Recent news accounts (see here) have described some of the statutory and regulatory procedures that will determine whether a new medical facility will have the state’s permission to be built in Columbia.
Much attention has been given (expect more to follow) to this process as well as the debate between proponents and opponents of the hospital project. Debate centers on the intent of the process and the accuracy of the details in the application, which is required under the Missouri Certificate of Need (CON) law.
All such debate will merely blur reality and boggle the public’s mind. Such debate will ultimately end, not with a free-market decision by a health-care provider, but in a legal process by which Soviet-style CENTRAL PLANNERS, the Missouri Health Facilities Review Committee (MHFRC), will determine the fate of the proposal.
Why was health care planning (CON) implemented in Missouri?
Chapter 197 of Missouri Statues provides for the certificate-of-need process as well as the MHFRC commission, made up of legislators and other appointed public board members. This law was adopted by the Missouri General Assembly in 1979 in response to federal Public Law 93-641. This 1979 state law was necessary in order for Missouri to be able to participate in Federal Medicaid and Medicare programs. Public Law 93-641 was enacted by Congress in 1974, in part as an attempt to reduce the hemorrhage of Federal dollars, the result of the unintended consequences of a prior Federal law. That law, the Hospital Survey and Construction Act (the 1946 Hill-Burton Act) prompted hospital overbuilding “bubbles” as a result of its perverse incentives of low interest loans and grants. The Hill-Burton plan grew in size from anticipated expenditures of $75 million at the beginning to over $33 billion before the plan finally expired. Who wouldn’t have guessed that spending an additional $32 billion would have probably generated excess capacity?
The Hill-Burton plan also “crowded out” private providers who couldn’t compete with the no or low cost of capital and debt available to government-sponsored projects, creating further distortions in the health care marketplace. The Hill Burton “bubble” impact together with a cost-related reimbursement system for Medicaid and Medicare that was based on actual cost, including the cost of vacant excess capacity, not free market prices, was sure to bust the program budgeted costs out at the seams.
As a result, the Federal government attempted to design a system to protect itself from the costs that might come from the construction of additional health care facilitates. They had seen the overbuilding caused by Hill-Burton. The incentives of Medicaid and Medicare with its guaranteed payment plan for the anticipated mass of new customers, might surely prompt a new health care facilities building bubble. Thus federal law 93-641 was born requiring states that wished to participate in the federal payment assistance for Medicaid and Medicare, to create laws and regulatory processes to determine if new facilities “were needed”.
Can such regulatory processes really determine what type and how many health care services are needed? I submit that it can’t. First, the CON program doesn’t have the informational knowledge to make the entrepreneurial decisions necessary in the marketplace to determine and allocate such services. Additionally, the program doesn’t even presume to have a way to determine, after the fact, if their decisions are good or bad.
In 1974, the same year that the federal CON law was adopted by congress, F.A. Hayek was awarded the Nobel Prize for economics. In his acceptance speech, entitled ‘The Pretense of Knowledge,’ Hayek argued that central planners, like those charged with determining who should and should not provide medical services, can only pretend to have all of the information necessary to make the kinds of decisions they make. And since they do not, he offered: ”They thereupon happily proceed on the fiction that the factors which they can measure are the only ones that are relevant.”
Why has CON remained law in Missouri?
Fast forward to 1987. Congress switched to a predetermined fee-for-service system for Medicaid and Medicare, this controlled runaway costs and eliminated the need to regulate the supply of health care facilities. The federal law mandating the state CON process was then repealed.
One would think that all states would then rid themselves of the time-consuming, competition-killing, and costly process that was no longer required for the state to participate in Medicaid and Medicare. Missouri is one of thirty-five states that have failed to repeal their CON law, notwithstanding the fact that this federal law was repealed more than two decades ago.
Why has Missouri retained its CON law?
Other than criminal behavior, man has just two ways to satisfy his wants – the economic method or the political method, and he will usually choose the easier of the two. The economic method to satisfy wants consists of the exchange of private property or talents for what he wants. The political method is procuring government aid in satisfying wants, all at a cost to someone else. Certificate-of-need laws that provide some market players a competitive advantage are of course political.
When a competitive advantage is given by the state, competition is restricted, and when competition is restricted, innovation is chilled, choice reduced, and costs increased or services reduced. This axiom is just as true for health care as for automobile care. The fifteen states that have abolished their CON laws have significantly more hospital beds, MRI machines, and CT scan services than the CON states. (See here.)
There have been many attempts to repeal Missouri’s CON law. All attempts, including Senate Bill 53 this past legislative session, have failed due to the concentrated efforts of those who wish to use the strong arm of the law to eliminate competition from new and potentially improved or less expensive health-care services.
That the lobbying efforts to retain CON are successful confirms the economists’ public-choice theory of “Concentrated Benefits vs. Dispersed Costs”. Until those of us who must bear the dispersed costs stand up and oppose CENTRAL PLANNING for our health care, the process is unlikely to change.