The Market for Medical Care: Why You Don’t Know the Price; Why You Don’t Know about Quality; And What Can Be Done about It.

Studies | Health

No. 296
Monday, March 12, 2007
by Devon M. Herrick and John C. Goodman


Obstacles to Transparency

As the preceding discussion suggests, the medical marketplace is changing.  However, legal, regulatory and cultural barriers to competition, innovation and transparency remain.  Following is a brief discussion of a few of them. 

“Medical societies and trade associations have discouraged competition among providers.”

Regulations and Professional Culture Discourage Competition.   The states have long licensed and regulated physicians with the ostensible goal of maintaining the quality of medical care. 83 However, state medical boards are dominated by physicians; and like the boards governing other regulated professions, they tend to be run for the benefit of practitioners. 84   In the past, these organizations tried to suppress competition among physicians by declaring certain practices unethical and subject to sanctions, such as denial of hospital privileges and even the loss of their license to practice medicine. 85   Advertising prices, for example, was once forbidden by ethical cannons and state laws.  Even though these regulations and sanctions have been repealed or overridden by the courts, a cultural bias remains against advertising prices or competing on the basis of price. 

Similarly, hospital trade associations have discouraged price competition for years; and the industry has always quietly discouraged quality comparisons. 86   Traditionally, hospital advertising tended to tout amenities, convenient locations or the number of doctors on staff - not the quality of medical care. 87

State Laws Discourage Innovative Medical Practices.  There are also state laws that prevent medical practices from being organized in innovative ways. 

Restrictions on the Employment of Health Professionals.   Nurse practitioners can deliver some routine medical care without the direct supervision of a physician.  However, some societies of physicians want to limit their independence by requiring the strict supervision - and even the physical presence - of a physician.  A 2006 Florida law limits the number of retail clinics, staffed by nurse practitioners, a single physician may supervise to four. 88   This will effectively slow the growth of these efficient clinics.  Georgia legislators attempted to limit the number of clinics a physician could supervise to three and the Missouri Legislature considered banning clinics inside pharmacies staffed only by nurse practitioners. 89

“Some states prohibit corporations from employing doctors.”

Restrictions on the Employment of Doctors.  About one-third of states have enacted laws banning the "corporate practice of medicine," which prevents corporations from hiring physicians to practice on their behalf. 90   The implication is that a corporate employer might exert undue pressure to skimp on quality in order to increase or preserve profits.  These laws ostensibly aim to ensure quality of medical care, but in practice they inhibit innovative service arrangements. 91   In some cases, this means a retailer, such as Wal-Mart, cannot open a health kiosk inside a store and hire practitioners to staff the clinic.  However, corporations are generally free to lease space to companies that provide medical services by independent contractors. Subcontractors often have the same problem because they also cannot be controlled by a corporation.

One-third of the states have passed laws allowing some firms (such as hospitals and health plans) to hire physicians directly to practice on their behalf. In the rest of the states, the laws are either unclear or appear to support or restrict the practice to varying degrees.

Restrictions on Internet Medical Practices.  While some restrictions on the practice of medicine have been removed in recent years, many still exist.  For example, it is generally illegal for a physician in one state to consult with a patient online in another state without an initial face-to-face meeting.  It is also illegal in most states for a physician who has examined a patient from another state to continue to treat the patient via the Internet.  Unless the physician is licensed in the state where the patient resides, it is considered practicing medicine without a license.  It may even be illegal in some states to consult with a patient online who resides in the same state as the physician; however, regardless of its legal status, many medical societies consider it unethical. 92

Restrictions on Collaboration between Health Care Providers.   The federal "Stark laws" make "self-referral" illegal for a physician who has a financial interest in any clinics to which a patient is referred for treatment. It is also illegal for a physician to reward providers who refer patients to them or to a hospital in which he has a financial interest.   Unfortunately, laws meant to prevent self-dealing and kickbacks also inhibit beneficial activities between doctors and hospitals. 93   For instance, the Stark laws could prevent a walk-in clinic from referring a patient with a chronic condition to an affiliated full-service practice.  Likewise, a full service practice likely could not refer a chronic patient to a convenient walk-in clinic for simple services like blood test.

“Health professionals could be licensed nationwide.”

Liability Laws Discourage Disclosure of Error Rates and Other Quality Indicators.   Health care providers are often reluctant to track quality indicators - including complications and infection rates - and do not want them available, lest the data be used against them in malpractice lawsuits.  Public health experts who support the disclosure of quality indicators to improve quality say medical malpractice litigation is the "single most powerful force" that keeps data hidden." 94   In one survey, 76 percent of doctors said they had not disclosed a serious error to a patient out of fear that admitting an error could lead to a lawsuit. 95


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