Tuesday, August 11, 2009

Physician's union drives up medical costs

One of the reasons medical costs in the US are so high is that the number of physicians is kept artificially low. I first heard about this about 10 years ago from radio talk show host Larry Elder. Elder explained that the American Medical Association is a powerful union that exerts a lot of control over how many applicants medical schools can accept. This, of course, keeps the number of physicians small, and the whole supply and demand thing kicks in to increase doctor's salaries.

I haven't heard anyone talking about this during the current debate on medical care reform, so I had begun to wonder if Elder's info was bad or whether things had changed. But I found some online articles which indicate that the union is still very much in control and that the shortage of doctors is indeed due to their influence. Wall Street Pit summarizes the situation:
One reason we might have a “health care crisis” due to rising medical costs, and the world’s highest physician salaries is that we turn away 57.3% of the applicants to medical schools. What we have is a form of a “medical cartel,: which significantly restricts the supply of physicians, and thereby gives its members monopoly power to charge above-market prices for their services.

In his classic book Capitalism and Freedom, Milton Friedman describes the American Medical Association (AMA) as the “strongest trade union in the United States” and documents the ways in which the AMA vigorously restricts competition. The Council on Medical Education and Hospitals of the AMA approves both medical schools and hospitals. By restricting the number of approved medical schools and the number of applicants to those schools, the AMA limits the supply of physicians. In the same way that OPEC was able to quadruple the price of oil in the 1970s by restricting output, the AMA has increased their fees by restricting the supply of physicians.
Seems like this should be getting a lot of attention, but I had to go digging just to refresh my memory.

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