Improving Health Care Through Occupational Licensing Reform

The rules that determine who can legally work in an occupation and provide particular services—known as occupational licensure—affect a wide swath of workers and are important constraints on how the labor market and economy function. Despite a welcome increase in discussions of occupational licensing in recent years, and a body of research dating back decades, core questions concerning the number of licensed workers and their occupations remain unanswered.

This lack of information may have contributed to the considerable policy attention focused on small occupations where the existence of licensure is most surprising—and sometimes appears unnecessary—to outsiders, such as florists in Louisiana. While it is certainly necessary to subject this sort of licensure to rigorous cost-benefit analysis, it is important to maintain perspective regarding the economic consequences of different types of licensure. These economic consequences are likely to be small for occupations that employ few people, are only licensed in some states, and are often not licensed in especially stringent ways.

Fortunately, a recent collection of comprehensive worker-level data for the entire United States is now available that is helping to address these unanswered questions—and redirect attention toward fields in which licensing is pervasive and economically meaningful. For example, these new data have provided a clearer picture of who is licensed:

* Fully one quarter of all licensed workers are health care workers;

* 14 percent work in education-related occupations (e.g., librarians and secondary school teachers);

* 14 percent work in management, business, and financial operations jobs; and

* the remaining 47 percent work in various fields from the law to construction.

Accordingly, the 25 percent of licensed individuals throughout the U.S. who work in health care fields deserve particular attention. Not only do health care workers constitute a large share of the licensed population, but their sector accounts for 18 percent of U.S. GDP. While the existence of licensing for most health care workers (66 percent) may not be shocking given concerns about public health and safety, the nature of the rules is important to the economy. Their licenses are often costly to acquire and maintain, and health care practitioners’ activities can be legally restricted in unnecessary and detrimental ways by those same licenses.

It is this last point that Professors Kathleen Adams and Sara Markowitz of Emory University address in a recent Hamilton Project policy proposal. Rather than consider the appropriateness of licensure itself for health care practitioners—they take this as given—Adams and Markowitz examine evidence regarding howlicensing is imposed on non-physician health care providers. As they explain, there is a lot of variation across the states in the “scope of practice” (SOP) rules that govern what activities health care workers are allowed to perform. This allows for research to be conducted on effects of different rules, but it also represents an opportunity for states to converge on licensing best practices.

What types of considerations should inform these best practices? Any cost-benefit analysis of a licensing rule needs to take into account a number of factors: the labor market costs, impacts on consumer prices, and benefits for consumer health and safety, among others. Of course, any of these factors may differ across occupations, depending on the market conditions and the way that licensing is implemented.

For physician assistants and advanced practice registered nurses (including nurse practitioners), Adams and Markowitz review the research and find that less restrictive rules lead to either no change or higher employment. Some limited evidence further indicates that more-restrictive rules benefit physicians at the expense of nurse practitioners. These labor market impacts are consistent with a view of restrictive SOP rules that sees them as limiting labor market flexibility and preventing the optimal use of non-physician providers.

Health care costs are also lower with less-restrictive SOP rules in part because physician assistants and nurse practitioners can provide many services at lower cost than can physicians. For both physician assistants and nurse practitioners, loosening SOP rules (either by allowing more independent practice or more authority to prescribe drugs) lowers the expense of providing primary and outpatient care.

Most importantly, quality of care is not impaired in states that implement less-restrictive rules. In general, the evidence suggests no effects of SOP rules on care quality, though some recent work has actually suggested benefits from less-restrictive rules (likely due to the increase in availability of care).

Taken together, this research supports the conclusion that we could benefit from reforming licensing rules in the health care sector, loosening scope of practice limitations that currently prevent licensed non-physician providers from working to the full extent of their training and experience. These limitations take a number of forms, but states should specifically remove supervisory practice requirements and minimum physician to non-physician ratios for advanced practice registered nurses. For physician assistants, individual medical practices should be allowed to determine how their talents are best used, which would similarly entail the elimination of minimum ratios. For both groups, prescription authority should be extended where consistent with practitioners’ training and experience.

Reforming scope of practice rules is not the answer to all the ills of the U.S. health care sector, nor would it address all the problems with occupational licensing. However, given the economic significance of the health care sector and the stakes for licensed workers themselves, policymakers should take a careful and detailed look at how to regulate health care professions.