The Flexner Report and the Cartelization of Modern Medicine

The Flexner Report and the Cartelization of Modern Medicine

Although we’ve been given a brief respite from COVID-19 pandemic news, it’s likely that the killer of over one hundred thousand so far in America will leap back to the front page and that continuous calls to flatten the curve will return to top of the mind.

As a friend and fellow ex-University of Nevada Las Vegas (UNLV) Rothbard student reminded me, flattening the curve essentially means to socialize medicine: to ration healthcare, giving preference to COVID sufferers at the expense of non-COVID emergency medical care and elective procedures.

If the US healthcare system is the cowboy capitalism that many believe it is, why aren’t there doctors, nurses, and PPE (personal protective equipment) in abundance? Why the need to portion out medical care and talent?

The American Medical Association (AMA) was founded in 1847, incorporated in 1897, and as Paul Starr wrote in “The Social Transformation of American Healthcare: The Rise of a Sovereign Profession and the Making of a Vast Industry,” “The key source of physicians’ economic distress in 1900 remained the continuing oversupply of doctors, now made much worse by the increased productivity of physicians as a result…[of the] squeezing of lost time from the professional working day.”

Starr points out that the number of medical schools expanded at the end of the nineteenth century. From the founding of the AMA to 1900, the number of medical schools more than tripled from 52 to 160. The population expanded 138 percent between 1870 and 1910, while the number of physicians increased 153 percent.

“The weakness of the profession was feeding on itself; ultimately help had to come from outside,” Starr wrote. Help came in the form of the Flexner Report, penned by Abraham Flexner, whose claim to fame was being the brother of the powerful Dr. Simon Flexner, a key player in the chase for a vaccine to battle the 1918–19 Spanish flu,which killed 35 to 100 million people worldwide.

Brother Abraham was not a doctor himself. And while the report was commissioned by the Carnegie Foundation, “​Flexner’s report was virtually written in advance by high officials of the American Medical Association, and its advice was quickly taken by every state in the Union,” Murray Rothbard explained in Making Economic Sense.

Using the Flexner Report as a guide, the AMA was able to use the state to cartelize the medical industry. Rothbard wrote,

The result: every medical school and hospital was subjected to licensing by the state, which would turn the power to appoint licensing boards over to the state AMA. The state was supposed to, and did, put out of business all medical schools that were proprietary and profit-making, that admitted blacks and women, and that did not specialize in orthodox, “allopathic” medicine: particularly homeopaths, who were then a substantial part of the medical profession, and a respectable alternative to orthodox allopathy. (Making Economic Sense, p. 76)

The report recommended closing schools, competing therapies, and minority doctors that were considered substandard. “Medicine would never be a respected profession…until it sloughed off its coarse and common elements,” wrote Starr. Medical schools had been closing before 1910, with 20 percent shuttered in the four years before the report was published. Capital requirements for moden laboratories, libraries, and clinical facilities “were what killed so many medical schools in the years after 1906,” Starr wrote.

Rothbard explained further,

In all cases of cartels, the producers are able to replace consumers in their seats of power, and accordingly the medical establishment was now able to put competing therapies (e.g., homeopathy) out of business; to remove disliked competing groups from the supply of physicians (blacks, women, Jews); and to replace proprietary medical schools financed by student fees with university-based schools run by the faculty, and subsidized by foundations and wealthy donors. (Making Economic Sense, p. 77)

A reader can pick up plenty of books on the Progressive Era and find barely a mention of the AMA, yet the medical mess we have today took root during that era. Some of us still remember house calls, five-dollar office visits, worn black medical bags toted by doctors with stethoscopes dangling from their necks. Before the Flexner Report, mechanics made more than doctors and the brightest students avoided the profession to enter the clergy.

The burgeoning cartel meant “a skewing of the entire medical profession away from patient care toward high-tech, high-capital investment in rare and glamorous diseases,” wrote Rothbard, “which rebound far more to the prestige of the hospital and its medical staff than is actually useful for the patient-consumers” (ibid., p. 77).

Abraham Flexner, according to Starr, “had an aristocratic disdain for things commercial.” The high-minded Flexner Report “more successfully legitimated the profession’s interest in limiting the number of medical schools and the supply of physicians than anything the AMA might have put out on its own.”

The result: after peaking at 162 medical schools in 1906, by 1922 the number had been cut in half. The Flexner Report (a.k.a. ​Bulletin Number Four) recommended that the number of schools be reduced to thirty-one. Fortunately, more than seventy survived. Left up to Flexner, twenty states would not have had a single medical school. Legislators intervened. The report “was the manifesto of a program that by 1936 guided $91 million from Rockefeller’s General Education Board (plus millions more from other foundations) to a select group of medical schools,” according to Starr. Two-thirds of these funds went to only seven schools.

Medicine made a great leap in the Progressive Era. “The transition from household to the market as the dominant institution in the care for the sick,” in addition to increased specialization of labor, “has created emotional distance between the sick and those responsible for their care,” Starr wrote, “and a shift from women to men as the dominant figures in the management of health and illness.”

The true sign of the elevation of doctors in society was evident in 1926, when H.L. Mencken snidely wrote, “Kiwanis, like golf, is a symbol of the business man’s natural desire to break the dreadful monotony of his days. And when I say businessman, I include also, of course, the doctor, the dentist, the lawyer, and all other bored and laborious walking gents of human comedy.”

Thanks to Flexner, the AMA, and state licensing, today’s healthcare cartel is no laughing matter, but deadly serious.

Douglas French is former president of the Mises Institute, author of Early Speculative Bubbles & Increases in the Money Supply, and author of Walk Away: The Rise and Fall of the Home-Ownership Myth. He received his master’s degree in economics from UNLV, studying under both Professor Murray Rothbard and Professor Hans-Hermann Hoppe. This article was originally featured at the Ludwig von Mises Institute and is republished with permission. 

White Collar Welfare: What It’s Like to Work for the Federal Government

White Collar Welfare: What It’s Like to Work for the Federal Government

Shannon O’Toole, according to the author’s biography on Amazon, “worked extensively to identify fraud in multiple government programs. She received countless accolades and honors for her achievements and finally the prestigious HUD Secretary’s Award for her work.”

The talented Ms. O’Toole was a single mother needing a job when she showed up at the FDIC, which she describes as a “disorganized, flying-by-the-seat-of-your-pants atmosphere that seemed to permeate the place.” While she bore the brunt of untangling complicated real estate assets and readying them for sales, O’Toole was reminded again and again that government is not efficient or fair, as she was passed over for promotions by friends of one misogynist boss after another.

Her account, Washington Siren: A Woman’s Journey Through Scathing Scandals, Lies, and Secrets Inside the FDIC, HUD, IRS and Other Agencies, with a Love Story that Survives it All, written, for some reason in the 3rd person, chronicles O’Toole’s long career of Sisyphean frustration with government bureaucracy.

At publication date, 2017, her National Government Lien Recovery Program hadn’t gone anywhere despite having the potential to raise trillions of dollars for the US Treasury, if implemented.

However, as Ludwig von Mises explained in his 1944 book Bureaucracy,

The bureaucrat is not free to aim at improvement. He is bound to obey rules and regulations established by a superior body. He has no right to embark upon innovations if his superiors do not approve of them. His duty and his virtue is to be obedient.

As she works for the RTC (Resolution Trust Company) she comes face-to-face with competing government and private contractor factions fighting to sell the foreclosed properties from failed S & Ls. “There just seem to be layers and layers of oversight personnel, all watching but doing nothing.”

One of her co-workers explained that the RTC’s property management division was desperately keeping SAMDA contractors in place. “They’re trying to build an empire out of managing the assets and don’t want the sales department to dispose of anything. If Thomas can make a proposal to Washington DC for hiring more staff, his grade and pay go up because his empire increases.”

In the for-profit world this wouldn’t make sense, but, this is government. Mises wrote in Omnipotent Government,

Only to bureaucrats can the idea occur that establishing new offices, promulgating new decrees, and increasing the number of government employees alone can be described as positive and beneficial measures.

Because contractors were paid a fee based upon the value of the assets they managed, they wanted to hold them as long as they could. And, the contractors’ overseers at the RTC didn’t want the assets sold because that would put them out of their jobs.

Of course, the result was billions in government waste. “I’ve seen laziness at the FDIC and some waste but nothing like this,” O’Toole told a colleague. “This is beyond reason. It’s just plain crazy.”

His reply was one the author would hear often. “It’s just plain politics.”

“Bureaucratic management is management of affairs which cannot be checked by economic calculation,” wrote Mises.

If O’Toole pushed back, she was met with rules and regulations. “We must all accept that FIRREA is the founding legislation for the RTC, and that FIRREA instructs us to use outside fee contractors to manage all the properties from the failed savings and loans,” one of her superiors announced at a meeting.

Again, Mises from Bureaucracy,

They are no longer eager to deal with each case to the best of their abilities; they are no longer anxious to find the most appropriate solution for every problem. Their main concern is to comply with the rules and regulations, no matter whether they are reasonable or contrary to what was intended. The first virtue of an administrator is to abide by the codes and decrees.

O’Toole writes evocatively about union protected government employees disappearing from their jobs for weeks and sometimes years at a time. At one point, she was ready to retire, but the OPM (Office of Personnel Management) couldn’t tell her what her monthly check would be due to outdated computer systems.

Working for HUD and FHA during the Obama administration, the author couldn’t believe that the mandate to soften mortgage underwriting standards came down from DC, despite the nation still working through the rubble of the 2008 mortgage crisis.

She writes that government work is “a world of processes, not profits,” and that some of her friends call federal employment “White Collar Welfare.”

Through research, O’Toole determined the government places liens on properties for unpaid taxes. However, the government, she found, never followed up after being notified the properties in question were being transferred.

Thus, the liens fall by the wayside and the government is left to chase tax avoiders through garnishments and court actions. O’Toole tried desperately to obtain data on the number of, and total amount of liens placed by the IRS, on a state-by-state basis. The tax collector demurred, citing privacy concerns, despite O’Toole not asking for individual taxpayer information, just the aggregate numbers.

Libertarians might knowingly chuckle about all of this government nonsense, except, the Democratic presidential candidates are advocating that this same government completely take over the healthcare system.

A chilling thought after reading O’Toole’s memoir.

Douglas French is former president of the Mises Institute, author of Early Speculative Bubbles & Increases in the Money Supply , and author of Walk Away: The Rise and Fall of the Home-Ownership Myth. He received his master’s degree in economics from UNLV, studying under both Professor Murray Rothbard and Professor Hans-Hermann Hoppe.

Republished from mises.org.

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