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  • Writer's pictureJake

Healthcare: End the CON laws

Updated: Feb 26, 2021

The Theory:

  • Prices will rise when supply is restricted. This is especially true in a market with an inelastic demand curve such as Healthcare.

  • Monopolies have no incentive to lower costs, innovate, or increase quality.

The Problem:

Certificate of Need laws essentially grant a monopoly to hospitals and other medical care facilities. The idea was that by requiring hospitals to prove that expansion of facilities, purchasing of new equipment, or adding new staff was needed, this could lower wasteful spending.

If someone seeks to open a new hospital in a community, they must get permission from the existing hospital that has a monopoly in the area. Absolutely everything they seek to use to provide care must be certified in a lengthy legal process by the government. Needless to say, hospitals don’t want competition, and this type of regulation destroys any hope of expanding care in such areas.

Patients find that they only have one potential provider. Those who work for the hospital find that they have only one potential employer in the area. Both of these conditions lend themselves to exploitation.

The backward logic that is used to justify this blatant and obvious corruption and government collusion is that the increased profits by restricting the supply of healthcare raises the price and thus allows the hospital to have the funds to care for more poor people. For everyone following along at home, this is a claim that the supply curve will shift to the left and to the right, at the same time, and in the same way. Sadly, quantum healthcare economics does not yet exist and this is impossible. The fact is since 1960 hospital beds per 1,000 people went from 9.2 down to 2.9. Spending per capita went from 4.87% to 17%. Meaning this measure of supply went down by 317% and the total price rose by 349% using aggregated US data .

Our Healthcare system does not resemble a free market system in the least. It is basically a best of album of crony capitalism, rent seeking, and poorly thought out socialist policies. The price of care will drop when the supply is allowed to expand. Quality and price will improve when the most efficient suppliers of care are able to finally compete with the current monopolies.

The Bill:

Healthcare providers will be regulated under the same policies that all other companies are under. No healthcare organization may be granted monopoly statues implicitly or explicitly. CON laws are repealed.

The Result:

  • The lower cost and/or higher quality suppliers of care that the monopolies have been afraid of will be allowed to compete head to head with them.

  • Medical professionals will have more options for employment.

  • Patients will have more options for care, including in rural areas.

  • Healthcare organizations must compete and prove to patients why they are the best possible place to trade money for care.

  • Less wait times.

The Bottom Line:

The Healthcare industry somehow tricked our government into giving it every businesses dream come true, a government subsidized and legally protected monopoly. There is no world in which monopolies will be more innovative, higher quality and lower priced then a competitive market. Competition would restrict over investment, over expansion of care, and wasteful spending. It's simple, if a healthcare provider fails to have an attractive blend of price and quality, the endeavor will fail and the investors lose money. If consumers like it, investors make money and consumers get to use their new favorite provider. Having competition in healthcare is a no lose proposition for consumers.

FAQ’s and Objections:

Response 1:

But hospitals need to inflate some prices in order to subsidize procedures for the poor or those with extremely costly interventions.

Answer: Distorting prices through restricting the supply of care ends in less care and more cost. Who wins? Only the hospital.

Answer: If the point was to move cost burden from the wealthy to the poor, then just do that, use a sliding scale. These distorted costs don’t target the rich any more than the poor. They target the greatest consumers of care, the sick and the elderly.

Answer: The burden of the uninsured is massively exaggerated, this added cost is not nearly enough to justify the proverbial $300 dollar Advil or a $15,000 night at the hospital. Most estimates indicate that the total cost burden of the uninsured is only a few percent of total healthcare spending.

Response 2:

Most all hospitals are nonprofit, they only charge the minimum to cover costs. They are part of the community to care for the community.

Answer: If they actually cared about the community they would want the community to have the best care at the best cost, not only their care at their cost.

Answer: In the US, the average cost of care is lower in for-profit hospitals than non-profit ones. There is no evidence they do this through lowering quality of care. In fact, in many cases they provide superior care.

Answer: The Profit and Loss system is extremely effective at creating long term productivity by reorganizing systems, innovating new technologies, and employing new techniques to meet the market test.

Answer: Being non-profit can mean stagnation. Non-profit hospitals have no incentive to become lean. What could have been profit, gets recapitalized in the form of salaries, higher staff levels, expenses, and facilities costs.

Answer: If Non-profits where actually efficient with people’s money, they shouldn’t have a problem with for-profit competition right? Let's open up competition and call their bluff.

Response 3:

There could be too much investment in the medical industry. The patients would have to shoulder this cost

Answer: No, investment risk is shouldered by the investor. If a new hospital is built and can’t generate the funds to keep itself open, it will fail and the loss is to those who invested in the company. If it can compete and give the best care for the lowest price as judged by the consumers then the consumers and the investor win. This is a very different equation from having one hospital in a regulated monopoly giving no options for consumers.

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