consumers, professional licenses serve as a safeguard against unqualified professionals. But, he notes,

licenses also "serve as a barrier to entry, and as with such barriers in industry, they reduce competition" and raise prices.

It's generally believed that those price increases are justified because they mean consumers are less likely to be treated by unqualified doctors. But, Lee writes, a new paper makes a compelling argument in the other direction.

The case against licensing

Jonathan Berk of Stanford University and Jules van Binsbergen of the University of Pennsylvania conducted research on licensing requirements and found such regulation might not be necessary—or the most helpful regulatory approach for consumers.

"Our key premise is that consumers aren't stupid," Berk explained. "If you know there are charlatans in a certain field, but you don't know who they are, you're not going to pay as much, right?" As such, without medical licensing, the price of medical treatment would decline—although the risk of being treated by a "charlatan" would rise as well.

But not all currently unlicensed providers would, under a licensing-free system, necessarily qualify as charlatans, Berk points out: "[S]ome are just people who trained but failed the licensing exam. Competition increases, and that pushes the price down further."

As such, the paper argues, many patients in such a market would be "winners" relative to today's system, in that they would pay less for care of similar quality. There would also be "losers," of course: patients who are inadequately treated, or even injured, by unlicensed providers and who would have avoided that outcome under a stricter licensing scheme.

"What the analysis says," Simmons explains, "is that consumers as a whole are worse off under licensing—the gains to those who benefit are far outweighed by the burden on the vast majority, who don't."

Should medical licenses be eliminated?

Berk said the study's finding "was as much a surprise to me as it is to anybody." He added, "To be honest, this is not the paper we set out to write."

But he said the findings do not mean medical licensing should be eliminated outright. Instead, Berk argued the research suggests "if you want to maintain the current policy approach, you need to justify it."

Berk explained, "You can't just assume [licensing] benefits consumers. ... The onus should be on you to show, for instance, that consumers are naïve and prices don't adjust." Berk said currently there is no proof every consumer benefits from mandatory licensing requirements.

When it comes to health care, it is particular important to examine the current licensing system, Berk said. "Health care is exceptionally expensive today, and we know that has a terrible human cost," he said. "People aren't getting the care they need. And there's no inherent reason it has to be that way. It's a tough job, but a lot of jobs are tough and pay far less. It's because we've made it so hard to become a doctor and artificially restricted the supply of medical skill. I really believe we should rethink this" (Simmons, Stanford Graduate School of Business, 3/2; Berk/van Binsbergen, Stanford Graduate School of Business, 6/1/2017).

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