Thank Government Intervention for Hospital Shortages

It has been better for Universal Healthcare advocates to ignore Certificate of Need (CON) laws to advance their position. That was before the Coronavirus Pandemic gave the regulations recognition, along with the hospital shortages they cause. 

If we ask our interventionist friends, without mentioning CON, if hypothetically they would support a regulation that forces a new entry to a given industry to seek approval from the competitors in that area, the answer would probably be no. Clearly, to require a new grocery store to obtain permission from Walmart and Woodmans if they can compete with them for business would be an example of legal cartelization. No private business wants competition. 

Certificate of Need laws were abolished from Federal Regulation decades ago, however they still exist in the majority of states, covering about 6 in 10 Americans. In CON states, new healthcare providers or existing providers wishing to expand must seek approval from the state, to which existing healthcare providers and hospitals in the area have veto power. If the competitors to would-be new healthcare providers find there is “no need” for the new hospital, they can use the state to bar its existence. Not only does the healthcare provider have to gain approval from their competitors, which will never want competition, the burden of proof is irrationally placed on the provider to prove to the state that they are “needed” to the state.

The National Conference for State Legislatures justifies CON regulation as follows, “The basic assumption underlying CON regulation is that excess health care facility capacity results in health care price inflation. Price inflation can occur when a hospital cannot fill its beds and fixed costs must be met through higher charges for the beds that are used.” This defense somehow turns economic law on its head, pretending that increased supply, other things being equal, raises prices. This is not true. There is no business in the history of the world that fixed the mistake of a surplus by raising prices to cover costs. If this were true it would mean that sellers could raise prices to infinite levels, an illogical idea that statists still slip into their views sometimes. 

Just as illogical is the idea of a government bureaucracy requiring a private business to “prove” the need for their service. In reality this is an impossible task, like the Salem Witch Trials of business. The market is the only mechanism that can indicate if entry is “needed” through profit and loss. All action is speculation, and profit and loss cannot be known before the fact. As Murray Rothbard once explained, it is impossible to project future costs and benefits, because we do not know future costs nor future benefits. This government “proof of need” is no more than arbitrary bureaucratic jargon based on a burden of proof that actors in the market should not require. 

When the issue is pressed, it is sometimes asserted that healthcare is different because consumers do not pay for it directly, as they would for food. It does not follow though that the laws of supply and demand are reversed just because insurance companies pay healthcare providers. In a free market, providers still adjust their prices to compete for the business of insurance companies. The market for insurance indeed has an artificially large role due to yet other government interventions that form monopolies of demand on healthcare, but that is for another discussion. 

CON regulation is one of many healthcare interventions that artificially limit supply, leading to shortages and artificially high prices. It is another instance of pretending an extremely regulated market is actually an unhampered market, and then using that misconception to justify nationalization of an industry. It is a perfect example of Mises’ explanation of how intervention leads to socialism. One intervention leads to failures that justify more interventions leading to more failure that lead to yet more interventions until nationalization. In defense of the market it is valuable to become familiar with the long history of government manipulation of healthcare, health insurance, and healthcare supply chains in the US that have inevitably caused the problems that the statists deride. 

CON has been recognized and suspended in many states during the Coronavirus Pandemic, however the damage has been already done. The problem would only have been mitigated if the capital had already been built. A greater supply of hospitals would have existed if Certificate of Need had not existed in the first place. Failures of an industry that are caused by previous government intervention do not provide an excuse for nationalization and further state control. Maybe we should recognize the many ways governments actually decrease our safety during a crisis. 

Image: CC

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