Obamacare Is the Latest Example of Failed Central Planning

Big government has been mismanaging economic affairs for a long time.

When Planned Parenthood wanted to add operating rooms in Virginia Beach two years ago, anti-abortion groups tried to stifle the effort by urging the state to deny a required Certificate of Public Need. When a Richmond-area oncology center wanted to move a linear accelerator from one location to another four years before that, state bureaucrats said no. They refused to approve a Certificate of Public Need because, among other things, the move could take business away from a nearby cancer center.

Federal officials are working frantically to straighten out the mess created by the Affordable Care Act's effort to further centralize health care planning. As they do, it's worth looking at how much mess remains left over from another stab at central planning — one that was repealed more than a quarter-century ago.

Virginia's Certificate of Public Need program really confers "certificates of monopoly for favored businesses," says Robert McNamara. He works for the Arlington-based Institute for Justice, which represents two businesses — a colonoscopy service and a radiology practice — that want to expand operations in the Old Dominion.

Last year they challenged the COPN process, arguing that the long, complicated, bureaucratic and costly process violated the Constitution's interstate commerce clause and their equal right to earn a living under the 14th Amendment. A federal court shot down their challenge. To pass muster, wrote judge Claude Hilton, a law "may be based on rational speculation unsupported by evidence or empirical data."

That is not good enough, said the 4th Circuit Court of Appeals last week. While rejecting the equal-protection claim, judge J. Harvie Wilkinson and his colleagues ruled that, as a matter of fact, Virginia's COPN law very well could amount to an unconstitutional restriction on interstate commerce. They have sent the case back for further review.

The court cited a Virginia regulation indicating the COPN regime is meant to "discourage the proliferation of services that would undermine the ability of essential community providers to maintain their financial viability." (That is bureaucratese for: "stop potential competitors from luring customers away from existing businesses.") And because "current medical providers are by definition in-state entities," the court noted, "a major purpose of the certificate requirement is to protect them at the expense of new out-of-state entrants."

(Pause here for a moment. If customers migrate from an old provider to a new one, the odds are that they do so because they like the new provider better. If that is the case, then why should the state stop them from migrating?)

The court also noted that the COPN program gives "a structural edge to local firms." If, say, Bon Secours wants to expand operations, then it could face opposition from rival HCA. But if a third company tries to enter the market, then it will face opposition from both. A market incumbent "necessarily face(s) one fewer objector than … an out-of-state firm that seeks to enter the market de novo — itself."

None of this has to do with health or safety, by the way: Separate regulatory agencies make sure doctors are trained and hospitals are clean. The COPN system is all about managing the number and location of providers — not their quality.

How in the world did we get to the point where a provider needs a permission slip from the government — and its competitors — to open its doors? The tale goes back to 1974, when Congress passed the National Health Planning and Resource Development Act (NHPRDA), which imposed COPN on the states.

Congress did that because, at the time, Medicare and Medicaid were issuing payments on a cost-plus basis, which created an economic incentive for waste and inefficiency. To correct that central-planning mistake, Congress added more central planning: COPN was supposed to put a lid on rising health care costs by stopping doctors and hospitals from adding capacity where it was not — in some bureaucrat's eyes — needed. (Only in Washington does it make sense to hold down prices by restricting supply.)

Washington later changed the reimbursement formulas. Congress repealed the NHPRDA and freed states to repeal their COPN rules. Some did – but not Virginia. The state's market incumbents like the system too much. And why wouldn't they? It's like asking a Ford dealership if Nissan should be allowed to open up shop across the street.

That's not just the view of the medical interlopers, by the way. Nine years ago the Justice Department and the Federal Trade Commission conducted a joint investigation of the COPN system. They found that COPN laws "fail to control costs," "can actually lead to price increases," "pose serious anticompetitive risks," allow "market incumbents … to forestall competitors," and "risk entrenching oligopolists and eroding consumer welfare."

Aside from that, they're a shining example of all the wonders central planning can achieve.

This article originally appeared at the Richmond Times-Dispatch.