Robert Orr on Supply Side Bottlenecks in the US Healthcare System and Solutions for Reform

Increasing the supply of doctors and other medical practitioners is one way to reduce costs and stymie supply bottlenecks in the American healthcare industry.

Robert Orr is a policy analyst at the Niskanen Center where he focuses on welfare, healthcare, and labor market policy. Robert joins Macro Musings to talk about one of the more important sectors of the US economy, healthcare, and some of the biggest supply side bottlenecks the industry faces. Specifically, David and Robert discuss the uniqueness of the US healthcare system, the reason for massive spending within the healthcare industry, and how to fix the supply bottlenecks that have emerged.

Read the full episode transcript:

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected].

David Beckworth: Our guest today is Robert Orr. Robert is a policy analyst at the Niskanen Center where he focuses on welfare, healthcare and labor market policy. Robert joins us today to discuss one of the more important sectors of the US economy, healthcare, and some of the biggest supply side bottlenecks this industry faces. Robert, welcome to the show.

Robert Orr: Thanks for having me, David.

Beckworth: It's great to have you on. I was reading your pieces. You had something out on Twitter. I was reading them and I retweeted one where I said the biggest supply side bottleneck that's lasted for the longest time, pre pandemic, and this is the issue of doctors we're going to talk about today, the supply of doctors. This led to a conversation where we are now having you on the show to talk about this important supply side issue that's been affecting our economy for some time. So I'm delighted to have you on, but this is a supply side bottleneck story. This is something that's been going on for a long time. And you've been working on this. So maybe a little backstory, how you got into it.

Orr: Sure. I got into a healthcare policy just by looking at how much the United States spends on healthcare, basically seeing how the health spending percent of GDP, was way out of line with other countries who spend about 18%, whereas other countries spend around 10% among rich countries, that is, and a lot of times the focus is on in terms of policy reforms, it's tailored towards the insurance side and what policies we can do there, but that neglects that there's this whole other angle here that's equally important. And that's the supply side and that includes doctors and nurses and other forms of practitioners.

Beckworth: So we're going to be speaking to some of the articles you've written on this issue, how the entire health industry is plagued by the supply side problem. So, Robert, one of the interesting observations you just made is that the share of the US economy or the share of GDP that is allocated or spent on healthcare is 18%. So it's a large, large part of the US economy, and you said it's quite a bit larger than other advanced economies, 10, 11% elsewhere. So there's a huge gap there. And I've heard this fact stated before, and I've heard several reasons for why this is the case. So I'm going to list off each reason to you that I've heard. And you can tell me whether that's a good reason and poor reason, what you think, or maybe I'm missing the correct reasons altogether. So one reason, this may be several packed in here, but there was a lot of waste in the US healthcare system, as well as higher administrative costs.

The Reasons for Massive US Healthcare Spending

Orr: Sure. Certainly, the United States spends around three times as much on health insurance administration as other countries, about 9% of our healthcare spending. So yes, that's certainly a huge... It's a substantial contributor. In terms of waste more broadly, there's a great deal of it in the unnecessary care area, though it's difficult often for policy to exactly always target that because just because doctors face a lot of uncertainty in their day-to-day work.

Beckworth: So I have a friend who was in the healthcare industry and he did a study, this is many years ago, but his name is Danny Hughes. And he did a study where he looked at whether doctors who had imaging devices in their office, whether they over-utilized them relative to doctors who didn't have, and of course, the doctor would say, "No, no, no, if it's in our office we use it because we need to use it." He did some sophisticated statistical analysis and found that, yes, in fact, if you have the devices, MRIs, cat scans, you'll tend to use them more, over prescribe them, than would be the case if you didn't have them in your office. So would that be an example of waste or overuse in the healthcare system?

Orr: Yeah. Imaging devices are exhibit A for this stuff. The United States uses a great deal more of these than most countries. And there's even worries that this might even be increasing our cancer risk, societally.

Beckworth: Okay. So there's waste, higher administrative costs. Here's another reason that's given and this isn't such a bad one, but I'd like to hear your take on it. One is a key reason is that we are subsidizing the rest of the world's R&D. So we do all the pharmaceutical research here. We get charged higher prices for our pills. The rest of the world, they get them cheap. So we're effectively subsidizing the pharmaceutical as well as maybe other clinical innovations that occur, so maybe knee replacements, heart surgery, all kinds of innovations that occur in the US, it's costly. And the rest of the world kind of free rides off of us, therefore we should have a higher share going to GDP. Well, what do you make of that story?

Orr: There's certainly something to that. The United States is basically supporting the R&D of drug manufacturers. And you could think of other countries as in some ways, at least partially free riding off of our spending here. So that explanation has a good amount of truth to it.

The United States is basically supporting the R&D of drug manufacturers. And you could think of other countries as in some ways, at least partially free riding off of our spending here.

Beckworth: Is there any abuse though? My colleague, Alex Tabarrok has written how the patent system is messed up in the US, it's overused. People file patents on the smallest things. There's lots of patent trolls, lawsuits. Do you think there's room for improvement though, in this R&D part of the healthcare?

Orr: Oh, most certainly. The United States does a poor job of pursuing value in the way that it structures its intellectual property. In a lot of countries, they separate drug approval from drug coverage, by the public insurers. And what they do there is they pursue value in what they're purchasing, but Medicare doesn't have any centralized way to do that. So if the drug manufacturers can convince a Medicare patient or their doctor that they should be prescribing this, then they should, even if they don't have the best idea of how efficacious this is relative to the cost.

Beckworth: Okay. Let me throw another benign interpretation of this large number, and that is healthcare is some kind of luxury good or some good that we consume more and more as we get richer. And since the US a relatively rich nation... Now, I don't know. I haven't looked at comparatively GDP per capita across these advanced economies, but the fact that we are affluent and maybe you could even say some of the wealth or income inequality fuels this drive for more and more expenditures on healthcare, is that a reasonable story or is that pushing it too far?

Orr: Yeah. So the theory that, because we're richer... In some sense, that's true. But a lot of that is, we're getting larger hospital rooms too, and more amenities and we also want more intensive care, that's certainly going on. We have to be conscious of the fact that if that superior good aspect is increasingly becoming a pervasive feature, it will be more difficult to ensure everybody has access to that, if that tendency is left to continue in a unconstrained fashion.

Beckworth: Okay, let me go to another one. And that is, it's just the nature of the beast. So healthcare is different than other industries. So this is where I think we would bring in Baumol's cost disease. And so the idea of Baumol's cost diseases, as an example. We'll step out from healthcare, but do kind of the classic example, given for Baumol's cost of disease and that is, if you look at the number of musicians needed to play a Beethoven string quartet today, it's the same number as when it was first written in the 1820s. Their productivity hasn't changed, same amount of work, same amount of time. But today that quartet gets paid a lot more because people around them have gotten more productive. Their salaries have gone up. And as a result, in order to induce people to play their instruments, you got to pay them, comparatively speaking. So is Baumol's cost disease something that defines healthcare, do you think, or not?

We have to be conscious of the fact that if that superior good aspect is increasingly becoming a pervasive feature, it will be more difficult to ensure everybody has access to that, if that tendency is left to continue in a unconstrained fashion.

Orr: It certainly is. The growth in the labor force, is one of the primary drivers of overall spending growth. And we see that the cost of these labors is going up in particular just because healthcare is such a labor intensive industry. And so that does drive it. And it is certainly true that a doctor in India will be getting paid less, even if he's just as productive, simply because the cost of living in where he lives is lower.

Beckworth: Okay. So it's plagued by Baumol's cost disease. So those are some reasons why that share of GDP is so large going to healthcare. Are there any others that you would add to that, or have we covered most of the big points?

Orr: Yeah, One of the big ones is just technology as a whole. This is somewhat related to your point on healthcare being a superior good, but it's just that the imaging devices, the techniques, everything is becoming more technologically advanced. And in order to keep up with your competitors, or even to maintain accreditations necessary to receive reimbursement from insurers, you need to have quality equipment and adequately trained providers, so that's another big one.

Beckworth: So one of the defining features as we've been talking about, is this large share GDP going to healthcare. And I want to just bring a few other, I think, are features that are unique about the healthcare system, and you can comment on them as well, whether I'm being fair in attributing this to the US healthcare system. But my understanding is the way we get insurance as individuals is unique. We get it through mostly through our work. Is that unique to the US or do other countries do something different or something similar?

The Uniqueness of the US Healthcare System

Orr: Yeah, no, it's often said that the United States, our system's dominated by the employer sponsored system. We've actually got every country's healthcare system in our country. So you take the Veterans Health Administration, that's a vertically integrated insurer, like the United Kingdom. Or Medicare Advantage is a publicly financed, privately managed, system, and that's like the Netherlands and our individual marketplace exchanges, those are like the Swiss. And so we've really got all of these different health financing systems stacked on top of each other in this country. And that's the defining feature of the US health financing system.

Beckworth: That's fascinating. So we are in some ways experimenting with all the systems and it makes me wonder, all the talks for single payer or Medicare for all, it makes me wonder whether you could actually make one size fits all given that we have all these different systems. And I've heard that before that US healthcare is this loose confederation of different systems, different approaches across the country. Maybe we'll come back to that in a minute. Another observation about the US healthcare system, you alluded to this. So there's a lot of government involvement in healthcare, in the US. There's also some private insurance as well. So we can't define the US as an example of a free market healthcare system, right? It's a mix, public private mix.

Orr: Yes, certainly. It's an almost 50/50 mix between public and private if you look just at the insurance side.

Beckworth: And so I've heard this said before, and I want to hear if it's true, that obviously the government sets prices for Medicare and I imagine also for the Veterans' Administration. So they go in and they negotiate with the providers. And I understand that point. What I've heard that I've wondered about is when Medicare prices are set, it also influences prices that private insurers pay. So even like myself, I have insurance through Blue Cross Blue Shield provider with my work, the rates that they pay are anchored, or somewhat based, around what Medicare is, is that right?

Orr: Yeah, that's roughly right. So Medicare, it doesn't really negotiate as so much as it has a formula by which it determines the prices that it pays. And these were set basically in the '80s and with tweaks have continued up to this day. And in relation to how the private insurers respond to Medicare's example, they do seem to follow it to some extent, though they pay substantially more and some would argue that there's some, basically, cost shifting onto the private insurers because Medicare doesn't pay enough. There's some debate over that.

Beckworth: That's interesting. So my point in bringing this up as even the 50/50 split doesn't truly capture the extent of the government's reach. The extent government is affecting prices, even in the private part of healthcare in the US, it truly is far from being a free market healthcare system. In fact, Robert, is it fair to say, there really are no true free market healthcare systems out there? Are there any countries that would be even more free market, even us?

Orr: It depends on how you look at it. Certain countries are certainly more free market in certain respects. If you look at free market as having a large amount of out of pocket payments, you would look at Singapore. If you would look at free market as in terms of having the least amount of public insurers or direct management of the insurance side, you'd look at Switzerland. You could even look at the Nordic countries, if you wanted to see what a more free market approach to licensure and labor market regulation looks like. So different countries have more-

Beckworth: Different dimensions, interesting. Labor markets and such. Okay. Well, that's interesting. I don't know if we're unique, but we're a mix of public-private provision of healthcare in the US and one other final observation, we'll move on to your interesting papers. And this goes back to what I brought up earlier that the US tends to do the research and development for the rest of the world. And so one, it strikes me that we do tend to see a lot of progress innovation in US healthcare compared to other countries. So other countries that are much more government driven tend to be more static, slower to adapt and change because of their nature. Is that a fair assessment?

Orr: In some dimensions, yes. The United States is a global research hub in terms of pharmaceuticals. And we've even pioneered ways of paying for health care through diagnosis related groups that started in Medicare, which is even a government program, and it spread throughout the world. Some of that might be a function of our scale, but there's certainly something to that.

The United States is a global research hub in terms of pharmaceuticals. And we've even pioneered ways of paying for health care through diagnosis related groups that started in Medicare, which is even a government program, and it spread throughout the world. Some of that might be a function of our scale, but there's certainly something to that.

Beckworth: Okay. All right. Actually, one more thing. I said that was the last part. One more question on US healthcare, and then we'll get to your papers. And that is, what role has foreign competition played, if at all? So I remember reading, maybe it was a decade ago, how insurers were beginning to fly people to India or to Mexico for some surgeries. So the Indian healthcare system, their doctors are just as well-trained as ours. They're a lot cheaper. I remember also reading about how certain health cruise ships would be off the coast of America in international waters. And so they wouldn't have to follow the rules of the US. You can go get treatment there at a fraction of the price. Have those at all been effective in putting pressure on US providers of healthcare or not?

Orr: No, those remain a fairly marginal part of the healthcare delivery system, still.

Beckworth: All right. So I was hoping how foreign competition in autos was good for the US auto industry we might see some of this, but you're saying it's too small to really matter at this point. Okay. Fair enough. Well, let's move to again, what is very striking when you look at US healthcare, and that's the supply side bottlenecks, ones that have been around for many decades and in particularly the US physician shortage. So there's actually a shortage of physicians, and I'm going to read your introductory paragraph from this article titled, *The Planning of US Physician Shortages.*

Beckworth: And you write, "The number of practicing physicians per person in the United States is lower than just about any other developed country. Yet from 1980 to the early 2000s, the prevailing wisdom was that the number of physicians within the US ought to be reduced. During this period, a series of ill-judged reports by the federal government warned of an impending physician surplus. These reports ushered in a period in which both private and public actors took actions to constrain the supply of US physicians. The most significant of which was the medical school moratorium. The resulting dearth of physicians had the effect of making US healthcare more intensive and less accessible than it otherwise would have been." Wow. That's a pretty damning indictment you have there. So tell us about this. What happened that we intentionally lowered the supply of doctors in the US?

Supply Side Bottlenecks: The Supply of Doctors in the US

Orr: Sure. So basically what was going on is that the government was looking at the unprecedented rise of healthcare costs, which was occurring in every country at the time. And a lot of the theories around the time were saying that doctors, basically due to their authority over patients, were able to... Due to basically the problem of asymmetric information or the fact that doctors know much more than the people that they treat, that they will be able to essentially push more treatments on patients that they don't need, or get them to do unnecessary services.

Orr: The federal government bought into this. They looked at past trends and thought that this run-up in doctors that we had seen since the 1960s should not continue indefinitely. And so after studying this, they came out with a model that [said] we would have much more physicians than what we actually needed. And in response to this, and this was an incredibly influential report, it was publicized in the news. You saw medical applicants drop in response to this. The medical schools, the MD granting ones, instituted a moratorium on additional applicants and they froze that for about roughly 25 years.

Beckworth: So it was an intentional effort to shrink the supply of doctors. And you have a chart that's really striking. It shows the population growth rate in the US over this two or three decades, and how at the beginning of this moratorium population growth rate and doctors were getting close together like an adequate level, but population continues to grow. And then there's this decline. And there's a permanent gap between the where the supply of doctors are and the population growth rate and it never catches up. It's a persistent gap. In fact, it reminds me, Robert, of what we talk about macro a lot, like with GDP. GDP in 2008 crashed, and it never kind of caught back up the trend, same thing here with the supply of doctors. And it was interesting reading this because it had a lot of side effects. You mentioned too in your paper, the shortage of doctors led to the mainstreaming of doctor of osteopathy, if I'm saying that right. So medical schools that provided DO degrees... Maybe explain to our listeners, what is a doctor of osteopathic medicine compared to a regular medical doctor?

Orr: Sure. So historically they were doctors, a form of doctor specializing in spinal manipulation. And so the increasing disconnect between our MD supply and population's health care needs basically resulted in DOs becoming increasingly more mainstreamed, where if you see a DO today, it's basically a doctor that maybe they know some traditional DO stuff, but that's not even a guarantee anymore.

Beckworth: So it’s a small fraction of what they do now, is the traditional DO practice?

Orr: Yes, yes, yes.

Beckworth: So this restriction on medical doctors had this unintended consequence of changing the practice of DO medicine. So it sounds like the original doctors of osteopathic medicine were similar to chiropractors. I may be stretching it there, but they've now kind of morphed into more of a traditional medical doctor role. So there's more of them, but even with that you note in your paper and you show some great charts that really did not fill the hole, right? It increased some, but there's still a lot more that was needed. Is that right?

Orr: Right. And that's because even though US students went abroad to other countries, the United States was also trying to restrict the residency pipeline at the same time because they saw that people were going around these other measures and saying, "Well, now we're going to focus on cutting back here because that's the real way we can create a bottleneck."

Beckworth: So they intentionally created bottlenecks at several parts of the production process. First was at the medical schools and then of course the entrepreneurial young aspiring doctor says, "Okay, I'll go to Mexico and get a medical degree. I can't get into the US because you've reduced the number of openings. You made it harder to get, less financing. I'll go down to Mexico, maybe Canada, get a degree, then I'll come back or I'll do a doctor of osteopathic medicine degree." And so then the establishment catches onto that trick and they say, "No, no. We're going to impose some screws, tighten access and the residencies. And you've got to have a residency in order to practice in the US." So they really did put their thumb on the scale, really did try to reduce the supply and they were effective. They ultimately were effective. And I guess, why does that matter? Why does reducing the supply of doctors matter? What consequences does it have for healthcare in the US?

Orr: Sure. So doctors are the... They're the main access point to most care, though we have other forms of practitioners, increasingly like nurse practitioners and some autonomous physician assistants. The overwhelming majority of US medical services are delivered through a doctor. And so if you're constraining the supply of doctors, that's going to limit the availability of care within the system, just simply by numbers, as population grows relatively.

The overwhelming majority of US medical services are delivered through a doctor. And so if you're constraining the supply of doctors, that's going to limit the availability of care within the system, just simply by numbers, as population grows relatively.

Beckworth: Okay. Along this line, you provided another chart in your paper, we'll provide links to all these articles. And it's a chart showing physicians per 10,000 persons by type. And it's a list of countries. In each country, the number of doctors per 10,000, and you have them by primary care and specialists. And the US is near the bottom of the list. Only Mexico and Korea have fewer doctors per 10,000. We're like number 26, I think, or 25 on this list. And all these other countries have far more doctors per person. And as you said, it limits healthcare because fewer doctors, less access points. You provide this other chart and point in the paper, that one good proxy for access to healthcare is the number of doctors per person. And it's just taken a nose dive as population has grown, and the supply has not kept up. It's taken a nose dive. You also raise another interesting point in your paper that the shortfall of doctors has affected the specialties. So walk us through that. What has it done and why has it mattered?

Orr: Sure. One way to think about this is that the inability for the medical system to provide a greater volume of care or to serve as a greater volume of patients has encouraged medical providers to compete on intensity instead. And so that translates into providers seeking greater levels of specialization and sub-specialization in order to compete for these more sought after and often less competitive services.

Beckworth: So I think of it as a way of maybe transferring demand from primary care to the specialist, which creates its own set of problems because specialists get paid more and the more niche you are, the more you get paid. If I'm going into medical school and I'm going to pick a path, I'm like, "Well, why would I be a primary care?” Unless this it's a labor of love and my heart and I that's what I value and stuff. It'd be very easy to, one, become a specialist, maybe better hours, better pay. And it would affect, again, healthcare delivery. In a minute we'll come to the, I think, part of the answer to that, and that is these nurse practitioners and physician assistants you mentioned. But just to focus on this, so the supply of doctors has gone down, it's affected healthcare delivery.

Beckworth: It's affected the types of doctors we are producing, and the bottlenecks occur both at medical school and in residency programs. Even the number of medical schools being built, you mentioned, was affected, it was federal government, pulled funding from that. So just in a lot of dimensions they are intentionally slowing down the supply.

The inability for the medical system to provide a greater volume of care or to serve as a greater volume of patients has encouraged medical providers to compete on intensity instead. And so that translates into providers seeking greater levels of specialization and sub-specialization in order to compete for these more sought after and often less competitive services.

Beckworth: So Robert, we've talked about all these challenges in health care. There's challenges in the supply of doctors, both from residency to restrictions in medical schools, to the number of medical schools. We've created this problem, the shortfall, which has also affected the composition of doctors, which can affect health outcomes. So this problem has now been with us for some time, have doctors, has the established medical establishment recognized this problem and taken any steps to fix it?

Fixing the Supply Bottlenecks in the Healthcare System

Orr: Sure. I think that around the 2000s, there was a realization that this was not an effective way to control healthcare costs. We saw no real impact there. And at the same time, we did see increasing struggles, especially in places in rural America, around basically accessing the level of medical services that most people in a rich country would expect, so there has been a rethinking there. Medical schools are once again adding students and they're once again building more facilities. And so we've learned our lesson, at least somewhat, but some of the damage that we did during this time, particularly in the residency system, hasn't been fully undone. One of the big things is the cap on Medicare funded residency slots. That remains in place. It's perverse, not just because it limits the amount of funding, but because it's frozen these positions in place in these Northeastern states, which makes it more difficult to fill, to meet demand for these residents in places in the country where they're most needed, and also have better local economics for training itself, just because cost of living in Georgia is lower than in New York City.

Beckworth: So you're saying there's only a few places that have these residencies funded by the federal government. And in general, your point is, your suggestion is, to expand the residency program. So what about medical schools? Should we increase the number of medical schools or is the big bottleneck right now with the residency program?

Orr: So they're both important. The situation with regard to medical schools is there's more progress being made, though we don't have maybe as much as we'd ideally want. The problem on the residency side is-

Beckworth: Is it funding?

Orr: So the basic issue with regard to medical residencies is they're a hybrid between a labor market institution and an educational institution. If a resident isn't able to pay for their salary and their education through their work, through their labor contribution to the hospital, the hospital will not add an additional resident. And often, in part, because of accreditation requirements and other things like that, there's a significant amount of education in the early years that where it doesn't make sense for many hospitals to add additional residents. It's not profitable for them to do so. That's why Medicare throws some money in, but it's limited those slots. And so often places can't add residents, even though we'd like there to be more of them.

Beckworth: Let me ask this question then. So we get a little more funding that might open up the residency programs. What about doing residencies overseas? If you go overseas, if you go to Canada and do a residency, does that count or just have to be a US-based residency program.

Orr: No, that generally, that does not count. You cannot do that.

Beckworth: So that's another potential fix, right there, is making it easier for foreign doctors to come in here. Of course, American doctors are going to panic when someone says that. I remember at my church talking to an Indian doctor and he told me he had lots of friends who would like to come to the US and practice, but to do so all these barriers were in place. I think each state you have your board exam, you have your board exam as well as the residency. So they'd have to-

Orr: Start from square one.

Beckworth: … the beginning, yeah. But it would solve the problem, so maybe that's another area to fix. And in fact, we'll come back to that a little bit later. Let's move on to another area related to this and you've suggested be addressed, and that is shortening medical education itself. So walk us through what's a typical career path of a medical doctor today in the US and how would you change it?

Orr: Starting from high school, the typical doctor will go through a four-year undergraduate degree and often something vaguely medically related, but sometimes not. And then after that, they will attend a second four-year medical school degree. And following that they will attend their three to seven year residency with potential fellowships after that. Outside of North America, they do not have a undergraduate bachelor's degree prior to medical school. Instead, they do a six year degree and then you begin your career. That's a lot cheaper for the medical graduates. And it also gets them into the labor force earlier just by cutting out that degree and saving them student debt as well, which is also a big benefit. And so there's really no reason that we shouldn't adopt that system, the European and rest of the world system, other than path dependence at this point. And it'd be a good thing to encourage greater adoption of the six year degree.

There's really no reason that we shouldn't adopt that system, the European and rest of the world system, other than path dependence at this point. And it'd be a good thing to encourage greater adoption of the six year degree.

Beckworth: I think path dependency and rent seeking… there’s a lot of colleges who stand to lose from a change like that. But it makes sense based on what you've said. Okay. Let's move to the broader health care labor market. And in particular, talk about other primary care providers. And I've seen a lot on this and you've written on this too. You have several articles I want to provide links to, but nurse practitioners, physician assistants, they can provide a lot of primary care medicine. In fact, some of them also specialize too. Some of them are specialized in these specialties we've talked about. So they're not just primary care providers, but are they filling in an important niche or are they part of the solution, do you think, we talked about earlier and what's happened? Are they able to do it? Any hindrances? So what's the story there?

Orr: They are certainly part of the solution and they've grown precipitously as a share of the practitioners in the US in recent years, though they still make up roughly 10% of primary care office visits and just fairly small relative to the supply of physicians. And so they're, certainly going forward, something that we want to encourage and see more of. A big barrier there is just a state level rules that constrain what a nurse practitioner can do, or that they can prescribe, whether they can practice autonomously of a physician in treating patients. So we certainly want to see more of that, but it requires mostly liberalizations in state policy to move forward.

Beckworth: So let me put it more bluntly. It requires dealing with the rent seeking taking place by doctors who want to keep the money in their pocket. That's a very cynical and blunt way to think about it. But I remember hearing this story as I was listening to it in California, where they're trying to pass a law. And I forget if it was for nurse practitioners or PAs, but to allow them to practice by themselves, out in rural areas where there was no doctor. That seems like an obvious, no brainer help. But the doctors were like, "Nope." The medical association in California really pushed back and all across the US I hear these stories. I've heard the story of dentists and dental hygienists, in some places dental hygienists can't practice on their own. They had to have a dentist overseeing them and therefore the dentist extracts some rent, some of the funds. But I guess out of necessity, there's been pushback against that. I guess maybe you can answer this question, is the tide turning for more autonomous independent practices by these caretakers?

Is the Tide Beginning to Turn?

Orr: Certainly. More and more states are liberalizing their laws here. This is accelerated following the COVID-19 pandemic. You see more and more interest in this because states, as part of their emergency measures, liberalized these across the country, allowing nurse practitioners and physicians assistants to take more authority in caring for patients and prescribing just because of the larger supply constraints in the face of the pandemic. And so there's definitely good reason to be optimistic. Also just on the research front, doctors, for all their misgivings about these changes are having a hard time just combating the realities that we were finding in that these alternative practitioners, they're no worse than a doctor in these primary care situations in which they've been tested. And so there's really little to worry.

Beckworth: So one silver lining from the pandemic may be that it really catalyzes this change that was happening already, but it’d get us past some of the resistance, some of the rent seeking, as I said earlier, just out of necessity. So that was my question I had, because I remember instead of New York, they took in health professionals from other parts of the country. So even medical doctors traveling from one state to the next, typically you can't always do that. There's restrictions, as well as those you mentioned, nurse practitioners and PAs. So the question I have, and it seems like what you're saying is, yes, the answer is, yes. Did this change last? Did this really open the eyes of policymakers in state governments and say, "Hey, you know what? We should think about doing this, opening up the labor market to healthcare providers beyond just emergencies."

Orr: You've seen a definite waking up there in... So California has recently liberalized laws here. Various other states have done things here and there. Unfortunately many states were not willing to go as far as they did during the pandemic itself, but you're seeing much more willingness to explore solutions here.

Beckworth: You've also mentioned one way to deal with the situation is to move licensing to the federal level. So help me understand that suggestion.

The Future of Healthcare in the US

Orr: Sure. So when you look at state by state licenses, licensing of physicians and nurse practitioners, there's hardly any differences between what they require of the physicians themselves, but you're only authorized with a given license to practice within the state that you're licensed. So if you're licensed in California, you need a Nevada license to practice in neighboring Nevada. This is particularly an issue for, as we're getting better at things like telemedicine, that don't require people and their practitioner to be in the same geographic area. And so moving licensing to the federal level, it has the benefit of getting rid of these unnecessary barriers to mobility, which restrict health access, especially in more rural states and places with less doctors.

Moving licensing to the federal level, it has the benefit of getting rid of these unnecessary barriers to mobility, which restrict health access, especially in more rural states and places with less doctors.

Beckworth: So is that something you see actually happening? Is there movement for moving licensing up to the federal level and would states have a say so in that, or is this a decision Congress could make?

Orr: So the federal government can effectively mandate that states recognize each other's licenses in case we don't want to necessarily move the administrative process to the federal government itself. And states have been slowly but surely moving into these compacts that make it at least easier to get licenses in other states, though they fall far short from creating something like a genuine free trade zone in medical services. You still have to get another license, they just might speed up the process or something like that. And so the idea of moving it to the federal level is just in part to get over states' own issue regarding that they need revenue to administer licenses in their state. And since they need that revenue, they fear that recognizing other people's licenses in a fully reciprocal fashion will just result in the person offering the cheapest license getting all the revenue.

Beckworth: I see. So there'd have to be some kind of multilateral trade agreement, just like with countries like NAFTA or TPP, when it almost went through. You'd have to get everyone on board at the same time, so that it wouldn't be this race to the bottom, lowest common denominator. So Robert, this is an interesting suggestion, but I'm torn on this one because I think in a country as divided as we are, I believe that federalism might be part of the answer, but on this and on some other issues, I can see your point though, having it shift in one place because states can also abuse that, occupational licensing. I know you've worked at it in Niskanen. Mercatus is working on this. Lots of folks were working on this, but each state has their own set of laws for all kinds of jobs, not just healthcare.

Beckworth: And it creates barriers. You could live in the state line and not work a mile down the road, but you could in the other direction. So I see the argument and I see this tension there, and it's obviously something needs change. And again, maybe the pandemic is the catalyst that might lead to broader reform, broader multi-lateral, multi-state reform. So I'm hopeful that happens. But let me step back and ask this question. So where do you see healthcare in the US going kind of in a general direction? We're nearing the end of the show here. But where do you see us going in healthcare? Do you see movement towards this push for a single payer, Medicare for all? Or do you think we'll always be in this mixed system where there's private insurance provided for many, for half, 50%, in the public provision for the other half or some kind of hybrid? Do you have a sense of the momentum of where the politics and the conversation has taken healthcare in the US?

Orr: I see that we're likely going to muddle along with our fractured health insurance system, though I can also see the possibility of us moving towards a somewhat more consolidated system, maybe along the lines of Medicare Advantage, where it's privately administered health insurance with a great deal of public support. That's another long-term trajectory for the United States. I don't think there's any realistic likelihood of the US government getting out of healthcare financing altogether. So I think muddling through, or maybe moving into more of a Medicare Advantage style consolidated hybrid might be where the future lies.

Beckworth: Okay. With that our time is up. Our guest today has been Robert Orr. Robert, thank you so much for coming on the show.

Orr: Thank you.

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About Macro Musings

Hosted by Senior Research Fellow David Beckworth, the Macro Musings podcast pulls back the curtain on the important macroeconomic issues of the past, present, and future.