Academic journal article Iowa Law Review

Licensing Health Care Professionals, State Action and Antitrust Policy

Academic journal article Iowa Law Review

Licensing Health Care Professionals, State Action and Antitrust Policy

Article excerpt


In Capitalism and Freedom, Milton Friedman pointed out that one rationale for restricting the number of physicians involved the preservation of quality.1 He explained that restricting supply will prop up physician incomes and thereby reduce the incentives to engage in unethical behavior.2 This may sound absurd, but a similar argument has been made more recently. In both Goldfarb v. Virginia State Bar and National Society of Professional Engineers v. United States, the rationale for restricting competition was the need to bribe members of the profession to prevent their performing shoddy work.3 While this excuse is both insulting to the members of the profession and self-serving, it has a fatal flaw: the argument that competition is undesirable-even if true-is inconsistent with the fundamental premise of the Sherman Act.4

In Professional Engineers, Justice Stevens explained that exemptions from the Sherman Act's prohibitions must come from the legislature rather than from the Court.5 When state legislatures attempt to insulate an occupational group from competition and the dictates of the Sherman Act, they must satisfy the state action doctrine.6 In order to do so, the state must clearly articulate its intention to displace competition in the market for those professional services. The state must also actively supervise the regulation that replaced market forces to ensure that the purported rationale to displace competition is satisfied.7

In this Essay, we raise some economic concerns about the wisdom of conferring antitrust immunity on professional licensing boards, which are often comprised of members of the profession and therefore apt to be motivated by self-interest rather than the public interest. In Part II, we examine the political economy of special interest legislation, which suggests that little public good results from replacing competitive market forces with self-regulation. In Part III, we employ a basic economic model to generate predictions of the economic effects of professional licensing. Part IV provides a survey of the empirical research in this area, which confirms the theoretical predictions. In Part V, we turn our attention to the requirements of the state action doctrine and, in Part VI, close with some concluding remarks and suggestions. In all of what follows, we focus on occupational licensing within health care professions.


The antitrust laws presume that consumers and society in general are best served when markets are competitive. Such markets would be free of all restraints. As we will show, social welfare is maximized by unfettered competition. This general presumption, however, may be misguided in the presence of externalities,8 public goods,9 and asymmetric information.10 Any one of these may lead to market failure, which means that the usual forces of supply and demand lead to sub-optimal results. When markets fail, there may be a case for government intervention. In the case of professional services, market failure-if it exists-can usually be traced to asymmetric information; that is, the service provider knows something about his or her qualifications and competence that the patient or client does not know. Professional services are credence goods, which means that their quality cannot be judged accurately even after they have been consumed.11 An undesirable outcome may be the best that could be achieved given the circumstance. A desirable outcome may still fall short of the full potential. In either event, the client (patient) is usually unable to evaluate accurately the quality of the services provided.

Over half a century ago, Milton Friedman examined the political economy of occupational licensing.12 He recognized that regulating the professions was not really intended to promote the public interest. Instead, it was demanded by the members of a profession to promote their economic interests. …

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