Consumer Power Report #141

Consumer Power Report #141

Greg Scandlen

Greg Scandlen is a senior fellow of The Heartland Institute and founder and director of... (read full bio)

Writing in the Hartford Courant, Diane Levick reports there is "growing competition in the sale of individual policies. The result is a dizzying array of policies and a broader spectrum of prices." She lists some of the competitors and notes a lot of coverage is surprisingly affordable. But she also reports on the critics who are "skeptical of individual markets." She cites industry sources as denying they are making unwarranted profits in this market and provides a pretty fair look at the difficulty that high-risk people have in gaining coverage. So not everyone is well-served here.

SOURCE: Hartford Courant

But an article from Tennessee illustrates that not everyone is well-served by government programs, either. Brad Schrade reports that TennCare is about to stop providing home care services for some 1,000 severely ill patients. They will have to go into a nursing home instead. The article is full of human interest stories of people who are doing much better at home than they were, or will be, in a nursing home. But the bottom line is the bottom line -- the cost of at-home care is typically $300,000 a year, compared to $52,000 for a nursing home. The state can't afford it.

SOURCE: The Tennessean

An article in the Central New York Business Journal illustrates why some of these problems are so intractable. Eric Reinhardt reviews a presentation by James Reed, regional president for Excellus, the Blue Cross Blue Shield plan in upstate New York. I'm sure Mr. Reed means well, but the depth of his understanding is exactly one level. He cites four "inconvenient truths" about health care financing:

  • In health care, supply often drives demand.
  • Health spending consistently exceeds inflation.
  • One person's expense is another person's revenue.
  • Health insurance premiums in upstate New York are on the rise and occupy a significant percentage of payroll.

But he never considers why any of this should be happening. Of course, further consideration would reveal a really "inconvenient truth" for the Blues and any other insurer that uses first-dollar financing -- there is too much third-party payment. And third-party payment means neither the consumer nor the provider cares what anything costs. It is all someone else's money. Lordy! No wonder it is so hard to change anything in this business.

SOURCE: Central New York Business Journal

Another consequence of third-party payment is illustrated in the New Orleans City Business -- inconvenience and rationing by waiting. Autumn Giusti writes about her travails in challenging the denial of a $600 claim for her infant daughter. Apparently no one disputes the service was needed and appropriate, but, she writes, "my insurance company, my clinic's billing office, and a collections agency have been bouncing me back and forth like a ping-pong ball." She says she has been put on hold "at least two dozen times, waiting anywhere from 15 to 40 minutes on each call." All this for a $600 claim? She concludes, "If Americans are going to pay into a health care plan, shouldn't we be entitled to better customer service?"

SOURCE: New Orleans City Business


INSIDE THIS ISSUE


CERTIFICATE OF NEED

The State Policy Network (SPN) blog has been all over Certificate of Need (CON) in recent months. This is an important development because there is no bigger impediment to free-market health care than these CON programs.

If you don't already know, CON is a vestige of the massive health planning effort of the 1970s that created State Health Coordinating Councils (SHCCs), State Health Planning and Development Agencies (SHPDAs), hospital rate-setting systems, and a whole host of other efforts to control the supply of services, including CON. These have all been repealed, except CON in about two-thirds of the states.

CON sets up a state board that must approve the expansion or new construction of any health care facility, often including laboratory or diagnostic equipment in a physician's office. It affects hospitals, nursing homes, ambulatory surgery centers, psychiatric facilities, and so on. It forces providers to spend hundreds of thousands of dollars on lawyers, accountants, architects, economists, and public relations firms -- just on the approval process. Decisions are based on the whim and biases ... and sometimes outright corruption and bribery ... of board members. It is the primary way that existing facilities have to maintain their protected monopoly positions.

The entire premise was flawed to begin with. Health care costs were going through the roof during the Nixon Administration because of all the massive new spending of the Medicare and Medicaid programs. Mr. Nixon decided to get those cost increases under control. First he tried strict price controls, and when that didn't work he pushed for health planning to control the supply of services.

This was madness. Health care costs were soaring because of the increased demand created by Medicare and Medicaid. Nixon's response to this increased demand? REDUCE the supply of services! Precisely the opposite of what he should have done. And you wonder why health care in this country is messed up?

Most people who have taken a course in health economics will glibly tell you this nonsense makes sense because of "Roemer's Law." What is Roemer's Law? It is nothing more than a slogan -- "A Built Bed is a Filled Bed." But it is simply not true. In fact, hospital occupancy rates have varied wildly over the past few decades. People are simply not just itching to be admitted to a hospital, hence the dramatic growth in non-invasive and outpatient surgery.

CON suffers from another fallacy as well. It assumes health care is entirely a local market, that people never move, and that all facilities are the same. So Washington state blocked the construction of new facilities that might have prospered by serving citizens from British Columbia and the Pacific Rim because the CON Board tallied up the number of Seattle residents, divided by the number of existing beds, and declared there were already enough beds to serve Seattle.

But, never mind all that because CON still exists to enforce these screwball ideas. And no one seems to care except the members of State Policy Network, and they have done a breathtaking job of taking it apart. Examples follow in the next section.


CON ON THE SPN BLOG

Illinois

Mark Todd Engler wrote a devastating blog item about Illinois' CON Board, the Illinois Health Facilities Planning Board, which he says has been "graft-plagued." The Chicago Tribune has called for it to be disbanded and calls it "a vestige of a command-and-control era of health care."

Mr. Engler links to an editorial in the Naperville Sun that tears into the board for denying Edward Hospital's request to build a new facility in Plainfield. The Naperville paper is scathing – "You still mean to tell us, oh wise ones at the Illinois Health Facilities Planning Board, that Plainfield -- one of the fastest-growing communities in one of the fastest-growing counties in the nation -- doesn't have enough need for a hospital of its own? Right."

Even when the citizens of Plainfield came out to support the hoped-for hospital, members of the board were dismissive, claiming it was proof only of "an excellent job of marketing" by the hospital. Grrrr. Mr. Engler rightly declares this to be Soviet style governance.

SOURCES: Mark Todd Engler's blog; The Daily Herald; The Chicago Tribune; The Naperville Sun

North Carolina

The John Locke Foundation has been waging a crusade war against CON in North Carolina. Joseph Coletti posted an SPN blog on May 9 where he noted the CON Board rejected two applications to build satellite facilities in "rapidly growing areas of Wake County," so residents will have to drive at least 20 minutes to reach an urgent care facility.

More recently he had a letter published in the Raleigh News and Observer in which he argued that an aerospace company will receive $180 million in tax incentives if it adds 500 new jobs, but the state denied permission for Norvant Health to build a $110 million facility that will initially employ 200 people. Why? Because the new facility was opposed by "the established oligopoly of UNC Health Care, Duke University Health System, and WakeMed." He concludes, "It seems that if a company wants to produce airplane parts, the state is willing to pay it to come. But if a company provides care for the sick, the state throws as many stumbling blocks in its way as possible."

Mr. Coletti's colleague, Roy Cordato, had an op-ed published in the Raleigh News and Observer in which he points out that "basic economics" suggests that "cost control will require more, not less, competition in the market for health services." And "a market where there is no redundancy is by definition a monopoly market." He concludes, "Our state law acts as a cartel enforcement mechanism. What business would not love to have a government agency whose main purpose is to keep potential competitors at bay?"

SOURCES: Joseph Coletti's SPN blog; Joseph Coletti's letter in the Raleigh News & Observer; Roy Cordato's op-ed in the News & Observer

Maine

Tarren Bragdon wrote that Maine had denied applications from three hospitals for capital improvement projects. He quotes from a 2004 report from the Federal Trade Commission that concluded CON programs set up anticompetitive barriers to entry and cites a Maine Heritage Policy Center recommendation that they be repealed. He notes the irony that the state opposed these projects because they might add to insurance costs, but had no hesitation to add a new tax on those same insurance premiums.

SOURCE: Tarren Bragdon's SPN blog

Alabama

Michael Ciamarra writes the Alabama Policy Institute is also working to repeal the CON law in that state. It has published a paper outlining the problems it creates and has held a series of meetings with newspaper editorial boards to alert them to the problems.

SOURCE: Michael Ciamarra's SPN blog

Kentucky

John LaPlante writes the Kentucky Bluegrass Institute is highlighting legislation that would at least reduce the scope of CON in that state, though not repeal it outright. He quotes the Institute's David Adams as saying, "we may be on the road to repealing the entire nonsensical Certificate of Need program."

SOURCE: John LaPlante's SPN blog

Florida

John Graham notes Florida, too, has done a little bit to reduce the impact of CON in that state. Gov. Charlie Crist "promised to sign a bill" that would make it harder for existing facilities to oppose applications, including a "loser pays" provision.

SOURCE: John Graham's SPN blog

Georgia

Mark Todd Engler writes that, although Georgia enacted "an overhaul" of its CON law, incumbent facilities are still trying to prevent competitors from being built. One hospital exec is saying a new surgery and imaging center would be "a gross misapplication of limited health care financial resources," and another talks darkly of the "negative implications" of a proposed cancer treatment center.

SOURCE: Mark Todd Engler's SPN blog

To stay on top of all this -- and a whole lot more -- in the states you may want to bookmark SPN's blog dedicated to health care issues, StateHousecall.org


CHCC IN THE NEWS

I had a couple of op-eds published recently. One was based on the article on reimporting of drugs from last week's CPR. It was published in the Chicago Sun Times and picked up by the daily Kaiser report. The other was a Point/Counterpoint on HSAs in Clinical Psychiatry News. The Counter to my Point (or vice versa) was Steffie Woolhandler of the famous Himmelstein/Woolhandler duo.

SOURCES: Chicago Sun Times; Kaiser Daily Report; Clinical Psychiatry News


And our pal, Tony Miller, the recipient of one of our 2007 Pioneer Awards, was written up in the Minneapolis Star Tribune. The article describes Tony's unconventional approach to venture capital with his new firm, Lemhi Ventures. When he sees a promising new idea, he is not skimping in his support. He wants to make sure it has enough capital to do the job.

He asks entrepreneurs, "What would you do if someone gave you $10 million?" If they can't answer quickly, Tony gets nervous that they aren't thinking big enough. The article says, "Most VCs want to make money; Miller wants to save health care in the United States by blowing it to smithereens. Call it ego. Call it hubris. Miller doesn't seem to mind." Ya gotta love this guy.

SOURCE: Minneapolis Star Tribune


SAVE THESE DATES!

September 3 - Consumer-Driven Health Care Workshop, Harrisburg, Pennsylvania

October 1 - Consumer-Driven Health Care Workshop, Chicago, Illinois

October 17 - Consumer-Driven Health Care Workshop, Austin, Texas

November 12 - Third Annual Members Meeting and Awards Banquet, Washington, DC

 

Greg Scandlen

Greg Scandlen is a senior fellow of The Heartland Institute and founder and director of... (read full bio)