Coyote Blog

One of the least reported issues related to health care cost inflation is the existence of artificial government restrictions on health care supply, often called "certificates of need".

The COPN [certificate of public need] law is supply-side Obamacare: top-down, command-and-control restrictions on which providers can offer which services. A certificate of public need is, essentially, a government permission slip. Without one, a Virginia doctor can’t put an MRI machine in his clinic. A hospital can’t build a new wing. A hospital company can’t add a satellite campus. And so on.

Getting such permission slips is a long and costly process. The owner of a Northern Virginia radiology practice, for example, spent five years and $175,000 asking permission to buy a new MRI machine. The state said no.

One reason the process takes so long is that competitors often fight such requests. When Bon Secours proposed the St. Francis Medical Center in Chesterfield, rival chain HCA fought it vigorously, arguing there was insufficient demand. The hospital was approved and enjoys a robust business. You’d think state regulators would laugh off competitors’ arguments, but sometimes they’re actually taken seriously. When a Richmond radiology practice wanted to move—not add, but move—a radiation device to its Hanover offices, the state said no in part because Virginia Commonwealth University’s Massey Cancer Center worried the project “could take some of their business.”

This is cronyism and protection of incumbent competitors, pure and simple.  It is often justified by the economically-ignorant as reducing costs because it reduces expenditures on expensive machinery.  But in what industry can you think of does restricting supply ever reduce costs?

In any other industry, the proper response to that would be: So what? If Kroger sets up across the street from Food Lion, we consider that good for consumers: They have more choice. And if they migrate from Food Lion to Kroger, that’s not a bad thing. It means they’re getting more utility for their grocery dollar.

Studies of the COPN system around the country have confirmed what seems intuitively obvious. A joint examination by the Justice Department and the Federal Trade Commission found that COPN regulations hurt competition, fail to contain costs, and “can actually lead to price increases.” Restricting supply raises prices? Imagine that.

I am exhausted with folks who have never tried to shop for health care telling me that it can't be done, despite the fact that I do it all the time and achieve substantial savings.  This is a meme developped and maintained solely to support government power by declaring that there is a market failure in the pricing mechanics in the health care industry that can only  be solved through regulation and price controls.  I wrote in response

I agree that the pricing in health care is often arbitrary and capricious.  Of course some suppliers are going to try to soak third party payers.  But I don't think simply changing the payer (from private to public) or having a government bureaucracy set prices for  millions of line items is the solution.  My diagnosis is that health care lacks the one thing we have for most every other product or service:  shopping.

Now, you try to head off this argument with a few folks who claim shopping is impossible in health care.  But that is absurd.  There is a large and growing community of us who have real health insurance, rather than pre-paid medical plans, which means we have high deductibles.  We pay all of our regular expenses out of pocket, and maintain health insurance for large, unpredictable, potentially bankrupting expenses.

I must admit that shopping for health care seemed odd and a bit intimidating at first, having lived for years in the world of gold-plated, pay-for-everything corporate health care accounts.  But it really is not that hard.  I have consistently knocked down the cost of everything from x-rays for my kids' fractures to colonoscopies by a half to two-thirds.  I am now used to doctors and providers having that second price book under the counter they go to if they know you don't have a third-party payer they can soak.  We always research and ask for generics.  We think twice before accepting the need for an expensive test, like a MRI, and price shop it if we have to have one.  I push back on my dentist who tries to x-ray my teeth every few months.  I have many friends that saved a ton of money on oncology treatments by just doing a little shopping.

I am exhausted with academics and writers who have never tried to shop for health care telling me it is impossible.  Many of us do it, and there are more and more resources out there for us.  Sure, there are certain things I am not going to have the time or ability to price shop -- if I am lying on my back having a heart attack, my wife (hopefully) is not going to check rates at the hospitals.  But it is a fraud to extrapolate from this minority of health care situations to all health care expenditures.

The other argument is used is that at the beginning of a health care interaction we may not know exactly what care is needed.  So what?  The same is true of auto repair, but I don't blithely allow the repairs to proceed at any cost just because I didn't know up front what the diagnosis would be.  I get an estimate when each new problem is found, and I have on several occasions interrupted a car repair, told them their price was too high on certain repairs, and went elsewhere for the repair or deferred it entirely.

Let's suppose there is some sort of market failure for 10-20% of health care charges where price shopping is impossible.  Then let's discuss government regulatory approaches for those situations.  But for the other 80-90%, we should be structuring a health care system where consumers provide the price regulation, as they do in nearly every other industry, by shopping.

As a note, some people are exhausted by the idea of shopping.  My first response is, so what?  Get over it.  We are not going to take over a whole industry just to free you from a bit of hassle.  The second response is that research shows that only a small percentage of buyers need to be price shoppers to enforce price discipline.  I generally trust that Amazon has low prices and don't always check them, because I know there are much, much more rabid people who do care and do check.

Over time, I have found physicians who are both sympathetic and cooperative with this approach and actively help us minimize the cost of our care.  Its just amazing -- somehow we accept this image as a doctor being above all this cost stuff, in fact with considerations of price and cost being corrupting to their mission of keeping us healthy.  Imagine a car mechanic that took that attitude -- "I'm the expert here and you will pay whatever it costs to do what I say you need to do."  Would you fire the mechanic and find a better and cheaper one, or would you suggest that what we really need is a massive new government bureaucracy to set prices for every imaginable repair a car might need.

Sometimes I suspect much of the support for government health care is from people who see shopping and taking responsibility for their own care as too much of a hassle.