How the American Medical Association deliberately created a U.S. physician shortage in order to protect jobs and inflate pay.
In April 2016, Charles Johnson and his wife Kira went to the Cedars Sinai hospital in Los Angeles for the birth to their son Langston. They expected it to be one of the happiest days of their lives, but soon Charles found they had "walked into a nightmare."
Within an hour of delivery, Charles noticed blood flowing from Kira's catheter. He called for help, but it took over eight hours before a doctor said he could take her back in for surgery to look at her C-section. That was the last time he saw his wife Kira alive. When they opened her up, she died with 3.5 liters of blood in her abdomen.
Deaths in childbirth in the U.S. are higher than any other developed nation, and the trend has been rising. While there are inevitably some complications in childbirth, a study of infant mortality across countries shows that there is a strong inverse relationship between number of physicians and death. Numerous studies suggest that one in three maternal deaths is entirely preventable.
Los Angeles is not a third world city, and Cedars Sinai is a fine hospital. Charles and Kira were giving birth in a major urban area with a high number of doctors and hospitals per capita. Dig deeper, however, and there is a different story.
The United States is facing a looming health crisis due to a shortage of obstetricians and gynecologists (OB-GYNs). A report by Doximity, a social network for physicians, highlights that most OB-GYN doctors are near retirement age and there are few doctors to take their place. The average age is 51 years old, which is dire, given that most OB-GYNs retire at 59. The study noted that the city of Los Angeles, where Charles and Kira had their child, is number three in terms of cities at risk for shortages of OB-GYN.
The situation is bordering on disaster in large parts of the country. In 2004, 45 percent of rural counties lacked a hospital with obstetrics services. A study in the journal Health Affairs shows that the trend has been getting worse. Astonishingly, today half of all counties lack a single OB-GYN and 56 percent are without a nurse midwife. Approximately two and a half million women of childbearing age live in counties without hospitals that deliver babies. Women's lives are endangered by very long journeys for essential medical care.
So why is there such a shortage of doctors and how did we get here?
The simple explanation is that U.S. doctors operate as a cartel to restrict trade and reduce competition. The American Medical Association (AMA) artificially limits the number of doctors, which drives up salaries for doctors and reduces the availability of care. This has been the story of the AMA since it started, and now it has become deadly.
The shortage of doctors is not restricted to childbirth. The problem is much broader and is affecting all areas of medicine. Today, already more than 66 million Americans live in Health Professional Shortage Areas, or areas where the ratio of population to general care providers is deemed insufficient by federal standards. Sadly, the U.S. is far below the average for developed countries when it comes to doctors per capita.
The situation will only get worse when one considers the tsunami of medical care that the Baby Boomers will soon require. In its 2018 report, the American Association of Medical Colleges projects a shortage of between up to 121,300 physicians by 2030.
But while the shortage of doctors is bad for patients and the country, it is definitely good for doctors' pay.
Almost all top paying jobs in the U.S. are now in the medical field. Four of the top five paying jobs in the U.S. are within the world of medicine and dentistry, according to the U.S. Bureau of Labor Statistics. There is a shortage of general practitioners, and they make the most money, with a median annual salary of $201,100. The first IT-related job doesn't even appear on the charts until you get to 10th place. Even supposedly hot careers like software developers come in at No. 36.
New doctors are flooded with job offers and high pay. Research from physician staffing firm Merritt Hawkins shows in its 2019 survey of final-year medical residents. The shortage is so acute that two thirds of final-year residents are receiving 51 or more recruiting offers during their training, while almost half received more than 100 offers.
The doctors are treated like superstars. "Physicians coming out of training are being recruited like blue chip athletes," said Travis Singleton, executive vice president of Merritt Hawkins. "There are simply not enough new doctors to go around."
Founded in 1847 by a group of physicians from the New York Medical Society and representatives from 28 other states, the AMA existed to restrict the number of doctors from the outset. Sure, it was established with the goals of promoting scientific advancement, standards for medical education, ethics, and improved public healthcare. But a key part of its mission was also to look after the financial interests of its members and to avoid excessive competition.
Like the Hippocratic Oath, the delegates at the very first meeting of the AMA endorsed the Code of Medical Ethics. It started with lofty ideals, but the code would come to include regulation of all sorts of commercial activities regarding solicitation of patients, underbidding, compensation, competition and choice. The AMA lobbied state and federal governments to pass very strict licensing laws. By 1900, almost all states had medical examining boards to restrict the number of doctors.
The great victory of the AMA, however, came with the wildly influential Flexner Report. The report, entitled Medical Education in the United States and Canada, was written by educator Abraham Flexner and sponsored by the Carnegie Foundation in 1910. It called unabashedly for a massive reduction in the number of medical schools. The rationale was that higher standards would produce better conditions of care and that superior qualifications would be a benefit to society. (It is an irony of history that Abraham Flexner was not a doctor and had no medical qualifications - merely a stooge for the medical guild.)
The results were severe. Following the report, the AMA lobbied lawmakers to shut down many medical schools. Standards did improve, but the number of schools fellby 80 percent. Graduations of physicians fell each of the following 20 years, and by 1940 the per capita number of physicians fell from 175 to 125 per 100,000 persons.
The Flexner Report greatly harmed women, blacks and Jews. It turned out that 1910 was the high watermark for women doctors. By 1940 the number of women in the profession was lower than it was before the Flexner Report came out even though the population had raced ahead.
Likewise, the number of black medical schools fell from 7 to 2, and blacks were rarely admitted to white medical schools in the years that followed. Unsurprisingly, it was impossible to develop a critical mass of professional black doctors. Jews also had far fewer spots to apply for, and almost all elite institutions continued to discriminate against Jews until long after World War II.
Due to such restrictions, a wave of Americans went to Europe to study. Even today, the problem continues; for-profit Caribbean schools are Flexner's legacy of shrinking opportunity.
Meanwhile, there were other fronts to fight competition in any form. During the Great Depression, the AMA tried to prohibit its members from participating in health maintenance organizations. The Supreme court ruled this was violation of antitrust law.
By the 1960s, particularly after Medicaid and Medicare were passed, a real doctor shortage was becoming apparent. In response, federal and state programs led to a doubling of medical school graduates between 1965 and 1980. By the early 1980s the medical establishment thought there might be a glut, stepped in again, and the number of new doctors was frozen for the next thirty years - even though the U.S. population grew by almost 40 percent during the period.
In order to meet medical needs, the growth of nurse practitioners has exploded.
So how does the medical establishment get away with it?
Today, there is no market-based system controlling the supply of and demand for doctors. The licensing of doctors is directly controlled by the medical establishment. Public policy has been outsourced to insiders who determine the number of graduates. For the last 75 years, the Liaison Committee on Medical Education has accredited all medical schools in the U.S. and Canada. (The Committee is controlled by the AMA and the Association of American Medical Colleges.)
As a result, becoming a practicing physician requires navigating a maze of accrediting, licensing, and examining bodies. The cost in time and money of becoming a doctor in America extremely burdensome. A licensed doctor has to 1) graduate from four years of medical school 2) complete a 3-7 year residency program, and 3) complete a four-part standardized test of the United States Medical Licensing Exam and 4) pass board certification by the American Board of Medical Specialties. Each step is a bottleneck.
The rationale for restricting doctors today is to even the playing field. Doctors feel they are being squeezed, and rightly so. Hospitals are consolidating and buying up independent practices. The absence of tort reform imposes very high costs. Furthermore, fighting insurance oligopolies to get paid is a Sisyphean task. But the solution to these problems is certainly not to restrict the number of doctors.
We must break the monopoly that current accrediting bodies hold over graduate medical education. We cannot outsource the determination of the supply of doctors to the guild of the AMA. Congress must decisively reduce the barriers to entry by creating new medical schools and tying funding for hospitals and medical schools to the number of doctors they graduate.
The United States should reduce the unnecessary time for accreditation. American students should start by studying medicine immediately after high school and complete their studies in six years, as in many other countries, rather than eight. Quality will not be compromised. Other countries that accredit doctors after six years have more physicians per capita, lower rates of physician pay, and comparable medical outcomes to the U.S.
If you want to see what more graduates do to both supply and salaries, it is useful to look at the difference between medical schools and law schools. In 1963, there were only 135 law schools in the U.S. Now there are 200. By contrast, the number of medical schools has barely grown over the past fifty years (the general population has since tripled).
Supply and demand move prices. While doctors dominate all the highest paid professions, lawyers are the 24th best paid profession in America, right ahead of purchasing managers.
The number of doctors who graduate per year and practice is not an academic matter. The cost is measured in stories of loved ones who are lost. It is a matter of life and death.
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Jonathan Tepper is TAC's senior fellow on economic concentration. He is the founder of Variant Perception, a macroeconomic research company, and co-author of The Myth of Capitalism: Monopolies and the Death of Competition. This article was supported by the Ewing Marion Kauffman Foundation.