The doctoring cartel

By Eric Crampton 02/04/2014 9


If rules around medical licensing were designed to protect patients, they’d look one way. If they were designed as cartel enforcement, they’d look another way.

Suppose the government decided that reputation wasn’t enough and that patients couldn’t really adequately judge the quality of doctors. I’d think they’re wrong, but that’s a different argument.* In that world, a certified doctor would have to have demonstrated competence in some robust way. The point of the certification would be to set a minimum quality bar, but it could also provide notes of particular distinction for exceptional competence. Rules around which type of medical professional could provide which type of service would prevent restrict open heart surgery to, say, surgeons, but would allow nurse-practitioners to provide prescriptions for routine things. Rules around what’s over-the-counter and what requires a prescription would be designed to guard against potential dangerous interactions or side-effects.

Now suppose that the government wanted to enforce a medical cartel to provide rents to doctors and other medical professionals. In that world, the certification process would mostly serve to limit entry. Meeting the minimum requirements wouldn’t be enough: the bar would move to restrict entry based on the number of current doctors or the number of current positions. The rules around which medical professionals could provide which services would be designed to protect those professionals’ rents rather than simply matching skills to tasks. We’d keep lots of things prescription-only even if there were no particular medical basis for it.

The US is definitely in the second scenario. New Zealand, well:

The doctors graduated from medical schools in non-North American or non-Western European countries, including Britain, which means they are required to pass the New Zealand Registration exam when they emigrate here.

About 6 percent of the 1200-1400 international medical graduates who seek registration as doctors in this country need to sit exam.

However, the Medical Council last week reduced the number of examinations it offers, saying there is a limited number of internship, or postgraduate training, positions in hospitals for the candidates.

Health authorities say that’s because higher numbers are graduating from New Zealand’s medical training universities, Otago and Auckland, and fewer new graduates are heading overseas as jobs are tight there.

Rather than check out all of the regulations here myself, and likely mess things up, I’ve engaged in a bit of outsourcing. I’m copying in the following email from a Loyal Reader Whose Knowledge And Judgement On This Issue I Trust. My correspondent tells me the following:

Today’s Radio New Zealand article “Foreign doctors demandingaction on jobs” is the start of a  health workforce “Training Tsunami” wave which New Zealand’s medical authorities have known for years.  It’s the tip of a whole series of policy directions which control the health sector’s workforce and make little sense except from a rent-seeking perspective. 

We don’t let everyone into the medical profession.  But even if you’ve been accepted into the medical profession by the Medical Council, your employment options are strictly limited to District Health Boards (DHB) employers.  DHBs have the work and want to employ more junior doctors, but the cost of a junior doctor is strictly control by national Multi Employer Collective Agreements (MECA) which make no sense,  make sure the cost of a junior doctor can only ever increase, and prevents DHBs affording to employ more qualified workforce if trained overseas candidates are actually available. 

The junior doctor MECA is the real impediment preventing doctors graduating from overseas medical schools getting employment.  But even if you’re a junior doctor wanting to become a senior doctor, monopoly training practices operate to limit the entry into vocational specialities, resulting in Des Gorman’s words, a clogging [of] the training “pipeline”. 

Getting a Foot in the Medical Door

The Health Practitioners Competency Assurance Act 2003, confers on the Medical Council of New Zealand the right to say who is and who is not a doctor qualified to practice medicine.  The Medical Council do this through issuing suitably qualified people a “Scope of Practice” which says what type of medical services they can provide, how much supervision they need during their work, and where they can perform their services.  

Here’s the rules for an overseas (ie not for Australia or New Zealand) trained doctor. So if you graduate from the University of Alberta, have worked for 33 months of the past 2 4 years, have been registered by the Medical Council equivalent within Alberta and you can speak English, it looks like from option four, you’re capable of being registered for a general scope of practice.

Great!  But you’re not in yet.  Next, according to the Med Council, you need to pass the NZRex exam which gets you a provisional general scope of practice, and means you can now work in a very very limited sense in the health sector for someone (a District Health Board).  You can’t work in the private sector for a GP at this stage; you must work for a District Health Board.

After you’re provisionally general scoped, THEN you can get a job and do some clinical time which, after 2 years, get you a general scope of practice.

Getting a Job

Which gets back to Des Gorman’s point:

“On top of that, says Health Workforce New Zealand executive chair Des Gorman, many local doctors several years after graduating are not making key decisions about what specialisations to pursue and are clogging up the training “pipeline” by remaining in jobs too long.”

Junior doctor jobs in New Zealand DHBs are full.  There’s few vacancies at the current price of a junior doctor.  DHBs would employ more, if junior doctors were affordable.  Under the Junior doctor MECAs, junior doctors automatically advance through the MECA pay scales each year with the bands themselves adjusted by inflation.  A first year doctor starting work in 2008 and working under 45 hours a week earnt $52,843 in their first year.

On the 2008 salary bands by 2012, four years into their training, without any additional payments or hours worked, they could expect to receive $62,679 an average annual salary increase of 4.8%.  However, in 2012, they become governed by the 2012 MECA salary bands which place a 4th year registrar house surgeon on $66,252 per year, producing an automatic entitlement to an effective average salary increase of 5.8% per annum.

By the Law of Demand, as the price of something increases, its demand goes down.  In the face of an automatic 5.8% increase in junior doctor salaries and wages, is anybody surprised that Junior doctor jobs in New Zealand DHBs are failing to meet demand?  ACE, the matching system DHBs employ for allocating graduates to places isn’t the problem – it’s the lack of places and the inability of DHBs to employ more at the current price of junior labour.

Workforce Forecasting with your Eyes Closed

But here’s something else: the medical training sector has known for some time of an ensuing workforce “training tsunami”.  Over the past decade, Australiasian Schools of Medicine have ramped up threefold their medical training numbers.  

Through a combination of bad industrial relations policy and bad overly restrictive employment practices, the frustrations experienced by overseas medical graduates will only increase.  

… But of course, those who are making the rules also have jobs… 

So endeth the missive from my Loyal And Informed Correspondent Whose Knowledge and Judgement I Trust.

Can you come up with a plausible reason why a certified doctor from Alberta shouldn’t be able to hang out a shingle and start a GP practice here? Maybe that doctor would want to take a short seminar course explaining medical administration, billing, and Pharmac, and another short course on “Illnesses you might encounter here in New Zealand that you might not have thought to look for back home.” But otherwise, can you think of any reason to bar that doctor’s entry other than rent-seeking and cartel protection?

Maybe I’m just insufficiently imaginative.

I tend to think that small countries should be real quick to accept certification from other reasonable places rather than add to the already high fixed costs of living in a small place.

Update: Gareth Morgan here isn’t bad either.

* These kinds of informational asymmetries get bridged by a quality certification agent in other markets. Before you say that this would just lead to bogus certifiers who’d confuse people, recall that we already have this. There’s a board that certifies chiropractors, and another that certifies naturopaths. The existing system hardly keeps shysters out.


9 Responses to “The doctoring cartel”

  • The issue of certification and registration of medical practitioners (and some other health professionals) in New Zealand is not a new one, and I remember discussions about migrant doctors feeling that their access to practicing in New Zealand was restricted going back to the 1990s.

    It is one thing to apply simple economics to the training, certification, hiring and employment of medical professionals; it is another to bring in more fairness and better access to the professions from the perspective of a local New Zealand graduate. There have been limits to medical schools all the times, and it is not all that easy to get admitted to study and graduate, as very good school pass marks are needed. There have been ever increasing fees to pay by students when studying, and many have to take on substantial student loan debt to see themselves through their studies, which can end up in the tens of thousands in debt to pay off later on.

    The fact that medical training is expensive has also led to graduates and the profession in general having an interest in salaries that not only pay for high living and some work related costs, but enable them to pay off such student loan debts.

    In the past restrictions to training may have led to an aging of practitioners, such as GPs, but that was aggravated also by an increasing number of New Zealand graduates going to Australia to work, as salaries there are generally higher. Many GPs are not far from retirement age. Some insight into ‘Medical Workforce Issues’ can be found here:
    http://www.parliament.nz/en-nz/parl-support/research-papers/00PlibCIP021/medical-workforce-issues

    Health Work Force was set up to improve the practices in the work force education, hiring and employment areas, or to kind of build bridges between stake holders. It liaises with the DHBs and other players:
    http://healthworkforce.health.govt.nz/about-us

    As administrators at Health Boards and the Ministry realised years ago, more training of medical staff was necessary, hence more training appears to have been offered. At the same time Australia has done the same now, so they have more trained graduates flowing onto their “market” also, leading to less demand for New Zealand or other graduates. Naturally this has led to what we have now. GPs and other medicals will not live forever, so while some frustrations may occur amongst locally trained graduates and clearly also migrating graduates, wanting to work here, the future may not look so bleak, as eventually existing staff and professionals need replacing.

    Already now nearly half the medical work force consists of migrants. So I wonder, does New Zealand need to loosen the rules for certification, registration and so forth, to have yet more migrants attracted, to perhaps worsen the situation? By the way, a graduate from Alberta in Canada may even have better employment and practicing prospects back in his or her country, also better earning potential. New Zealand is probably paying reasonably well, but it cannot be amongst the best paying, as otherwise not so many graduates and also well experienced medical professionals would have left this place.

    Yes, if supply and demand would be applied throughout the health sector, many changes would happen, not all to the better, I am sure. And it would not necessarily serve the patients or “customers”. The Health Practitioners’ Competence Assurance Act 2003 is simply ensuring that standards are met, and that practitioners are registered with relevant authorities. It does not serve as a “cartel instrument”.

    If salaries under the MECA or so would be lowered, then you may create a disincentive for local prospective students to study medicine, I fear. I wonder, whether the “economist” considered this? It would be “challenging” to try and force for a change, as living costs tend to go up, rather than down, same as many other costs, as for instance for studying. In view of that it seems “daring” to expect medical professionals to work for less than what they can earn now.

    Besides of all this, I have greater concerns re how certain powers like governments AND private business research “sponsors” interfere with the medical profession, like setting new criteria for work ability assessments, and expecting sick and disabled to get better while working in open employment. The Australasian Faculty of Occupational and Environmental Medicine has adopted a position statement on the “health benefits of work” that is largely based on findings by one “research centre” headed by controversial Professor Mansel Aylward at Cardiff University, whose “findings” include claims that most illness and disability is supposedly only based on “illness belief”, or simply “psychosomatic” in nature.

    This research, funded by a corporate health and disability insurer called UNUM, has now also been adopted as “evidence based” “science” to follow by the New Zealand medical profession AND the New Zealand government’s Ministries of Social Development and of Health, it seems. As a consequence recent welfare reforms have set the bar so high, that medical professionals are now being used to re-assess many WINZ clients with chronic sickness and permanent disabilities, in order to disentitle them from certain benefits, and to usher them into any forms of open employment (on the very competitive job market). In the UK similar reforms had disastrous results, even led to some committing suicide.

    So perhaps the medical profession should do some reflections on whether all this is actually sufficiently scientifically backed, as mere gathered statistics for unemployed and sick may not sufficiently meet the standards for sound science. See some of the following for info:

    The AFOEM position statement based on:
    http://www.racp.org.nz/page/racp-faculties/australasian-faculty-of-occupational-and-environmental-medicine/realising-the-health-benefits-of-work/may-2010-video-presentation-professor-sir-mansel-aylward/

    “Malingering and illness deception”:
    http://www.afteratos.com/wp-content/uploads/2011/11/Malingering_and_Illness_Deception.pdf

    A critical study and some reflections on Professor Aylward and his “research”:
    http://disability-studies.leeds.ac.uk/files/library/THE-HIDDEN-AGENDA-a-research-summary-March-2013.pdf

    http://blacktrianglecampaign.org/2012/09/15/british-government-uses-might-of-u-s-insurance-giant-unum-to-destroy-u-k-safety-net-report-by-mo-stewart-wraf-rtd-14912/

    An article in ‘The Guardian’ on the UNUM insurance involvement in UK welfare reforms:
    http://www.theguardian.com/commentisfree/2008/mar/17/epluribusunum

    The ODT had a report on new assessments on 12 March 2014, “Regime still untried“:
    http://www.odt.co.nz/news/dunedin/294767/regime-still-untried

    More background info to be found here:
    http://accforum.org/forums/index.php?/topic/15188-medical-and-work-capability-assessments-based-on-the-bps-model-aimed-at-disentiteling-affected-from-welfare-benefits-and-acc-compo/
    And “google” or search: nzsocialjusticeblog2013

    • So your argument here is that we need a restrictive licencing regime so that doctors can earn a lot more than they otherwise would, because otherwise they wouldn’t be able to pay back their student loans?

      We could turn this around in a couple of ways.

      First, if you’re right, then that’s an argument for stopping training local doctors and getting in foreign ones who are obviously cheaper to train, while giving them a short course in local stuff.

      Second, one reason medical training is expensive is because med schools can appropriate some of the returns to being a doctor. If a kid looking a med school or engineering school expects he can earn a lot more by going to med school, he’ll want to go to med school (all else equal). Because demand for med training ramps up where expected salaries are higher, slots at med school become more scarce relative to demand if schools don’t expand to meet demand. Schools ration those spots by having a tighter entry bar on grades but also by charging more than they otherwise would. The higher the potential salaries in medicine, the greater the rents that can be extracted by the med schools where entry into the “being a med school” thing is fixed by statute. When we look at it that way, student loans in medicine are high in no small part because of the high salaries that can be earned in medicine.

  • Re scopes of practice and registration in NZ:
    https://www.mcnz.org.nz/get-registered/scopes-of-practice/
    https://www.mcnz.org.nz/get-registered/registration-policy/registration-in-new-zealand-policy/

    So what is wrong with registering new doctors from outside New Zealand under the provisional (general) scope for 1 to 2 years? Is it not appropriate to ensure that new medical professionals have a good enough understanding of the local practices, the local patients with their various ethnic and cultural backgrounds, and how things are done here? Do other comparable countries offer more liberal practices?

    Perhaps look at the example Canada:
    http://mcc.ca/repository/educational-credential-assessment/

    “The Medical Council of Canada (MCC) has been designated by the Minister of Citizenship, Immigration and Multiculturalism to provide Educational Credential Assessments (ECAs) for Principal Applicants intending to apply under the Federal Skilled Worker Program (FSWP) for immigration to Canada and for whom Physician would be the primary occupation for their application to immigrate to Canada.”

    “The ECA report will confirm whether the candidate’s medical diploma is comparable to a Canadian medical degree. However, for both international and Canadian medical graduates, a medical degree alone does not convey the ability to practise medicine in Canada. Provincial and territorial medical regulatory authorities governing the practice of medicine require additional postgraduate training and further assessments for all applicants before granting a licence to practise medicine in Canada.”

    More info here:
    http://mcc.ca/repository/medical-credentials/
    http://mcc.ca/examinations/mccee/
    http://mcc.ca/examinations/nac-overview/

    Registration standards for Australia:
    http://www.medicalboard.gov.au/Registration-Standards.aspx

    Applying for registration as an International Medical Graduate in the UK:
    http://www.gmc-uk.org/doctors/before_you_apply/imgs.asp

    “IMG doctors can apply for two types of registration: provisional registration with a licence to practise and full registration with a licence to practise. If you have completed an acceptable internship either overseas or in the UK you can only apply for full registration with a licence to practise.”

    Further details re requirements there:
    http://www.gmc-uk.org/doctors/registration_applications/acceptable_primary_medical_qualification.asp
    http://www.gmc-uk.org/doctors/licensing.asp

    So different rules apply there, and while it may on the surface appear easier to register in the UK, the graduate or professional must also be licensed and fulfill a range of requirements, differing even from country to country or groups of countries, before being registered.

    Every country has its specific systems and requirements, and I do not see New Zealand being all that more restrictive as other countries and medical professional registering organisations are. It is convenient to have an “economic” view on all this, but as a patient I want to feel safe and secure that the medical professionals here are up to the necessary standards and able to do a good job.

    I can speak also from experience, having had appalling dental work done once by a migrant dentist from a Middle Eastern country, who was in the end only too keen to sign a cheque for the costs of remedying is shocking job and consequences, done by a more professional one from the UK. That only happened after getting evidence and complaining about the usatisfactory work performed. Now imagine shoddy work in surgery on the heart or else, I dread to think of it, as we already have too many professional failures as it is, which never get sufficiently addressed, due to the hopeless setup with our “discretion” using Health and Disability Commissioner.

    • New Zealand has something pretty close to unilateral free trade in goods. Suppose that we put in a high tariff barrier on one kind of good, and justified it by “everybody else is more restrictive, just look at them!”. That wouldn’t wash, and it shouldn’t wash here. It’s just not plausible that doctors currently practicing in countries like Canada, or the States, or pretty much anywhere in the EU, wouldn’t be qualified to practice here. I agree that they’d need a quick training course in some particularities of common NZ ailments (watch for rheumatic fever), and in NZ prescribing practice (how Pharmac affects things), and basics on billing and the bureaucracy. But that shouldn’t require a full medical residency in one of a tiny number of available slots! Again, the regs here seem far more consistent with cartel protection than patient protection.

  • Dear Eric Crampton –

    Quote: “First, if you’re right, then that’s an argument for stopping training local doctors and getting in foreign ones who are obviously cheaper to train, while giving them a short course in local stuff.”

    “Second, one reason medical training is expensive is because med schools can appropriate some of the returns to being a doctor.”

    As an economist you will view everything from a perspective of being a “commodity” on a market dictated by demand and supply. While demand and supply do of course ultimately determine what can be provided and what can be consumed, it makes total sense to have some regulatory controls to regulate how such a “market” works, especially when it comes to highly sensitive areas like health care.

    People do not choose to become doctors and nurses just for the money they can make, choosing a profession involves some other commitment, which are often more important! Medical school costs more not because the earning potential may be greater, it costs more due to the longer duration, the necessary training materials, equipment and so forth costing more than other study programs.

    The certification and registration regimes are not in place to provide for a “cartel” of medical professionals to simply “milk” the “customers” or patients that have a demand for their services, they are in place for ensuring standards and also legally enforceable rights and responsibilities. Most GPs have more patients than they can often cope with, and that is not for greed, as the competition that exists between GPs also ensures that their fees cannot go sky high. They have overheads to cover, running a practice, and keeping themselves up to date with knowledge and training. Many work long hours and do extra work that many professionals would not bother doing. Doctors at hospitals also work long hours. Yes, increasing doctor numbers would ease pressures, but then that would also compromise pay, and with less income doctors may not be able to keep going.

    And also having a medical professional stuff up and cause serious harm needs to be addressed, and hence legal and regulatory frameworks like a register with certain requirements are totally essential. I see that provisional scopes of practice are acceptable, as that does not mean it is blocking access to working as a doctor in New Zealand. It simply provides for a transition period of additional learning and adjustment to local standards and practices. Medics do not, and should not be encouraged, to simply change jobs and travel from country to country based on better pay packets and promotional prospects alone. So some steadiness and commitment is called for.

    I am sure that with your logic you will also view ambulance services on the basis of supply and demand, and perhaps even see market “perversion” where there is any cross subsidising of services for those unable to afford paying for an ambulance in an emergency. That is close to a dog eat dog society, and would leave the poor and vulnerable by the roadside, while the “fitter” and stronger (with a filled bank account or wallet) can provide for paying for help in need.

    Also with your logic we may as well do away with labour laws, and a minimum wage, and open the gates for low paid workers to replace local workforce participants, whether people here like it or not. That is what one has to consider doing also, if allowing freer access to medical practice in New Zealand by IMGs would be the way to go.

    As for admissions to the profession and to practicing in New Zealand, I do not think that medical professionals and their authorities are acting as a cartel, they are simply ensuring equal rules and standards for all, and that no “cowboys” can come in and start a race down to the lowest common denominator, like running a GP practice from a post office box, caravan or garden shed.

    • Dude, I just said we should make it much simpler for Canadian doctors to hang out a GP shingle here. While the “hang out in a NZ hospital for a year first” thing sounds all nice, limited places in that form a pretty serious barrier to entry. And all that stuff you’re complaining about with overworked GPs? Well, one way of solving that is letting doctors from Canada, the US, anywhere in the EU, or other reasonable places come here, pass a short course, and open a practice.

  • But then, if we let (any) economist in then we have to let (any) doctor in I s’pose….. 😉

    I am not a block of cheese to be shipped around looking for the cheapest outfit to slice and dice me.

    I am not a number……

  • Eric – we have to agree to disagree on this. Thanks for your points. While all the countries you list are facing an aging of populations, increased demand for medical and care staff, and thus likely shortages, why compete with other developing countries for the “commodity” doctor and nurse, which will actually do the opposite of what you suggest, namely increase the price and salaries they can ask for?

    New Zealand is best advised to train doctors and nurses here, offer them good conditions and also bonding contracts to reward working in rural regions, rather than further open the doors for medical professionals that are also in demand where they come from. As a matter of fact, I know of few Canadian or US doctors coming here to work, and instead many I see work in hospitals and increasingly also GP practices are coming from various countries in Asia and perhaps South Africa, and in only some cases the UK. Some of the ones from South and East Asia may well earn more here, but not ones from Europe and North America.

    How can you attract doctors and other medical professionals to come and work here from the UK, Canada, US and Australia, as they are likely to earn more where they come from? The only “carrot” here is “lifestyle” quality, e.g. enjoying the beach, mountains and open sea for leisure activities.

    But best wishes, I will not bother you any further.

    • Marcus, I appreciate your input here, but I do ask you to think more consistently.

      You began by arguing that we needed to keep out foreign doctors by regulation because we needed to save the scarce jobs for local grads who needed high incomes to pay off their loans.

      Then you argued that the regs really served to protect us from poorly trained foreign doctors who wouldn’t know local practices.

      I replied asking why we couldn’t just let in doctors that Canada, the US, the UK, or the EU deemed competent to practice in their countries, while giving them a short course bringing them up to speed on local practice.

      You then replied that they wouldn’t want to come here because the pay is too low. You might note that this is pretty inconsistent with your first argument.

      If the pay is too low to attract doctors from Canada, the US, the UK, and the EU, then making it much easier for them to come in would at worst do no harm and at best could bring in some trained folks who could ease the burden on local GPs by hanging up a shingle.