This paper addresses the institutional arrangements which influence service quality in the market for physician services. The specific focus is the effectiveness and need for existing state licensure arrangements. Economic theories of medical licensure are discussed, along with alternative methods of deterring physician malfeasance. It is argued that recent changes in institutional liability, peer review, and access to disciplinary records reduce the value of state licensing functions. It is suggested that licensure may remain of value in states where significant numbers of physicians continue to practice independently, removed from institutional liability and peer review. Current policy issues which may influence incentives for quality care in physician service markets are identified and discussed. Licensing board institutional arrangements which may influence physician quality are also discussed.