He argues that private certification organizations (think Consumer Reports, but for doctors) are a more reliable and versatile way to see how competent a doctor is, and also that hospitals and clinics have an incentive to only hire competent people.

The rebuttal would be "Fine, but certainly state licensure can't hurt. It's just a backup." He says that it does in fact hurt, by allowing the AMA to control the supply of people who get to practice medicine. This limits patients' options w/r/t how, from whom, and for what price they can get medical care.

E.g. suppose I find a competent, well-trained nurse to remove a mole for me. The nurse and I agree to go ahead for $100. Friedman says that it's a) morally wrong and b) inefficient for the government to barge in and say, "No, for your own safety, you're not allowed to make this voluntary agreement. You have to have a doctor do this. Oh, and it'll cost $300." That's the effect of a law that says only licensed physicians are allowed to remove moles.