While healthcare costs are rising, many look to government intervention as a viable solution. They forget how previous government interventions created many of today’s healthcare system problems.
Take, for example, laws requiring “certificates of need” for certain types of medical services. Such laws have only created healthcare monopolies that needlessly drive up the costs for the benefit of a few. These serve as a reminder that before we consider solutions that add more government, we need to address the existing harmful effects of government interference.
Certificates of need are required before a medical provider can offer certain services or buy new equipment. The applicant must prove there is a “need” for the service in the community. If the government decides there is no need, then the applicant cannot offer that service and thus the area goes without the benefits of the added competition.
An example of the harm that this requirement causes is the cost of MRI scans. Depending on where you go and what body part you get scanned by the MRI, it can cost up to $13,000. Physicians who wish to provide affordable MRI services must apply for the privilege of purchasing an MRI machine. If the government determines there is no need for additional MRI machines in that area, then that community will continue to be underserved.
Certificate of need laws swept the nation in the 1960s and 1970s, and although many have been repealed, 35 states still have them. These laws had the stated intent of lowering costs, ensuring an adequate supply of health resources, increased quality of care, and adequate access for rural communities.
Proponents of certificate of need laws state that healthcare is not a typical service, and therefore, the traditional economic rules do not apply. This common misconception does not consider how actual competition has been shown to lower costs compared to other government-based policies. The drive to satisfy healthcare consumers motivates providers to deliver affordable, cost-effective care in order to maintain their business. A greater number of healthcare providers in any given area also allows insurance providers greater leverage when negotiating rates, again providing consumers with more affordable care as they can threaten to go to different medical care providers in the community.
Proponents of these laws believe that concentrating resources in a limited number of healthcare providers is the best way to ensure access to care. But without certificates of need, investors and healthcare providers would be able to respond to the need for particular services faster and with great efficiency.
Those providers that cannot meet the needs of their community would either adapt to the demand or close their practice. Waiting for governmental approval to offer a service or buy necessary equipment only delays access to care, increasing the risk of individuals going untreated.
Certificate of need laws claim to increase the quality of healthcare, but limiting healthy competition only reduces the incentive for providers to maintain high quality of care and service. By forcing people to use the healthcare providers they allow to exist, the government is actually reducing the quality of care provided. Businesses without the same protectionist laws must strive to maintain a high-quality product or services or risk being replaced by the competition. Healthcare providers, unfortunately, do not have the same fears or operate under the same constraints on the prices they can charge.
Certificate of need laws provide a significant barrier to those who would offer healthcare services, making it hard to believe that they provide better access to care in rural communities. The lack of healthcare providers in rural areas is a major problem and not one that can be fixed by limiting the number of healthcare providers in those areas. The best way to ensure that rural communities have access to care is to allow willing individuals to open their own practices and offer the services they deem fit. If lawmakers are serious about reducing the cost of healthcare for American citizens. then they need to get rid of certificate of need laws.
Spence Cadavero is a recent graduate of Auburn University.
