This essay presents the original rationale behind Missouri’s certificate of need law, explains how the law is implemented, and marshals both theoretical argument and empirical evidence to show that certificate of need law has, unfortunately, achieved the opposite of its intended effect in the Show-Me state. To read the entire essay, click on the link below.

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Why is there such a difference between the two? Charles Silver and David Hyman, authors of Overcharged: Why Americans Pay Too Much for Health Care, argue that it is because of the free market.

Traditional providers, like hospitals and clinics, are expensive and inconvenient for the consumer because their pricing is primarily based on what insurers will pay. In comparison, retail providers, like the clinic found in your grocery store, have to price their services in order to attract customers and strive for convenience. The two offer many of the same services but have completely different ways of doing business.

Retail providers are becoming an increasingly disruptive challenger of traditional providers. This should not be surprising—when providers are able to compete the results typically are lower-priced and more attractive options for the consumer. Just as internet shopping is disrupting brick-and-mortar businesses, retail medicine is disrupting traditional medicine, an industry that is used to being insulated from competition.

A great example of this is the way retail medicine is transforming audiology. While traditional audiologists charge steep prices for hearing aids and hearing checks (with additional charges for things like testing, warranties, and damage coverage, which can often make up 70 percent of the total price of a hearing aid), retailers are improving services while lowering costs. Costco Hearing Aid Centers offer similar services to that of audiologists without the additional charges.

Silver and Hyman write:

As more retailers enter the field, prices will become easier to compare and competition will intensify. Bargain-hungry consumers will look for better deals, but they will be interested in quality too . . . With pressure on both quality and price, retail offerings are bound to improve. (pg. 325)

Competitive pricing offered by the retail sector also allows people to avoid markups that come with using third-party payers. While most retail providers take insurance, patients pay out-of-pocket one-third of the time. In contrast, patients who visit primary care doctors pay out-of-pocket only ten percent of the time. Silver and Hyman view this as an important factor in the success of retail providers:

When we pay for health care the same way we pay for other services—by spending our own money instead of an insurer’s—good things happen: prices fall and quality improves as providers compete for business. (pg. 320)

Competition provides good things indeed. Want to learn more about market solutions for health care problems? Join us in St. Louis or Kansas City to learn more from Cato Institute scholars Charles Silver and David Hyman as they discuss why the American health care system is so dysfunctional and costly.

The post Health Care Desperately Needs Competition-Retail Medicine Provides It appeared first on Show-Me Institute.

Silver and Hyman reveal the key flaws in America’s health care system, which replaces consumer choice with government control and third-party payment, driving up the cost of health care. Prices will fall, quality will improve, and medicine will become more patient-friendly only when consumers take charge. As Overcharged explains, when health care providers are subjected to the same competitive forces that shape other industries, they will either deliver better services more cheaply or risk being replaced by someone who will.

Overcharged is getting the attention of top free marketeers and conservative influencers. George F. Will, Pulitzer Prize-winning columnist and author raves that “Silver and Hyman frighten us with the facts and point to ways the biggest player in the health care game—the government—can stop making matters worse.” Show-Me Institute has also noticed the usefulness of Silver and Hyman’s free-market solutions to the national health care problem. We have invited the authors to Missouri to discuss their book. Details for the event are attached. We hope to see you there!

Get Tickets: https://showmeinstitute.org/overcharged-why-americans-pay-too-much-healthcare

Spread the Word: https://www.facebook.com/events/264480817839154/

The post Why is American Health Care So Expensive? Because You’ve Been Overcharged appeared first on Show-Me Institute.

THE SOLUTION: Repeal the Certificate of Need law.

Eliminating CON requirements would allow Missourians to benefit from true marketplace competition in the health care arena.

WHO ELSE DOES IT? California, Colorado, Idaho, Indiana, Kansas, New Hampshire, New Mexico, North Dakota, Pennsylvania, South Dakota, Texas, Utah, and Wyoming have no CON law.

THE OPPORTUNITY: Missouri would join a growing list of states that have opened the door to real health care competition.

KEY POINTS

• CON laws separate patients who need care from doctors who want to provide it.
• More competition would create pressure to reduce health care prices.
• Missouri would be able to compete with nearby states, including Kansas, where smaller hospitals are opening up because they aren’t restricted by CON laws.
• CON reform is an opportunity to help communities threatened by the loss of existing hospitals.
• Ending CON would empower patients to make choices that benefit their families, rather than support the government-backed competitive advantages of hospitals.

SHOW-ME INSTITUTE RESOURCES

Essay: Demand Supply: Why Licensing Reform Matters to Improving American Health Care

Blog Post: Missouri’s Certificate of Need Law Needs to Go

For a printable version of this article, click on the link below. You can also view the entire 2018 Missouri Blueprint online.

The post 2018 Blueprint: Certificate of Need appeared first on Show-Me Institute.

CON laws create barriers to opening all sorts of medical facilities without undue interference, supposedly to protect health care access. The research says these laws do the opposite, which is why support has grown for their repeal nationwide. But in contrast to previous sessions, it doesn’t seem that there’s legislation moving to the forefront yet that would unwind Missouri’s CON law. Frankly, that’s mystifying.

Over the last few years we have talked a great deal about the importance of CON reforms. We even included it as an item in our Blueprint. But apart from our work on the subject, the potential impact of CON reform on patient care is made clear by events taking place right now in the Kansas City area. Kansas doesn’t have a certificate of need law; Missouri does. Unsurprisingly, and as reported by the Kansas City Star, a network of microhospitals is sprouting up all over the Kansas side of the metro area. And as the Star notes, the same sort of innovations aren’t happening in Missouri.

But the law cannot change unless there is legislation to change it and champions to see it through. There is still time for bills that can expand the supply of health care facilities, of physicians, of care, and all the rest. That said, time is running out. If CON reform is going to get done, it needs legislative champions. It remains an open question who those will be in 2017.

The post Where Are the Certificate of Need Bills? appeared first on Show-Me Institute.

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In a world of limited resources and virtually unlimited wants, we are forced to make trade-offs. A decrease in the quality of health care might be acceptable if CON led to lower costs. Proponents of CON argue that this regulation does contain the cost of care by preventing the “duplication of services” in a given geographic area. To illustrate this chain of reasoning, let’s say that Barnes-Jewish Hospital and Saint Louis University Hospital buy “too many” MRI machines – as a result, many of the new MRI machines go unused. Because of the outlay, CON proponents assume the two hospitals will probably charge higher prices for MRI scans to make up for the mistake.

There is evidence to suggest that theory is not well founded. One evaluation of Illinois’ CON program found that “there is little direct broad proof that overcapacity duplication leads to higher charges.” CON regulations may result in “tangible savings on the actual costs of specific medical technologies” but these programs tend to “redirect expenditures to other areas.” In other words, CON may actually prevent hospitals from spending too much on a certain type of medical technology, but any savings will be spent on other items instead of being passed onto patients. One study even suggests that strict CON programs may actually increase health care costs by as much as 5 percent.

What use is a program that can be delivering sub-optimal health care without cutting costs?

The post Show Me Better (Part 3): Certificate Of Need And The Cost Of Care appeared first on Show-Me Institute.

A certificate of need is a legal document the state issues to allow a health care provider to expand, modify, or construct certain health care facilities. In Missouri, a nine-member committee reviews applications for certificates of need and administers them in accordance with its own rules. For example, last year, the Lafayette Health Center received a CON to construct a new $40 million hospital. Based on the committee’s rules, Lafayette likely paid the review committee a hefty $40,000 application fee.

One of the original purposes of the program was to guarantee health care access by limiting competition in a particular region. Proponents assert that, with less competition, the likelihood of a hospital going out of business will be reduced, hopefully ensuring a sufficient level of care for citizens near the health care provider. Yet, empirical evidence suggests that CON programs neither control costs nor improve health outcomes. Indeed, they may actually hamper access to care and patient choice, at least under some circumstances.

If the certificate of need law could be hurting the people it was intended to help, should it be reformed? Abandoned? These questions are central to why we, as Missourians, ought to take a serious look at the necessity and efficacy of the state’s CON program. In future posts, I will review how CON regulations impact health care costs, access to care, and clinical outcomes.

The post Show Me Better: Assessing Certificate Of Need In Missouri appeared first on Show-Me Institute.

Health insurers are privately warning brokers that premiums for many individuals and small businesses could increase sharply next year because of the health-care overhaul law, with the nation’s biggest firm projecting that rates could more than double for some consumers buying their own plans.

The projections, made in sessions with brokers and agents, provide some of the most concrete evidence yet of how much insurance companies might increase prices when major provisions of the law kick in next year — a subject of rigorous debate.

That is the personal cost. What about in the aggregate? The Manhattan Institute released a study on Tuesday about the health care “savings” we could expect under the law to provide clarity to this question.

And how much will Obamacare save Americans overall? The answer: nothing. Or more accurately, Americans can expect to pay more for health care in total because of “Obamacare” than if the law . . . was never enacted. (Emphasis mine.)

Today, Americans spend well over $2 trillion — close to 18 percent of GDP — on health care, and U.S. health-care costs have grown much faster than either income or GDP growth over the last several decades. However, despite the best intentions of its supporters, Obamacare will not make much of a dent in these trends. The Centers for Medicare and Medicaid Services (CMS) projects that between 2012 and 2021, America will spend $36.8 trillion on health care. Absent Obamacare, CMS estimates that spending would be $36.3 trillion — a difference of just $500 billion over ten years. In other words, without Obamacare, Americans would spend less on health care.

The chart:

Folks, our political betters actually bent the cost curve up, not down.

Why will costs rise? Because the ACA did not fix the cost problems; as I told the St. Louis Beacon in a story published this morning, the law doubled-down on them. Instead of applying market pressures to get the cost of care down, the law just shifted how we pay for care. From the Manhattan Institute (emphasis mine):

As noted earlier, the law shifts health-care costs from individuals to government, with the overarching goal of reducing the share of health-care spending borne by low- and middle-income uninsured consumers. The problem is that evidence strongly suggests that when out-of pocket spending is lower, health-care spending actually rises.

Why would anyone implement an “affordable care act” that was anything but?

The post Dear Affordable Care Act Supporters: You Call This ‘Saving Money’? appeared first on Show-Me Institute.

In this talk, renowned health care expert John C. Goodman explained, with humor and lively examples, how the problems with health care in the U.S. stem not from too little regulation, but from too much. Dr. Goodman also described a path to improving health care by allowing markets to work.

The post Reforming Healthcare by Seeding Free Market Formation appeared first on Show-Me Institute.

On the topic of food, my next stop along my journey was to grab a bite to eat at Bread Co. While scanning the menu on the wall, I noticed something I hadn’t ever seen before in Missouri — the calorie counts of all the food posted right next to the offerings. Amazing again! Free information at my disposal to make a decision about my health.

Why get excited over something so mundane? For one, there was a free exchange of useful information. The price system — much like the nutritional information system — is an amazing way of communicating information quickly and accurately. Second, in both instances the information was freely provided. Missouri restaurants, unlike some in New York City, are not required by law to include caloric information on their menus. But businesses here are still free to post that information as upfront as they’d like.

Best of all, businesses that choose to be more open with their information freely elect to bear the costs of collecting that information. The burden is usually on the customer to sort out the nutritional value of her food, but in some cases it may be in a restaurant’s business interest to display information more explicitly, or even to be more charitable. The result is a free and fair exchange of information or money that leaves both parties better off.

Ultimately, the most fascinating part of my journey was the fact that the businesses and I were free to choose. The businesses chose to offer certain services and bear those costs in the hope of attracting or retaining more customers. For my part, I could have purchased a sports physical if I wanted, but I didn’t need to. I could have purchased the healthiest sandwich on the menu, or the least healthy. I could have ignored the caloric content completely, and ordered dessert for dinner. No one got to tell me what to order, and I could have left the restaurant altogether if I had wanted. Information freely available at my disposal helped shape my decisions.

As usual, the more freedom and information we have as a society, the better choices we can make for ourselves and those we care about. And that’s always something to get excited about.

The post A Free-Market Journey appeared first on Show-Me Institute.

Here’s a good bit:

Dr. Baumol and a colleague, William G. Bowen, described the cost disease in a 1966 book on the economics of the performing arts. Their point was that some sectors of the economy are burdened by an inexorable rise in labor costs because they tend not to benefit from increased efficiency. As an example, they used a Mozart string quintet composed in 1787: 223 years later, it still requires five musicians and the same amount of time to play.

Despite all sorts of technological advances, health care, like the performing arts, suffers from the cost disease. So do other public services like education, police work and garbage collection. While some industries enjoy sharp increases in productivity (cars can be built faster than ever, retail inventory can be managed better), endeavors like health care are as labor-intensive as ever.

Here’s another:

At the same time, demand for health care never lets up. So while slow sales of video games or clothing can reduce prices, health care prices never ease. And while the robots that help build cars have replaced human beings on the assembly line, robots that help out in modern operating rooms are not as economically efficient.

“We do now have robots performing surgery, but the robot is under constant supervision of the surgeon during the process,” Dr. Baumol said. “You haven’t saved labor. You have done other good things, but it isn’t a way of cheapening the process.”

It’s important to note, then, that the most effective ways to cut cost inflation given Baumol’s insight is through market-based means: shock the supply or rein in demand in the market. The current health care proposals passed by the United States Senate and House of Representatives do the opposite. As I’ve written before, both proposals would, by expanding coverage or insurance, impose an economic wedge between the price consumers pay and the price producers receive. When this wedge occurs, over-consumption of resources is all but guaranteed. So, effectively, the health care bills will increase demand and thus increase costs beyond the baseline level of inflation.

Fortunately, there are other options. The Show-Me Institute has written before about certain health care reform proposals, like health savings accounts (HSAs), that restrain demand without exacerbating the harmful effects of an economic wedge. Unfortunately, the House bill and especially the Senate bill attack HSAs and make them significantly less attractive.

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