Why Is Health Care Regulation So Complex?

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Vol. 33 No. 10 • October 2008 •
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HEALTH CARE AND LAW
of external super vision of this field. Pol-
icy debates, for the most part, swirl not
around whether oversight should exist
but, instead, around the way it should be
structured.
However, the present regulatory struc-
ture is neither uniform nor consistent. A
broad range of regulatory bodies and
programs apply in different ways to var-
ious aspects of the industry. Health care
regulations are developed and enforced
by all levels of government—federal,
state, and local—and also by a large
assortment of private organizations. At
times, they operate without coordination.
THE ORIGINS AND EXTENT
OF COMPLEXITY
The origins of this complex system lie
in a series of turf wars between opposing
interests that have been waged in one
form or another over the past 150 years.
The contest between federal and state
authority is enshrined in the federalist
structure of American government, and
the debates of today echo early disputes
over which kinds of power should reside
at each level. Most of the power to gov-
ern day-to-day activities resides with the
states under the Constitution, but it is
subject to pre-emption at the federal level
when various enumerated concerns
come into play, such as defense, foreign
relations, and interstate commerce.
This division of control created a
source of ongoing tension in health care
oversight from the start. To take a long-
standing example, basic oversight of
many of the central players in the health
care system, including physicians, hos-
pitals, and insurance companies, is ac-
complished by agencies at the state level.
In every case, however, it is coordinated
by federal authorities. Similarly, most
public health programs, including sani-
tation, restaurant inspections, and inves-
tigations of epidemics, are the responsi-
bility of state and local regulators, but
the federal Centers for Disease Control
and Prevention (CDC) serves as an
essential resource for collaboration on a
national level.
Private regulators entered the scene in
the early 20th century. The American
Medical Association (AMA) sponsored
the creation of a number of organizations
that remain central today in the oversight
of the medical profession, including
those that accredit medical schools, ad-
minister licensure examinations, and cer-
tify specialists. These bodies supplement
the work of governmental regulators.
State medical boards, for example, use
privately administered examinations in
granting medical licenses, and the Medi -
care program relies on specialty cer -
tification as an indicator of physician
quality. Along similar lines, the hospital
industry accredits its own members as a
supplemental step to state licensure
through the Joint Commission (JCAHO).
THE REGULATORY MAZE:
TWO EXAMPLES
As a result of this network of oversight
bodies, those individuals and organiza-
tions subject to regulation must turn to
multiple competing authorities for guid-
ance. Two examples illustrate this dy-
namic.
The path to practicing medicine is
paved with an array of regulator y hur-
dles implemented by an assortment of
bureaucracies. A potential physician
must attend a medical school that has
received accreditation by a private body,
take a national examination administered
by another nongovernmental organiza-
tion, obtain licensure from a state med-
ical board, complete a hospital residency
that is funded and governed by the fed-
eral Medicare program, achieve certifi-
cation from a private specialty board, and
obtain clinical privileges at a hospital that
may operate as either a private or public
entity. To receive payment for services
and actually earn a living, it is often also
necessary for a physician to qualify for
Dr. Field chairs the Depart-
ment of Health Policy and
Public Health and is Pro -
fessor of Health Pol icy at
University of the Sciences in
Philadelphia, Pennsylvania.
Why Is Health Care Regulation
So Complex?
Robert I. Field, JD, MPH, PhD
The array of regulations that govern
health care can seem overwhelming to
people who work in the industry. Almost
every aspect of the field is overseen by
one regulatory body or another, and
sometimes by several. Health care pro-
fessionals may feel that they spend more
time complying with rules that direct
their work than actually doing the work
itself.
The scope and complexity of health
care regulation is the subject of a book
that I recently published, entitled Health
Care Regulation in America: Complexity,
Confrontation and Compromise.1 With
apologies for some admitted self-promo-
tion, I’d like to summarize my conclu-
sions, which may add a context for the
topic.
My book describes an underlying
logic behind the bewildering regulatory
maze. The tangled web of health care
regulation arises largely from a set of
confrontations between opposing inter-
ests that created the system. Fortunately,
an ongoing process of compromise
keeps things in balance. To understand
these forces is to appreciate why the
complexity may actually serve a purpose.
THE NATURE OF HEALTH CARE
REGULATION
The pervasive nature of health care
regulation stems from the fundamental
concerns that are at stake. Most ob-
servers acknowledge that some form of
oversight is needed when factors as
essential as life and health are involved.
Even those who are especially suspicious
of heavy-handed government bureau-
cracy see a public interest in some form

participation in Medicare and in the net-
work of a managed care organization
(MCO).
The path to marketing a new drug is
similarly cumbersome. A pharmaceuti-
cal company must start by protecting its
invention with a patent that is issued by
the federal Patent and Trademark Office
(PTO). It must then receive permission
to conduct clinical testing from the fed-
eral Food and Drug Administration
(FDA), which for many products culmi-
nates in review of the results by an advi-
sory committee composed of private sci-
entists. After approval for marketing is
received in the form of a New Drug Ap-
proval (NDA), the manufacturer must ad-
here to marketing restrictions contained
in the NDA.
Next, in order to sell the drug widely,
the manufacturer must obtain a place for
it on the formularies of private pharmacy
benefit management companies (PBMs),
which administer reimbursement plans.
Ideally, the drug will also be included in
the standards of care promulgated by pri-
vate medical specialty societies.
After all of these steps, the drug still
cannot be sold unless it is prescribed by
physicians and is dispensed by pharma-
cists who are subject to licensure and a
range of other regulatory requirements.
THE LOGIC BEHIND
REGULATORY COMPLEXITY
Is this complexity of health care regu-
lation merely a result of a series of his-
torical accidents and bureaucratic turf
wars, or does it serve a purpose? The sys-
tem’s intricacy may make it inefficient,
but it actually fits quite well with the
American temperament. It is driven by an
interplay of competing forces that seek to
have their interests represented.
Different levels of gover nment vie with
one another for supremacy, as they have
since the founding of the republic. This
system of checks and balances makes it
less likely that any one level, federal or
state, will become too powerful, and it
ensures that the overall system will re-
ceive input from each. The regulatory
structure also reflects a form of pub-
lic–private partnership. Private organiza-
tions, such as the Joint Commission and
medical specialty boards, which are com-
posed of professionals who actually work
in the field, inject technical expertise.
These organizations are balanced by gov-
ernment agencies, which provide a more
disinterested external perspective that is
presumably less subject to economic self-
interest.
In essence, the system benefits by
receiving regulator y input from varying
perspectives. State and local agencies are
often closest to the actual provision of
health care and the most sensitive to
regional needs. Federal oversight is usu-
ally necessary to provide national coordi-
nation, for example, to prevent physicians
who have been disciplined by a medical
board from gaining licensure in another
state. Private organizations offer the deep-
est expertise in the clinical aspects of
care.
SYSTEM SHORTCOMINGS
This explanation is not meant to sug-
gest that the system is without its share of
shortcomings, because some of them are
substantial. Critics charge that private
regulatory bodies are often more inter-
ested in safeguarding the reputation and
economic status of their industries and
professions than in protecting the public.
State regulators, particularly those in
smaller jurisdictions, may be subject to
excessive influence by those they are sup-
posed to oversee. Federal agencies may
be slow, bureaucratic, and inefficient.
Moreover, in some areas of regulation,
the division of authority is not clearly out-
lined, a drawback that has led at times to
chaotic results. A prime example is the
oversight of health insurance. States take
the lead in regulating insurance, but the
federal government pre-empts some state
authority over employer-sponsored health
coverage under the Employee Retirement
Income Security Act of 1974 (ERISA). The
lines of responsibility are not clearly de-
fined in the law, and they have been sub-
ject to a series of equally confusing court
decisions.
CONSEQUENCES OF
THE REGULATORY SYSTEM
Despite the complicated and inefficient
nature of its oversight, American health
care has flourished over the past hundred
years. Rather than hindering its progress,
the complex system of regulation, for all
of its flaws, may actually have served to
support and nur ture the overall enter-
prise.
Consider, for example, the public con-
fidence that is engendered in the com -
petence of physicians through licensure
requirements and in the safety and effi-
cacy of prescription drugs through the
FDA approval process. These programs
enhanced overall respect for major ele-
ments of the health care system and
greatly expanded markets for the goods
and services that they provide. Regul -
atory programs that include major fund-
ing components, such as Medicare and
research support administered by the
National Institutes of Health (NIH), ser ve
an additional role of creating a financial
base for key sectors of the industry.
Viewing the system in this way may
help to provide perspective for those who
have to navigate it. It is also important to
consider the underlying nature of the
system, with both its positive and negative
elements, in evaluating proposals for
reform.
A more thorough presentation of the
regulatory structure of the health care
industry and the themes that drive it can
be found in my book.
REFERENCE
1. Field RI. Health Care Regulation in Amer-
ica: Complexity, Confrontation and Com-
promise. New York: Oxford University
Press, 2007. I
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• October 2008 • Vol. 33 No. 10
Rather than hindering its
progress, the complex sys-
tem of regulation, for all of
its flaws, may actually have
served to support and nur-
ture the overall enterprise.