Health

Study: Regulations Meant to Lower Health Care Costs Don't

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In 1974, Congress passed the Health Planning Resources Development Act, which required states to create (if they didn't have them already) planning boards with veto power over health care providers' business decisions.

To comply, states adopted Certificate of Need (CON) laws, which the American Hospital Association had been pushing for—purportedly to lower health care costs and improve quality of care by avoiding the duplication of services and overinvestment.

The federal mandate was repealed in 1987, but in the 36 states (and D.C.) that retain CON regulations, state agencies can (to varying degrees) prevent hospitals, outpatient clinics, and long-term care facilities from building or expanding facilities, offering new services, or purchasing equipment according to the National Conference of State Legislatures.

Now that 14 states have deregulated (to varying degrees), however, researchers can compare outcomes in states with CON laws and those without them. Lead author Vivian Ho, an economics professor at Rice University and the Baylor College of Medicine has done just that, finding that, for heart bypass surgery:

states that removed Certificate of Need regulations experienced a 4 percent decrease in the average cost of patient care. These regulations are designed to prevent hospitals that do not treat a minimum prescribed volume of patients from offering open-heart surgery.

… Deregulation led to more hospitals building new facilities to perform open-heart surgery, which raises costs. However, the cost savings from lowering average costs per patient outweighed the additional costs of these new facilities.

Ho speculated that cost savings result from deregulation because competition encourages hospitals to deliver higher quality care. "The desire to attract more patients in a competitive market leads hospitals to offer higher quality care," Ho said. "It may sound counterintuitive, but recent studies show that higher quality surgery lowers costs because costly hospital complications are avoided when one improves care."

The study was supported by a grant from the National Heart, Lung and Blood Institute at the National Institutes of Health.

See the Medical Care and Research Review for the full study, which relied on data from Medicare beneficiaries age 65 and older (gated).

According to a 2011 study by National Institute for Health Care Reform, a nonprofit founded by the Big Three automakers and the United Autoworkers union, "the CON approval process can be highly subjective and tends to be influenced heavily by political relationships rather than policy objectives."

Reason authors have sussed out then-Gov. Sarah Palin's views on CON laws, tackled CON laws in Virginia, and compared CON regimes for people to competitive markets for veterinary care.

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  1. Can someone even explain the theoretically economic argument behind Certificates of Need?

    Its basic fucking ECON 1001, increasing supply cannot lead to increased costs.

    1. When has fact ever been an impediment to retarded politicians proposing and passing stupid shit in their respective legislatures?

    2. Progressive Argument:

      Essentially, if you have more hospitals, they perform more medical procedures, resulting in more money being spent, leading OMFG SPIRALING COSTS!

      AMA Argument:

      Essentially, if you have more hospitals, they try perform more medical procedures, resulting in reduced prices to attract patients, leading to OMFG RUINOUS COMPETITION!

      1. It’s almost as if no one involved in the creation of the law has even seen a basic supply-demand equilibrium graph.

        1. I find your argument…

          UNPOSSIBLE!

          Our betters know what we need and when we need it!

        2. But it’s different in this market! Fixed costs! Expensive procedures! Other things!

          Paul Krugman explains it all here…

    3. Hey and guess what? Most of those agencies that decide where a hospital can be built have been participants in regulatory capture schemes.

      In Virginia, the CEO of Sentara (a large hospital outfit) sat on the board that advises the commissioner who issues COPNs. Unsurprisingly, Sentara’s competitors had difficulties getting COPNs and Sentara did not.

    4. Please note, I DO NOT AGREE WITH THE BELOW, but this is the theory behind the madness…

      A resource which is utilized at 100% of capacity is more efficient than one utilized at less than 100% capacity. If there are medical resources in place which do not reach 100% utilization then the owners of those resources will find ways to increase it to close to 100% by using it unnecessarily because they will need to recoup the costs of the resource.

      Therefore to keep total spending down we must restrict the supply of medical resources to just match the natural demand for them which will lower costs both by keeping the utilization of each resource most efficient at 100% and by minimizing unnecessary proceedures.

      1. Damn, beat me. Please note that Rasilio’s disclaimer applies to me as well.

    5. Let me take a crack at it.

      Building more hospitals than necessary leads to greater overhead in health care as a whole, thus making all hospitals more expensive. If hospitals were always fully booked, presumably the overhead for facilities and employees would be as low as possible since all resources are being used.

      Of course then there is a shortage of care, but the people who support CON laws don’t seem to bothered by that.

      1. Isn’t that pretty much the same debunked central planning argument made by fascists and socialists regarding factories? Fuckers never learn.

  2. Ah, fond memories:

    My introduction to hospital law was the newly re-enacted Wisconsin CON, which I was hired to help implement.

    Instead, I decided we should oppose it, and rolled out this position at a public debate with the legislator sponsoring the law, where I characterized it as “Soviet-style central planning”.

    A year later, the law was repealed. The tax on hospitals to fund the agency to implement the law remains on the books.

    robc, the argument behind CON is based on a conception of health care as a utility/monopoly. The regulation of utilities includes approval of major capital investments and price controls, all designed to create a basically guaranteed “reasonable” ROI to the utility while providing “adequate” service.

    1. RC Dean, he was all out of bubblegum on that day…

      1. I thought my boss was going to stroke out, right there. Wimp.

        1. Who were you working for, a hospital?

          1. God.

          2. A hospital trade association.

        2. I thought my boss was going to stroke out…

          And prior to the mandate, he might not have had health insurance.

    2. You’re alright. I’m putting you on the “Do not kill” list.

    3. “newly re-enacted Wisconsin CON, which I was hired to help implement”

      You cunt. Go kill yourself now for not having beat to shit everybody who thought their career in rent seeking is fan-fucking-tastic.

      1. Read more of post. Nevermind.

  3. purportedly to lower health care costs and improve quality of care by avoiding the duplication of services and overinvestment.

    We all know how awful it is to have an Albertson’s and a Kroger right down the street from each other.

    How can these assholes even pretend to belief the shit they say?

    1. Because they do

      1. Helps if you don’t think about it. Look at Tony, he’s a true believer, and clearly never puts a thought into the talking points he mindlessly parrots every day.

        1. I believe it to be unlikely that that prick even has any interest in discussing the nitty-gritty kind of policy like this, and thus will not show up to attempt to defend the overall collectivist mentality in the scheme of him being for/against specific consequences of collectivism like this.

  4. “It may sound counterintuitive, but recent studies show that higher quality surgery lowers costs because costly hospital complications are avoided when one improves care.”

    Counterintuitive for some, perhaps, but completely logical for anyone who thinks on it for any time at all.

  5. I have heard people make a claim which essentially boils down to:

    There is a fixed pool of _________ patients. Adding capacity to treat them is a foolish waste of resources, and will imposes unrecoverable costs on the hospitals.

    Also, cost-cutting and RACE TO THE BOTTOM.

    1. Knowing my audience, I would respond with:

      There is a fixed pool of iphone users. Adding capacity to provide them with new versions of iphones sooner is a foolish waste of resources, and will imposes unrecoverable costs on Apple.

    2. Which is it? Cost-cutting, or adding costs? I don’t think it can be both.

      1. What, you never heard of Doublethink?

    3. Hard to believe the “fixed pool” argument when the constant droning for EARLY DETECTION generally guarantees a growing pool (not to mention population growth).

      I’d bet the argument is more that since increased supply tends to lower prices, insurance companies notice those lower prices immediately and change their reimbursements immediately.

      1. I believe it has more to do with political connections and shutting out the competition than anything else.

        1. According to wikipedia, FedGov was giving money to open hospitals. I’m not Einstein, but I think when FedGov gives subsidies, prices tend to go UP. They’re not just going to stop subsidies, they’re going to require you to take them after kissing their feet a few more times. It was a Ted Kennedy bill after all.

          1. So it’s probably more of a case that hospitals were opening but the supply of medical professionals didn’t increase at the same rate so their services cost more. And to get doctor Q to see patients at New Hospital A he’d have to be offered more money to cut his hours at Run-Down Hospital B.

            And I’d bet the subsidies were for new hospitals only and not for fixing up currently-running hospitals.

      2. There is also the fact that as previously untreatable maladies and diseases become treatable, more people become patients. As usual, the best evidence for this is laser eye surgery. Didn’t exist 20 years ago, people had to live with poor vision. Since it’s been introduced, it has become massively popular, vastly cheaper and much higher quality than it was when it started. Because insurance and government left it the fuck alone.

  6. Certificate of Need = Cartel Quota

    1. Certificate of Need = Greased Palms

      1. Ah, so you have dealt with them in Illinois then, S N?

        1. I think that is a universal principle. Surefire way to get on an advisory board in Virginia is to financially support the winner in the governor’s election.

        2. Illinois? What are you talking about? Didn’t the Paul administration wall off the entire state in an attempt to detain societal rot within a single area?

          Cue Escape from Illinois, starring Nicolas Cage.

          1. That would be Escape from Cook County. Some parts of Illinois are redeemable, mostly.

            1. Let’s settle for Escape from Chicago. Can Whoopi Goldberg play the Commandant of Chicago?

  7. I Am Jack’s raging bile duct. I am Jack’s complete lack of surprise.

  8. states adopted Certificate of Need (CON) laws

    You can’t make this stuff up.

    1. That’s pretty ironic.

      1. Don’t you think?

        1. Yeah, I really do.

        2. A little too ironic.

          1. Now that’s ironic.

          2. Raaaiiiinnnnnn

        3. Stop making me think of that song. God she sucks. I heard the song on the radio recently and was amazed that it was even shittier than I remembered.

                1. You wouldn’t know good music if it bit you in the ass.

                  1. Sweet fuck. That’s cruel and unusual punishment under the Constitution.

                  2. KILL IT WITH FIRE

          1. Was it like rain on your wedding day? A free ride when you’re already there? Some good advice that you just didn’t take?

            1. Dude, it’s “a free ride, when you already paid

              Get it right or pay the price.

          2. Is there an iron law that the worst single on a given record will be the one that gets endlessly played out on the radio?

  9. Hey and guess what? Most of those agencies that decide where a hospital can be built have been participants in regulatory capture schemes.

    In Hawaii, the public labor unions run the CON program. Result? On Maui, a money-losing publicly funded hospital has prevented a private competitor with no public funding from being built.

    1. Damn. Talk about owning the means of production.

  10. Sussed? What the hell is sussed?

      1. If healthcare involves words like ‘sussed’ it’s no wonder we can’t afford it.

  11. Also, can someone tell me when J Jonah Jamison became a Dr?

    1. I WANT THAT SPIDER IN A JAR!

    2. That’s a screen shot from a fairly lame iPhone game called Dr. Awesome.

  12. “the CON approval process can be highly subjective and tends to be influenced heavily by political relationships rather than policy objectives.”

    No, you don’t say?! Who’d a thunk it. Let me show you my shocked face.

  13. Which is it? Cost-cutting, or adding costs? I don’t think it can be both.

    I had an answer for that, but the squirrel in my computer ate it.

    Adding capital expenditures, then cutting prices to get patients to come ride in the expensive technological whirligigs. Corner cutting, blah, blah, blah.

  14. To comply, states adopted Certificate of Need (CON) laws, which the American Hospital Association had been pushing for?purportedly to lower health care costs and improve quality of care by avoiding the duplication of services and overinvestment.

    And why, oh why, would the AHA push the government to create limits on what Hospitals can do? Anyone? Anyone?

    Let me give you a hint. Because businesses love it when they can deny a service to people and have legislative cover for doing so. The theory being that if the Hospital doesn’t believe a procedure is necessary, it’s hard to say “No” to the customer, but if the LAW says “No”, then the Hospital system can collectively shrug and point to lawmakers. How’d that work out for ya, deregulated healthcare market?

    1. Re: Paul,

      How’d that work out for ya, deregulated healthcare market?

      Why would a hospital pointing out to a “law” be an example of a deregulated market? If you can hide behind some dumb law, then ipso facto your market IS regulated – by that law.

      Otherwise you HAVE to cater to your client’s needs and requests, lest you want to give away your business to your competition.

      Because businesses love it when they can deny a service to people and have legislative cover for doing so.

      That doesn’t make sense. Denying a service to a paying customer means not receiving the income. A business may use a law to limit its liability (which is the case with “minimum standard” mandates,) but ceteris paribus all businesses look to increase their profits, not lower them.

      1. Some states like Illinois have laws that car dealers can’t do business on Sundays. Great numbers of the dealers desired these laws, and continue to oppose repeal, because they don’t want the possibility of having to be open on Sunday because the competition is open on Sunday.

        Likewise, the health services industry, which now operates fully on the incentives of regulatory capture, can find it more profitable or at least more secure to operate under blanket restrictions than to invest in competitive services.

        1. See also: liquor stores in Georgia that recently opposed allowing people to vote to repeal blue laws.

  15. “the CON approval process can be highly subjective and tends to be influenced heavily by political relationships rather than policy objectives.”

    What? You mean an appointed panel of medical ethicists who decide what treatment(s) or expansions or services a given hospital might provide end up being politically motivated?

    Oh, and another thing, if you think that any lessons will be learned from this, not only will they not be, but it only causes the Hospital associations to beg for more, harder regulation.

    The Hospital I work for has been rah-rahing Obama and Obama care from day one. They complain bitterly when another hospital opens up a facility which competes with them, causing the CEO to say openly, “I don’t see how they’re even allowed to do that.”

    Yeah, because more healthcare options hurt the consumer.

    Get stuffed.

  16. Market skewing policy like this never even gets brought up in the main media and political venues that discuss health policy.

    The asses who scream about “market failure” demonstrate no reason to have any honest position in developing policy, due to their lack of acknowledgement of the actual problems- that they already created.

    Not even republicans have ever made existing regulation a noticeable factor in their forming of shit that they say about health policy.

  17. Somebody has been playing “Dr. Awesome” to get that screen shot. I would have figured they would at least play decent games at Reason

  18. Ho speculated that cost savings result from deregulation because competition encourages hospitals to deliver higher quality care.

    Huh! Interesting speculation. There ought to be a branch of social science to investigate such causal relationships. Who knows what we might learn about the relationship between competition and costs.

  19. Oh wow, so who comes up with that stuff?

    http://www.TotalAnon.tk

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