Taking the CON Out of Certificate of Need Laws

Posted on by Steve Bernstetter

Most industries are open to all firms willing to make the necessary initial investments to enter the market. If I want to open a bar in my neighborhood, can clear the zoning restrictions, and have the necessary capital to rent a space, fill it with booze, and market it to my prospective customers, then that bar will open, with me as its proprietor. This open process creates an environment in which businesses compete for customers, encouraging the innovation that leads to higher quality and lower prices. Requiring a prospective bar owner to obtain a permission slip showing a need for another bar in their neighborhood would obviously be ridiculous. Unfortunately, this is exactly the requirement made by the state of any entrepreneur looking to offer health care services.

Presently, any firm wishing to create a new service or spend a certain amount of money on improving an existing service must apply for and receive a Certificate of Need from the state demonstrating a need for that particular service within the health care market. This procedure was introduced by the federal government in the 1970s to control the rising costs of healthcare by eliminating duplication of services. But costs continued to soar, and the federal legislation was repealed in the 1980s, though many states, Missouri among them, still maintain CON requirements. The process of fulfilling these requirements is both costly and time consuming, creating an unnatural barrier to entry that stifles innovation and inflates prices.

Proponents of maintaining current CON laws make two key arguments. First, they assert that CON laws keep prices down and assure both quality and availability of service. Evidence for these claims is spotty at best. Success with and without the program varies greatly from state to state, and it is extremely difficult to separate the differences in care created by CON laws from differences created by other variations in healthcare systems between states. Additional study is required before any solid conclusions can be drawn as to the affect of CON laws on price, quality, and availability. However, conventional economic wisdom holds that when multiple firms compete, quality rises and prices drop. There’s no reason to assume that the health care industry would be exempt from this effect.

Proponents of current CON laws also argue that eliminating those laws would result in a “cherry-picking” effect, in which new specialty hospitals and services would systematically drain the most profitable patients away from the general service hospitals most likely to serve the poorly insured and indigent. They argue that this would render those hospitals incapable of administering those less profitable services. These proponents essentially argue that removing CON laws would foster unfair competition that would further marginalize those already unable to afford decent general health care. The data surrounding this issue is largely inconclusive. However, reforms could be structured to provide incentives for firms serving those customers, thus curbing any “cherry-picking” effect, should one actually emerge.

The cost of care for those who cannot afford it ultimately gets passed on to those who can, driving up the overall cost of health care for everyone. The ideal system provides a variety of options, in both price and quality, for all. Such a system is best achieved in a market where firms are free to specialize to meet consumer demand. Such a market depends on consumers with a variety of options making informed decisions. As such, CON law reforms should focus on increasing the transparency of the market while simultaneously fostering competitive growth within it. A balanced approach to competition, in which artificial barriers to entry, such as CON laws, are eliminated and the healthcare needs of all are well represented, offers the best chance for guaranteeing all Missourians access to affordable, quality health care.

Steve Bernstetter is an intern at the Show-Me Institute and a graduate student in Public Policy Administration at the University of Missouri-St. Louis.

 

School Choice Successes Abroad

Posted on by Timothy B. Lee

There’s been an interesting debate going on about school choice. A persistent theme of the school choice critics is that a free market in education is a pie-in-the-sky fantasy that’s never been tried in the real world, and that the private schools couldn’t expand to meet the increased demand from a wide-spread choice program. Over at the Cato blog, Andrew Coulson sets the record straight:
 

There are two well-established nationwide school voucher programs, one in the Netherlands, the other in Chile. The first was created in 1917, the second in 1982. In both cases, the supply of private schools rose dramatically to meet demand. Roughly three quarters of Dutch students are now enrolled in private schools. In Chile, private sector enrollment doubled within the first decade and passed the 50 percent mark in December of 2005.

Sweden and Denmark enacted voucher programs more recently, and both are seeing the creation of new private schools as a result. Swedish private sector enrollment rose from 1 percent to 10 percent of the student population in a decade, and continues to rise. I discuss this issue at greater length in my chapter in the Cato book: What America Can Learn from School Choice in other Countries.

Turning to Mr. Rotherham’s assertion, I pointed out at our forum that there are vibrant, unregulated, rapidly growing education markets all over the world. In some areas, such as the U.S., Japan, and South Korea, these are niche markets ? mainly after-school tutoring. In other parts of the globe, particularly South Asia and Africa, they are mainstream elementary and secondary schools.

It’s frustrating that special interest groups in Missouri spend so much money opposing a school reform strategy that worked so well around the world.

The REAL ID Revolt

Posted on by Timothy B. Lee

I’m not too worried about the coming of the antichrist, but I think the drive to opt Missouri out of the REAL ID Act is a great idea. Here’s a good YouTube clip of my co-blogger Jim Harper facing off against a national ID advocate on MSNBC last month:

It’s important to keep in mind that if Missouri refuses to implement REAL ID, there’s very little chance of negative repercussions for Missourians. In theory, we won’t be able to use our drivers’ licenses to board airplanes, but it’s extremely unlikely that the Department of Homeland Security would actually blacklist an entire state from air travel. More likely, if Missouri refused to implement REAL ID, it would provide a powerful signal to Congress that the American people don’t want a national ID card.

CON Job

Posted on by Timothy B. Lee

Over at our main website, Steve Bernstetter has a great article about the need to ditch monopolistic “certificate of need” laws. If you want to open a laundromat or a Chinese restaurant, you don’t have to fill out paperwork demonstrating that your services are “needed.” The decision of which businesses are “needed” is made by consumers in the marketplace, not government bureaucrats. But in Missouri’s dysfunctional health care marketplace, you can’t enter the market until you’ve gotten approval from the state. Check out Steve’s article to learn more.

Eric Mink’s Talkin ’bout Bridges

Posted on by David Stokes

Eric Mink has an excellent article in the Post-Dispatch today about the proposed Mississippi River bridge.  It is carefully researched and thorough and I agree with much of it, though not all of it.  He quotes from a study funded by East-West Gateway that concluded there will not be enough drivers willing to pay the toll to make a toll bridge a viable option.  On this blog I have previously mused as to whether we really needed the billion-dollar bridge with so many free bridges available and thought that the smaller, MLK-coupler idea could work well, as a toll or free bridge.  In the interest of brevity, I am not going to focus on the many parts I agree with, ’cause that’s boring, but on his comments about Public-Private Partnerships. 

Mink writes about P 3’s that have built other major roads around the US:

In March 2004, the Government Accountability Office issued a report examining six major P3 projects in the United States. (www.gao.gov/new.items/d04419.pdf) Overly optimistic traffic and revenue projections figured in three of the six. In its planning stages, the Dulles Greenway outside Washington, D.C., projected first-year traffic at 33,000 vehicles per day; it got 10,500. Today, after 12 years in operation, it has yet to turn a profit, and, according to a story last week in the Washington Post, "its debt has nearly tripled."

Another P3 project, the Southern Connector toll road in Greenville County, South Carolina, projected first-year traffic at 28,000 vehicles per day; it got about 14,000. Two years after it opened in 2001, Standard & Poor’s downgraded its rating on Connector bonds to "junk" status.

And using a slightly different measuring unit, the Pocahontas Parkway in Virginia, according to the GAO report, projected 840,000 transactions per month (one vehicle passing through one toll point) for 2003 but got only about 400,000; its bond ratings were downgraded. Both the Pocahontas and Dulles roads have since been bought out by Australian companies.

What Eric’s article is missing is why this is such a bad thing that some of these projects, and we should carefully note that 3 of the 6 measured projects are apparently doing very well, are not doing as well as projected?  To my, this is nothing but capitallism at work.  The roads are not going to disappear because the bonds have been lowered in status.  Who cares if the highway bond is junk if the road is in good condition, and I see nothing in this article or elsewhere that says the roads in question are in disrepair.  In fact, a new compnay just purchased two of the roads above, so someone thinks they are a good investment.  A P 3 is formed, it invests in roads, some of them dont’ generate as much traffic as expected, the P 3 needs to decide what to do now: lower the toll, etc.  This happens in capitalism and the communities still have the roads that private money financed.  So that is my main question about an overall great article from Mr. Mink.

IT + Healthcare = Money Saved

Posted on by Steven Bernstetter

Governor Blunt has been on tour recently, promoting a new system for cataloging and sharing patient information between doctors and hospitals. According to Senate Majority Leader Charlie Shields, R-St. Joseph:

"The amazing thing, if you listen to the hearing and the testimony," is that "there’s widespread agreement that we need to do this. This is about changing the health-care system to focus on patient needs, to focus on wellness, prevention and be patient-centric. That’s not a Republican issue. That’s not a Democratic issue. That’s a Missouri issue."

The idea is pretty simple: keep track electronically of a patient’s past medical history, current ongoing treatments, potential future problems, etc., and make those records accessible to any doctor in the state treating that patient. This will ensure a continuity and consistency in treatment, making it easier for doctors to anticipate and react to problems quicker, catching and preventing illness earlier while its easier to manage. 

The potential for savings is great, as most diseases, especially cancer, are most easily treated at their earliest stages, eliminating the need for more expensive and risky treatments later in the course of the illness. It will also enable doctors to more effectively collaborate in treating the same patient, avoiding problems with overlapping or conflicting treatments. As described by Sen. Shields:

"Every day you see the elderly person come in with a bag full of prescription drugs in a Ziplock. There may be 12 drugs in there, and three of them interact with each other, and then they wonder why they’re sick," he said.

Electronic records will be an excellent way of overcoming these difficulties, saving patients and taxpayers money by eliminating the need for treatment of side effects from prescription drug-related complications.

With the cost of healthcare in America spiraling out of control, and more and more Americans finding themselves without coverage, something must be done to bring costs down and make care more affordable for everyone. Keeping healthcare systems at the technological forefront by combining Information technologies with medical technologies will help achieve this.

More Choices 4 Parents

Posted on by Timothy B. Lee

The Post has a write up of one of the most entertaining Supreme Court cases in recent memory, which was argued on Monday. A high school kid in Alaska unfurled a banner that read “bong hits 4 Jesus” just as TV cameras covering the 2002 Olympic torch were passing by. A school administrator ripped down the banner and suspended the kid. He challenged his suspension, and won before the Ninth Circuit.

The case strikes me as a tricky one. Obviously, school officials need some ability to prohibit disruptive behavior by kids under their care. It presumably wouldn’t be constitutionally protected for a kid to run up and write “bong hits 4 Jesus” on the chalkboard in the middle of math class. But on the other hand, it is appropriate to place some restraints on school officials—who are, after all, agents of the state—to ensure that they don’t abuse their authority to quash the expression of views with which they disagree.

The fundamental problem here is that we’ve got government officials running school systems. There’s no good reason to organize our education system that way. If we had government-run grocery stores, we’d have First Amendment cases about whether grocery store employees could talk about politics in check-out lines. Luckily, we don’t do that. We give poor people food stamps and let them shop at the private grocery store of their choice.

Likewise, if we had widespread school choice, in which schools were run by private individuals and parents decided where to send their children with the help of state-funded vouchers or tax credits, the First Amendment issues in education would be far less acute. Schools would have a variety of policies with regard to political speech in school, and parents would be free to choose a school whose attitudes were in line with their own. Sure, there would still be occasional controversy within a given school about where to draw the line, but those controversies would no longer require the Supreme Court to step in and resolve them.

This is a point we’ve made before: the reason public schools invite so much controversy is that we’ve got a monolithic, one-size-fits-all education system. Decisions about how to run schools (whether the subject is evolution, sex education, prayer in schools, free speech in schools, or anything else) should be up to parents and teachers, not school district bureaucrats or the United States Supreme Court. We all have strong opinions about these subjects (personally, I wouldn’t want to send my kid to a school that taught “intelligent design” or abstinence-only education), but living in a free society means respecting the rights of parents to choose schools whose curricula are consistent with their beliefs and values, just as we allow parents to choose what their kids will eat and whether they go to church.

Mayoral Control in USA Today

Posted on by Timothy B. Lee

USA Today has a news story on mayoral control over urban schools that covers our study on mayoral control, although they unfortunately don’t mention that we commissioned the study. Still, it’s a good write-up of an important issue:

Education specialists continue to debate whether kids really get a better education under such arrangements, whether any academic gains will be permanent, and how much credit mayors should get for the successes.

Kenneth Wong, a Brown University education professor, examined test scores of the 100 largest school districts from 1999 to 2003. He found that students in mayor-controlled school systems often perform better than those in other urban systems. Test scores in mayor-run districts are rising “significantly,” he says.

However, Wong says in his study that “there is still a long way to go before (mayor-controlled) districts achieve acceptable levels of achievement.”

On the other hand, Frederick Hess of the American Enterprise Institute, a Washington think tank, says his review of previous studies finds that it’s “inconclusive” whether mayors can raise test scores more than elected school boards.

Solid data on student achievement have not been collected long enough, Hess says. And test scores also are up in Houston and other cities with elected school boards, he points out.

The story also highlights an important point about our study: some people have inaccurately described the study as a strong endorsement of mayoral control, but in fact, the study’s findings are more nuanced. Hess concludes that given the chaos now plaguing the school district, mayoral control is likely to be better than the alternatives. However, he makes it clear that how mayoral control is implemented is a lot more important than whether to implement it. Switching to mayoral control carelessly, or without the strong backing of the mayor and civic leadership, would be worse than not switching at all, as the examples of Washington DC and Los Angeles illustrate. The point of Hess’s study was not that we should switch to mayoral control at any cost, but rather that we should only switch to mayoral control if the city’s civic leadership are committed to expending the political capital required for it to be effective.

Show Me Healthy Women Needs Flexibility More Than Funds

Posted on by Sarah Brodsky

Governor Blunt wants to spend an additional $500,000 on the Show Me Healthy Women Program:

If approved by the General Assembly, the added funding for the Fiscal Year that begins July 1st would expand the program to an additional 1225 women next year. Women who are eligible for this program must meet specific residency, age, and income guidelines.

The current income limits by household size are here. The current limits are already very generous–women can qualify for this program even if their kids aren’t eligible for the Free and Reduced Lunch Program.

Most of the controversy over Governor Blunt’s proposal focuses on the politics of which clinics should provide the services. We should instead consider whether these services are the best target for public health spending. Mammograms are very inexpensive–usually only about $100–so they cost less than many other medical tests and treatments, such as twice-a-year dental cleaning. And mammograms are not equally important for all women, because genetic and lifestyle factors make some women more at risk for breast cancer than others.

A better way to improve the state’s health care programs would be to issue vouchers that poor families can spend on whatever services they need most. We should make state health care programs more flexible, rather than pay for a few specific services that most people can afford already.

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