US Health Care's Biggest Problem: AMA Monopolization of the Physician Labor Supply.

Author:McCutcheon, Robin S.
  1. Introduction

    The control of any industry via one entity's ownership of a factor of production constitutes a monopoly. The result in the market, when the entity controls the entry and exit of its competition, is upward pressure on the price of goods or services in that industry. A highly concentrated market, which is the hallmark of monopolistically competitive markets, rarely benefits consumers, for they have no choice but to purchase goods and services from the monopolist. Consumers' inability to find comparable substitutes also means they will pay a higher market price than if there were market competition. A monopolist, of course, rarely wishes to give up control of the industry because it controls the market price through the supply of the goods or services it offers. To hold on to its control, typically, the monopolist will seek help from a powerful agent, usually government legislation, to secure it from competition.

    Usurping market forces and altering a free market in favor of a government-controlled or single-entity-controlled market can take decades for the casual observer to notice. Once a single entity controls the market, it is a monopoly: competition is eliminated. Few people alive today realize that the medical industry currently ensconced in the United States is far from a competitive market simply because the fight for control of the medical industry began over 170 years ago, was largely over by 1925, and the resulting medical environment is dominated by one entity, the American Medical Association (AMA). By definition, the AMA is a monopoly because it has sole control of the one crucial factor of production: the labor supply of physicians. To see how this monopoly happened, we must reexamine the actions of progressive physicians in the mid-1800s, (1) the actions of the AMA, and the resulting legislative privilege and regulatory capture that allowed the AMA to control medicine as we know it today.

    After Americans won their independence, the colonial medical licensing laws, installed by the British during the colonies' founding, were largely repealed. This repeal resulted in an explosion of free-market, entrepreneurial, American-trained, homeopathic physicians. In the early days of the American Republic, these free-market physicians competed directly with progressive European-trained physicians and were the preferred medical experts to consult by the vast majority of Americans (Hamowy 1979). (2) By the mid-1850s, the highly competitive nature of free-market medicine threatened the livelihoods and wealth of progressive physicians.

    In an effort to remove their competition, progressive physicians revived the European guild system (Hamowy 1979): they formed a medical union called the American Medical Association. As the spokesman of orthodox (progressive-socialist) physicians, the AMA's stated goal at its first congress in 1847 was to control the labor supply of physicians (entrance into and exit from medical education) in order to enhance the earning power of practicing physicians (Hamowy 1979).

    The AMA focused on three simultaneous targets: "1) the establishment of medical licensing laws in all states to restrict entry into the medical profession and alleviate the uninhibited competition that was rampant in the United States during this century; 2) [the] use [of] state legislation to destroy the hundreds of for-profit medical schools and replace them with far fewer not-for-profit medical schools; 3) [the] use [of] both of the above to eliminate homeopathic physicians and other heterodox medical sects because they represented unwelcome competition to orthodox physicians" (Hamowy 1979). Thence began a fifty-year effort to elect wealthy physicians to every state legislature. A wealthy physician could leave his practice and patients to subordinates in order to participate in state legislatures, whereas a poor physician could not afford to run for state office. Once elected, the wealthy physicians would enact state law to protect the AMA-sanctioned not-for-profit medical universities, thereby giving the AMA total control over the entry and exit of graduate medical trainees (Hamowy 1979).

    Since the end of World War I, every physician currently practicing in the United States has trained in an AMA-sanctioned medical school (McCarty 1971; Savitt 2006). No other entity competes with the AMA. Controlling the supply of physicians forces consumers to purchase medical services with little or no availability of substitutes and at higher prices than would occur in a less-concentrated industry.

    This historical research is important for two reasons. The first is because the only way to break up a monopoly is to expose the monopolist's behavior in such a way that it is transparent to consumers and legislators that the control of that industry harms consumers. After revealing the monopolist, we can take steps to deconstruct it and restore the market to its competitive form. The second reason is more important: we have left our roots of free-market medicine so long in the past that our countrymen have forgotten that competitive markets will, eventually, weed out the bad actors. Loud voices on the political left are insisting that a competitive market in medicine won't work (even though the United States hasn't had one in over a century). Therefore, "for the common good," our country must have a single-payer, government-controlled health care system.

    To return our medical industry to a competitive market, we must remember how we strayed from its path. Therefore, in the following four sections, I briefly reexamine the history of how, with state-level legislative privilege, the AMA gained vise-like control of the physician labor supply. I reveal the role played by wealthy American industrialists and their foundations (the Carnegie and Rockefeller foundations) in funding medical education during the late nineteenth and early twentieth centuries. I scrutinize the influence the AMA acquired over physician labor during the twentieth century. Finally, rather than hope for a government solution, I show that grassroots changes at the individual physician level may be a partial solution to the physician shortage.

  2. A Brief History of the Legislative Privilege Cultivated by the AMA

    At the turn of the nineteenth century, the United States boasted four medical schools: the University of Pennsylvania (founded in 1765), King's College (1767), Harvard (1782), and Dartmouth (1797). There was little federal government oversight during this period because the power of regulation resided in each separate colonial government. After the American Revolution, it resided in the state governments. In addition, colonial medical laws were largely removed by post-American Revolution state legislatures, resulting in rampant entrepreneurship in medicine (Hamowy 1979).

    From 1810 to 1840, twenty-six medical schools were established, with an additional forty-seven opening from 1840 to 1876. It is unknown how many physicians resided and practiced in the United States during these years, but by 1850, the ratio of physicians to citizens was 1 to 568 (Hamowy 1979). By 1870, approximately 62,000 people practiced medicine, approximately one physician for every 755 citizens (Hamowy 1979). Of these, approximately 8,000 were free-market physicians practicing homeopathy and eclectic medicine (Hamowy 1979). The other 54,000 were orthodox physicians who relied heavily on systemic treatments consisting of bloodletting, blistering, and the administration of massive doses of poisons such as mercury and antimony (Hamowy 1979). Many patients of orthodox physicians died, making these doctors unpopular with rural and city folk alike. The free-market physicians, by contrast, relied on botanical remedies, steam baths, and rest--essentially, therapeutic medicine and diagnosis through observing the patient. This type of medicine was developed and patented by Samuel Thomson, a New Hampshire farmer, around 1813, and was quite popular with both rural and city folk (Hamowy 1979).

    America's competitive market in medicine produced more physicians than Britain, France, Austria, and Germany combined (Hamowy 1979). Physicians advertised by handbills and in newspapers, and price transparency and word of mouth drove Americans to the physicians who produced the healthiest patients--which, because they eschewed bleeding, blistering, and poisons, were the free-market physicians, like Thompson. Competition in metropolitan areas was stiff, and the best physicians became very wealthy (Drake 1830; Hamowy 1979). But overall, American physicians were poor and not held in high esteem like their European brethren, according to Flexner, because America had too many doctors. Ample supply drove down the price each could charge, reducing physicians' income unless they wanted to work harder and see more patients.

    In 1847, in an effort to control the medical industry and limit the supply of physicians, 230 wealthy physicians from forty medical societies and twenty-eight wealthy colleges and universities established uniform standards for medical education, training, and practice (Hamowy 1979). The AMA was founded in the course of the medical conventions of 1847 and 1848, as progressive ideology began to permeate the medical community. During these two years, and behind the scenes, progressive physicians in the AMA worked to increase the association's membership and lobby state legislatures to support accreditation of nonprofit medical schools, quietly implementing steps to socialize the medical industry (McCarty 1971). (5)

    After the Civil War, by 1876, there were seventy-seven medical schools in the United States. Dozens more opened before the turn of the twentieth century. The common business model for a nineteenth-century American medical school was as a for-profit commercial business, where a medical student would pay the instructor to teach him medicine. Entrance standards for...

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