 This is one of my favorite topics the economics of medical care and It's something I've had a long personal interest in Because my father who was a physician family practice doctor in South Carolina for his whole career and It was he that got me interested in economics because he had an interest in free market economics he was a fan of Ron Paul and that was before Ron Paul was cool and His bookshelf was full of great works on the intersection of Economics and medical care as well as many other things and he I remember had a Strong opinion about medical licensure opposed Of course and he said in One of the things he wrote That medical licensure is a mistake. He says it's only about a hundred and three years old where I live and this was some time ago and Similarly about a hundred years old in other states, so it's a very new idea when placed against the backdrop of medicine as a whole And he says if you look at it It was the physicians who wanted to remove certain kinds of competition that they had disdained for it's one of the reasons for Higher costs. It's one of the reasons that orthodoxy and medical care has been able to be so militant and stamp out so much of unconventional treatment by calling it quackery and He says I indeed believe that there is much quackery out there and pushing it off the playing field without being able to show That what they do is all that bad or all that different from what we do so I'm opening this talk with a discussion of one of the most prevalent and yet unquestioned Interventions of government into medical care and that is simply the government's ability to restrict who can offer medical services It's not just doctors but Nurses nurse practitioners Many many other medical providers who are Subject to this kind of restriction and it's a very damaging kind of restriction But if you ask people Well, what would you think society would look like if we got rid of medical licensure by the state They would say well this this would be a terrible world to live in any crank would start operating on your brain with Monkey wrench and this would this would I mean people would be dying in the streets because of bad medical care and That's I of course We don't have a whole lot of episodes of Free medical care and a kind of a modern environment to really look at to see what would things really appear to be There are some Liberty-minded physicians who have looked at this one that I'll quote later in my talk is Michelle Akkad who's written some great stuff Not a lot because he's a physician and he's very busy But he's written some great stuff that appears on the Mises dot org website, which you can take a look at later accad he spoke he's he's spoken here on occasion and And So he's he wrote an article that appeared I think about two weeks ago that that Speculated on what things might look like organizationally for doctors Would they be mostly an independent practice or would they be employees of larger medical organizations Mayo Clinic types of organizations? And so there's a there's a lot of speculation about what things would look like, but I think we We sometimes I say we In general not not so much libertarians or free market oriented individuals, but we tend to think that Without some kind of restriction on medical care, then we would be unprotected from quackery And that's not really well Born out by what we can see of the history of medical licensure in the United States I'm not as familiar with other countries But I'll draw your attention to an older article by Ronald Hammowee that appeared in the Journal of Libertarian Studies in 1979 he this is a fairly long article he goes through the details of medical licensure in the latter part of the 1800s and he says You know actually it was this episode of relative freedom in the medical profession Where doctors could go to a medical school of their choice? Medical schools that had that they were so plentiful and cheap that many many people could go into medical school and They could get them they could get medical training and The quality of their care the the satisfaction they gave to their patients was The only thing they really had to be concerned about So the government did not have restrictions of a Heavy-handed nature that it does now on who can get into medical practice After the mid 1800s there was a leftover period left over from colonialism There was a period of medical licensure That lasted until about the 1830s to 40s and then what happened Is I think very interesting the decline of medical licensure after the colonial period brought about a flowering of innovation in medical care and and the Dying off of some very harmful practices that physicians had been engaged in For many years you may be somewhat familiar with this so hammer. We says now I'll give you a link the quotation here because I Think it's important He says the condition of the American American medical profession at the close of the Civil War Was in almost every particular significantly different from that which obtains today The profession was throughout the country Unlicensed and anyone who had the inclination to set himself up as a physician could do so the exigencies of the market alone Determining who would prove successful in the field and who not medical schools abounded The great bulk of which were privately owned and operated in the prospective student could gain admission to even the best of them Without great difficulty with free entry into the profession and Education in medicine cheap and readily available large numbers of men entered practice Competition resulted not only in a proliferation of medical personnel, but in the growth of heterodox theories Arising in opposition to standard medical therapeutics Regular medicine in the early 19th century relied heavily on symptomatic treatment consisting in the main of bloodletting blistering and the administration of massive doses of compounds of mercury antimony and other mineral poisons as Purgitives and Emetics followed by arsenic all compounds thought to act as tonics in case you're not up on your medical science these are Generally regarded as and I think correctly regarded as bad things to put in your body Therapeutic regimen thus developed came to be known as heroic therapy You'd have to be a hero to really undergo this kind of treatment and certainly killed large numbers of patients Unfortunate enough to undergo treatment at the hands of its practitioners now This is I think the interesting part of this that hammer. We says Into this mix of Treatments we would regard as Fatal today came to significant alternatives eclecticism and homeopathy now I'm not advocating These these techniques today but there were some salutary results from the fact that Physicians who followed these practices could easily get into medical care set up a practice and say well rather than inject yourself with with arsenic and and and All these other compounds You can follow our advice and you know, we'll see what happens. We'll see whose Technique is more successful And they successfully competed with regular medicine and Hamoey says between 1830 and 1850 they were in great part responsible for the repeal of medical licensing laws He says eclecticism completely repudiated Heroic medicine and injected common sense into the care of the sick and the ailing Homeopathic physicians were strong proponents of fresh air sunshine bedrest proper diet and personal hygiene for Recuperation in an age when regular medicine regarded these as of little or no value Now if the alternative is arsenic mercury and other heavy metals in your bloodstream and Blistering you and draining you of your blood There's a lot to be said of simply leaving the body alone and letting it heal Using its own immune system rather than compromising that immune system in a variety of creative ways So mainstream medicine by the 1870s had benefited from these innovations You know the saying that's part of Physician training at least I hope it still is first do no harm So at least by allowing people to rest and feeding them well and getting them some sleep and sunshine fresh air They were not doing a great deal of harm now That's that's one common way in which Governments restrict innovation in medical care I'm not a particular devotee of any alternative medicine practice I Don't have any strong objections to most of them either I'm sort of agnostic on this. I'm not really a physician that listened to physicians My father was in mainstream medicine. He was not homeopath or osteopath or in in one of the other kind of alternative groups So I'm I do think medicine has been has made some progress, but it's made progress Partly because it's been subject to competition Where somebody else can come along and try something different and new without being shut down immediately by the state Now one of the other problems that I'd like to discuss here is The problem of the state having enough knowledge enough knowledge to Make decisions that would be appropriate for a patient and There's been some work on this I've contributed in a small way to this In the Journal of American Physicians and Surgeons my father and I wrote an article which I think appeared about 2007 or 2008 by the way the Journal of American Physicians and Surgeons is a great Kind of alternative to some of the Statism you'd you'd see in a lot of the other Medical journals and there's a lot a lot there Worth worth looking at there's an organization called the Association of American Physicians and Surgeons and Look them up if you're interested in this it's a great free market oriented Society of doctors I spoke at one of their conferences several years ago And it's a great experience to see these doctors that are really committed to the care of their patients and see the Barriers that the state has placed in the way of taking care of their patients and would like to see those barriers taken down So one of the things that states do Is try to intervene in the decision-making process between the patients and the doctors? Unfortunately, they cannot Have the information they need to improve upon those decisions Now F.A. Hayek whose name you've doubtless heard multiple times Already this week and previously I wrote a very important article in 1945 called the use of knowledge in society and Hayek pointed out in that article that The kind of information that central planners would need to have To make Good decisions is simply not available to them by the nature of that information. He says that knowledge Which he called tacit knowledge? Cannot enter into statistics and therefore cannot be conveyed to any central authority in statistical form Can we look at the? Interaction between a doctor and a patient and Judge that encounter judge the effectiveness of what the doctor is doing by looking at a little bit of compressed information in the form of a electronic medical record or some other kind of record one of the Criticisms that my father repeatedly advanced against The bureaucratization of medical care before his death in 2009 was of electronic medical records and This is all the rage now. You have people like Newt Gingrich who are just big fans of Electronic medical records the idea being we can take all of this that's going on with a patient Smush it down. You like that word smush very technical term into a series of numbers and checkboxes send that off to somebody from Medicare and Medicare is going to be able to make some kind of reasonable Evaluation of what's going on? And it gives this this illusion that The doctor can be held accountable by the insurance company or by the government and That's simply not the case Hong Kong and our net in a Article 2008 article on the cei.org website Say that every day thousands of physicians and patients make myriad choices from available drug options and they're looking at particularly the FDA's kind of intervention and they say basically The FDA can't have the kind of knowledge that need to have to make a decision about what kinds of substances are appropriate for a particular patient Conquered our net say that they take into account differences the physicians and the patients take into account differences in effectiveness side effects and drug interactions for each individual patient FDA scientists may know a lot about the drugs they evaluate and their average effects on thousands of users, but they know nothing About the individualized physiology of each patient on the other hand Intensively trained clinical physicians who do have a knowledge of individual patients are best able to advise them If the drug is appropriate In my American economic history class, and I'm not going to get off into that today That's not my topic, but in in my class. I mentioned the movement toward interchangeable parts in manufacturing which allowed for mass production and I'm afraid that medical care As it becomes more bureaucratized tends to think of human beings as being kind of like machines with interchangeable parts that each human being will react similarly to a given therapy and That is not the case now again, I'm not a physician, but I will refer to you to Michelle Akad's Mises daily article. I think it was June or July of last year 2015 on this Where and and also he had a paper delivered at the Austrian economics research conference earlier this year where he talked about the fact that human beings are each different and the mechanistic kind of model of medical care is not very well suited to Healing In fact, it Promotes a view of health itself. That is Akad says Inappropriate so when we try to use these electronic medical records and other means of Compressing information and sending it off to a distant bureaucrat That carries various risks. One is that the kind of coding system that is used Misses circumstantial information The fact that there are certain details of this patient's personal life that may make it difficult for this patient to Regularly take the medication prescribed in a way that will give that medication the desired effect If the distant bureaucrat doesn't know this then that is Going to detract from their ability to Evaluate what's going on maybe this it's very difficult for this patient to move around its mobility is restricted So just getting into the car to drive to a pharmacy or drive to a doctor's office May itself present certain risks And challenges for someone who is Wanting to get well So what happens is we have these centrally imposed standards by the bureaucrats who have this imagination that they They know what is going on and the doctors then if they really care about their patients have to decide Do I want to take care of my patient or do I want to satisfy the bureaucrat? And I think conscientious doctors will say I Don't want to lose my medical license, but I need to try to Help the person in front of me and Conscientious doctors will sometimes creatively bend or break the rules to help patients The bureaucrats of course know this and take great offense at this so they will create these draconian penalties To Try to terrorize doctors into following the bureaucrats standards even when that is detrimental to the patient Mises in his great little book bureaucracy, which Peter Klein mentioned yesterday in his talk if you missed Missed Dr. Klein's talk. I believe that was recorded and you go back and and listen to that But bureaucracy is as as dr. Klein mentioned one of those Shorter easier to read but perhaps underestimated books by Mises and Mises points out the governments by their nature are formalistic and rigid If you get stopped by a police officer for speeding You can you can talk To the police officer, but the police officer is interested in writing a ticket meeting a quota following the rules and bureaucrats are not incentivized to Ignore the rules. They know they will always be safe from criticism by their superiors when They follow the rules and So even if the rules don't make any sense In a given situation the bureaucrat knows if I start exercising my personal judgment here I can get in trouble. I will not get in trouble if I follow the rules So even when the rules don't make sense The bureaucrats tend to follow them The core problem here is that there's a lack of a measure of success and failure governments are not profit-seeking in the sense that we normally think of that that term governments don't have a way to measure costs and Benefits again, I'd point you to dr. Klein's lecture yesterday where he talked about that the Importance of evaluating cost in a business governments don't have that they don't have a feedback in The form of profit or loss the firm is making a profit That's like the consumer saying you're doing the right thing with those resources. You're putting them in the right place. You're satisfying our needs our wants and losses are like the The firm receiving information that they're using resources badly but they're not satisfying consumer needs as well as They could if they use those resources differently So bureaucrats who don't have a good way to assess the success or failure of their activities bureaucrats who are incentivized to simply follow rules have been multiplying This is from one of the articles that I'm Sighted earlier. I think this is the one that appeared on Mises daily last year Web addresses there if you care to take a look This is the growth of physicians and administrators in medical care since 1970 This should be a Bit shocking Now this is not the only industry where that has occurred I'm in higher education and I can say if you had to plot a similar chart or graph with Teaching faculty and academic administrators. It might look very similar to this and for not Not very different reasons We've seen an explosion in the number of administrators The cod says it is particularly noteworthy that this graph depicts the administrative workforce is shooting up in the early 1990s you can see that there For it is around that time that payment for medical services would become highly dependent on a Byzantine system of codification invented precisely to convey to central authorities in Charge of health insurance Crucial information about what is taking place in the privacy of medical offices operating rooms or hospital bedsides in 1992 with the passage of the Medicare fee schedule the coding system became mandatory and so then anytime you go to the doctor The doctor is thinking in terms of These codes how will this be reported? how will this be documented and so Typically if you go to visit the typical doctor you will find that there is a large number of staff To take care of a lot of this documentation Which of course drives up the price of medical care You will find a few doctors Who are Simply fee-for-service doctors who will say we're not going to file any insurance We don't do Medicaid you pay cash and we take care of you and if You mentioned this to the ordinary American they would they would think well, how could that possibly be affordable? I can tell you it can be quite affordable You eliminate so much of that documentation overhead and a considerable amount of risk To the doctor you can ask dr. Prince here in the front row here about how that might work He's well-versed in that kind of thing as a physician And there are a number of clinics that have sprung up to do similar things. There's one in Oklahoma I think it's called the Oklahoma Oklahoma Surgery Center Surgery Center of Oklahoma Which has gotten quite a bit of attention. I think they were featured on Stossel a year or two ago And they publish their prices on the internet For a common medical procedures their infection rates are very low Which is one way to measure surgical quality is how many patients come back with infections their infection rates They publish those two you can take a look compare quality And people come from all over To take advantage of what is to those doctors very they're very self-aware This is a this is an this is the free market at work And they are trying to do their part to take care of patients without the Without interference from the government as much as is legally possible for them to do The I'll summarize some of this Basically you can you can take certain events that happen between a patient and doctor You can put a little code on some of those events and send those off to the central planner But going back to Hayek Hayek Mentioned the the problem of a owner of a cargo ship a tramp steamer Who has extra cargo space and he alone knows that that space is there and To try to Use a central planner in such a situation to make use of this available resource would require the transmission of information in a way that the The the central planner could not gain this information In time and would not have the ability to act on that information effectively to get cargo to fill that empty space and That is that is the problem for medical care today the context associated with information Elicits meaning based on which the doctor and the patient act So if you have this kind of CPT code New patient visit EM coding level for prolonged service associated with ICD-9 code seven eight six point five oh Which is chest pain unspecified? That lacks context You get a bunch of numbers there and There's this illusion that something has been conveyed that's useful to a bureaucrat, but it's not really The only tangible effect a cod says of coding scheme is simply to require a massive influx of administrators Charged with interpreting and acting upon those obscure data signals All of this as I've said leads to higher costs There's several reasons for this licensure, which I've listed here is one of those And a licensure seems to be spreading I had a Someone contact me yesterday asking me about occupational licensure about what I thought about it And there's a there are a lot of occupations depending on your state hundreds usually of occupations that require permission from the state and Even in cases where there's not a whole lot of doubt that the customer can really understand what's being done and And there's not a lot of mystery behind the the curtain about what the service provider is doing There's a famous case infamous case. I should say of a hair braider Who at a young age maybe 13 14 15 began a very successful hair braiding practice for African-American women And was shut down even though she had a booming practice and her customers were very satisfied Maybe maybe she was shut down because she had a booming practice and her customers were satisfied because her competitors Who were licensed did not appreciate the competition and they? Got the state to shut her down It's not very hard to figure out if your hair is the way you really wanted it um Medical care is a difficult more difficult case to make because The ordinary individual doesn't know as much about medical cares as the doctor does that's not an insurmountable problem I'm not a huge fan of of Milton Friedman, although I think he did some useful work in some areas I think he did some damage in some other areas not very happy about the withholding tax for example but Friedman has a chapter in his book capitalism and freedom on occupational licensure. It's an older book, but it's It's it's pretty good on some of this About occupational licensure Boy a potty suggests that there are some other reasons for these rising costs employer provided health insurance Which started about 1930 1943 in response to very high marginal tax rates if the employer wants to pay the employee and Help the employee avoid adverse tax consequences than providing this in-kind benefit of Health insurance was one way to convey value to the employee In a tax-free manner Boy a potty also mentions the obesity epidemic and Intellectual property patents and so forth. I've got an article on Mises It's Mises daily might be on the blog last year or yeah, I think it was last year on this Case of a pharmaceutical company that raised the price of a course of their Drug treatment to tens of thousands of dollars and what are we to make of this is this an indicator that the market is broken and I argue that no the market's not broken one of the problems here is that the drug has a patent on it and It's illegal for anybody to create a close substitute For this particular chemical compound now, I'm not going to get into intellectual property. There's no time for that here, but there's There are there are serious serious problems with The pharmaceutical industry Largely because of intellectual property Rising costs are mostly due I would say to the Interposition of a third party between the patient and the doctor. I say care provider here because I'm trying to include Dirt nurse practitioners and other people that are providing these kinds of services So they begin to work for the Satisfaction of the regulators and the third-party payers the insurance companies rather than for the patient Nothing wrong with insurance But in the United States the insurance companies are Are Providing insurance for non catastrophic kinds of risks Again because this is a tax deductible expense on the part of the of the Patient they can receive these services and so they want to increase the value of these services And one of the ways to do this is to have a very expensive healthcare or insurance policy with low low deductibles and Low co-pays what that does is make the patient a very bad shopper When it comes to buying or choosing among Medical services if someone else is picking up the bill What does it matter if it's very expensive? This is called moral hazard The risk that the insured person might engage in activities that are undesirable and we I'll put the immoral term in quotation marks here because it's not I don't really see this as a Moral failing, but it's certainly an incentive to do things that are contrary to what the insurer might want and Expand the size of claims. I Had back trouble a few years ago and I went to a chiropractor about it and Chiropractor said well, I'd like for you to have an MRI So I said sure I'll do that and so he said you can call this MRI place in my town and I called got an appointment for I think the next day try that in some countries and I got a Got an MRI I Didn't really look closely at what the cost was going to be because I knew my insurance company would pick it up I've eventually got the bill and I looked at it was several thousand dollars charge of the insurance company I paid Tiny piece of that I had I had very little incentive now if I had to actually pay Several thousand dollars for an MRI out of pocket I Would have said can you get by with an x-ray? I Mean unless my back pain were Crippling which it wasn't I think I think maybe we can get by with it something else try an alternative But I had no incentive to seek an alternative now. I'd let me be clear. I don't think that in a Market system the price you see Charged to the insurance company would be the market price. I mean people get worried about this that well if we didn't have government Price controls or if we didn't have insurance that covers Everything then we would end up paying these very high prices we see on The on the bill. I don't think that would happen at all What we do see in medical care is that costs have gone up Precisely where the third-party payers are most prevalent You can see this here medical care from 1992 to 2012 Went up by a hundred and eighteen percent In real costs I'm sorry in price in aggregate prices The inflation rate going by the consumer price index and don't jump on me about the consumer price index I know it's got serious problems, but that was 64 percent over the same period physician services went up by 92 percent Cosmetic services went up at a rate of less than inflation about half of inflation 30 percent over that period Why well insurance typically doesn't cover cosmetic services Medicaid doesn't cover Cosmetic services governments and insurance companies are largely absent From the provision of cosmetic services. This would be things like Botox and and various other procedures. So We see prices are Rising more slowly in those places where third parties are Not there or are at least less prevalent We have a problem with competing standards as well medical providers tend to Follow the instructions of those who are providing the money We've got the government standard the patient standards which ought to be most important Patient might have insurance which is provided through an employer the patient often doesn't have a lot of Say over what the Insurance company is going to be although employers do want to make sure their employees are satisfied and therefore want to have an insurance company That is going to provide The kinds of services that their employees want The employer picks the insurance company the insurance company then has its own standards to impose on the care provider so there are several competing avenues of Instruction and direction going on Most of the money is coming from government and insurance out of pocket payment from the patient is a small minority of the total when we introduced the ACA the as usual misnamed act the affordable care act This Made things more complex and introduced additional mandates Not all of which made Patients better off. So the federal government requires patients now to have insurance or pay a hefty penalty the federal government requires employers over a certain size to provide medical insurance If you are working for a firm that had say 55 employees There's a good chance that employer found a way to shave off about six of those employees after the affordable care act went into place Then we have these State exchanges and federal exchanges. I noted earlier this year that one of the largest medical insurers in the country I think it's United Health Some of these medical insurance companies are backing out of markets and In some cases if you go to one of these exchanges to try to buy health insurance, you're going to find one option one Not not all of them, of course But this this is this is a significant problem if there's an absence or a lack of competition in these markets This is not going to help Patients it's not going to cut back on Costs overall Now I don't have much time left only a couple of minutes, but there's a lot of fun We can have with comparing nations. I say fun It it it's a kind of a macabre Humor you understand with looking at different countries and and healthcare and I I have to always tell my classes I am not setting up the United States to some sort of free market paradise with regard to medical care That's not at all case And you talk you talk to people who favor socialized medicine and they'll say well See see what free market medical care got you in the United States. Don't you want to be like country X? Well, it's not really free market in the United States Since I'm out of time almost I'll simply point you to some some articles I think I provided this to the Institute for posting along with my lecture Here, but Yuri Maltsev Who defected from the Soviet Union? years ago Wrote a great article about the lesson of Soviet medicine that appeared in the free market in October 2009 You can find that on Mises org and he points out the problems with countries that have more government provision more government intervention than the United States and what we see is commonly waiting lines and decreased quality of care He says in the UK Those who are 55 years old or refused treatment at 35% of dialysis centers People 75 or older rarely receive any medical attention at these centers In Canada, there's a kind of a priority scale Sometimes you'll be if you go to a Canadian clinic they'll Public clinic they'll refer you to a private sector a lot of Canadians end up coming to the United States for medical services Because you don't have to wait as long you can get those services more easily Government itself denies claims at a high rate compared to private insurance and if you look at The availability of certain types of medical care in the United States That is more readily available than in some other countries More physicians per capita more nurses per capita If you want to look at the Canadian American Comparison in some detail I'd refer you to Ronald hammer. We's talk On Mises org from July 26th of 2011 Which is titled Canadian medic Medicare as a model for the United States He's not suggesting that we should copy the Canadian system here So I'll have to stop here because of the lack of time But if you're interested in more of this, I'll be happy to talk to you during my office hours later today or Immediately after the talk. Thank you very much for your