Murky
by James A. Bacon
To call the United States health care system Byzantine is to cast a slur upon the ancient empire of that name. A glimpse of the bizarre, Rube Goldberg-esque way in which the system functions in Virginia can be seen in today’s Richmond Times-Dispatch article about the state’s Certificate of Public Need (COPN) program.
A state working group is studying whether to scrap or modify the regulatory system, which requires hospitals and other health care providers to seek state approval for new or expanded medical-care facilities and the acquisition of expensive equipment. The system curtails competition by making it difficult for new enterprises to enter the marketplace, and it often ties regulatory approvals to promises to provide charity care.
In 2013, health care providers donated $1.34 billion worth of charity care to comply with the state-mandated obligations, the T-D quotes Peter Boswell, chief of Virginia’s Department of Health Office of Licensure and Certification, as saying. Statewide, 195 certificates of need are conditioned upon requirements of providers to administer free care. As an example of how that might work, the T-D says a cardiac catheterization lab might have a requirement to provide 3.8 percent charity care.
Don’t get me wrong. We need a mechanism for providing health care to poor people who fall between the cracks of government assistance, Obamacare and private insurance. This is just an insanely opaque way of going about it. That $1.34 billion is not subject to any form of market discipline or legislative review. State regulators cut deals with health care providers, and then it’s up to the providers to live up to their obligations. The state lacks the resources to audit compliance.
Assuming hospitals and other providers do comply, who ultimately pays? Do the $1.34 billion in payments come out of hospital profits? Or do hospitals simply pass on the cost by jacking up charges to paying customers? I doubt anyone really knows. If there’s one thing as opaque as the health care sector’s pricing system, it’s health care accounting.
Health care is an inherently complex business, involving trade-offs between price, quality, convenience and other factors that few consumers are equipped to make. That inherent complexity is compounded by layer upon layer of regulation, subsidy, cross-subsidy and other forms of complexity. I don’t see how it’s possible for anyone participating in the industry to make economically rational decisions. No wonder there is so much waste and inefficiency. No wonder costs are out of control. No wonder private health care insurance grows more unaffordable with each passing year. No wonder Congress felt compelled to enact health care “reform” (although the reform known as Obamacare makes the system even more bureaucratic, complex, opaque and uncompetitive).
Eliminating COPN in Virginia is not a silver bullet that will miraculously create a transparent, competitive market-based health care system. Other states have abolished COPN, and their systems are not notably lower cost or more efficient (that I know of). But it is one layer of anti-competitive complexity that Virginia legislators can strip out of the system, thereby making the state marginally less hostile to innovation and competition. Combined with other market-based reforms, it could make a difference.
If Virginia abolished COPN, what would happen to uninsured people who depend upon that $1.34 billion a year in uncompensated care? Aye, there’s the rub. Politically, it may be impossible to dismantle the program. Perhaps we are doomed to living (and dying) with an opaque, irrational and inefficient system.
