The Corporate Practice of Medicine and a Physician Cartel is a Bad Combination for Patients

Physician licensure has created a cartel. There I said it and I said it out loud. The right to practice medicine has high barriers to entry, both in terms of high standards and high costs. It takes 7-to-11 years beyond college to train a new physician, but it really begins long before medical school. A successful application requires not only excellent grades but also excellent grades in the right classes. Going back to the 1970s and possibly before medical school acceptance also requires extracurricular activities, such as internships and volunteering at hospitals, clinics, social organizations or church. It’s only gotten worse over time.

Another barrier to entry for practicing physicians are graduate medical education residency programs, required to practice medicine in all 50 states. The shortest residency is three years, with some lasting up to seven years.

There is a shortage of residency training slots. It varies by year but in some years, there are upwards of 10,000 medical school graduates who apply for a residency program but are turned away. Most residency programs are funded by Medicare and there has been a restrictive cap on the number of new residencies since 1997. Congress capped the number of new Medicare-funded residencies after lobbying by the AMA, which argued there would soon be a glut of physicians. Strange isn’t it: the trade association whose members stood to gain the most from a physician shortage lobbied for a cap and Congress believed them.

Another regulation that contributes to the cartel power of physician licensure is the Durham Humphrey Amendment of 1951. It ostensibly only required habit forming drugs to be dispensed by prescription, but lead the way for a drug class where all new drug approvals are available only by prescription. That is unfortunate because the Durham-Humphrey Amendment resulted in much higher prices for drugs than would be otherwise.

Physicians are the gatekeepers of the U.S. health care system, rendering their licenses very valuable. There is an old joke of sorts in health policy. Question: what is the most expensive medical device? Answer: it’s the physician’s pen. A licensed physician must sign off on all drug prescriptions, all hospital admissions, all surgeries, all therapies, and all diagnostic services. That makes physicians’ pens collectively cost about $4 trillion dollars. In years past hospitals would attempt to curry favor with doctors because only doctors could refer patients to them. There also existed laws in many states prohibiting doctors from working for hospitals or practicing medicine on behalf of corporate entities. In other words, non-physicians could not practice medicine by hiring physicians to do so on their behalf. Going back decades, laws in about one-third of states prohibited the corporate practice of medicine, while about one-third of states allowed it under some conditions while the remining one-third were vague on the concept.

Lately the prohibition on the corporate employment of physicians is rarely enforced. Hospitals and investors are getting around prohibitions on the corporate practice of medicine by placing physicians as the nominal head, but with no real power, over corporate-owned medical practices. Various state medical societies are starting to take notice. This includes Michigan, about which I told Health Care News:

“The problem with allowing the corporate practice of medicine is that doctors are no longer advocates for their patients,” said Herrick. “When physicians are employed by hospitals, private equity, health plans, or corporations, they answer to their employers rather than to their patients. That can result in unnecessary care and unnecessarily expensive care.”

Physician groups in California are also taking notice, suing to enforce prohibition on the corporate practice of medicine.

Numerous corporate entities are employing physicians to use of their licenses. In the past doctors maintained that they controlled their licenses and would not put their employers’ rights above their patients. However, physician employment has skyrocketed in the past two decades. Nearly three-forth of physicians work for a hospital, an investor-owned group practice, a health plan or some other entity. Physician employment has gotten so pervasive, and the use of noncompete agreements so widespread, that most employed physicians do not have the leverage to push back against abusing practices. In addition, physician compensation is often tied to revenue targets, making it even harder for physicians to put the needs of their patients first.