Opinion: Daily Journal

A Rule Without A Good Reason

RALEIGH – Will someone give me one good reason why Hugh Chatham Memorial Hospital in Elkin should have to get the permission of bureaucrats in Raleigh before it can expand its operations and enhance its emergency services?

Notice that I didn’t ask for a reason for the state’s oversight of hospital investments and service offerings in North Carolina. I’ve heard plenty of reasons. So has JLF Vice President Roy Cordato and his research team. Back in 2005, Cordato published a report examining the certificate-of-need system that forces hospitals such as Chatham Memorial to come begging to Raleigh for permission to invest its own resources – and to fend off the arguments of competitors seeking to use government power to protect their market.

Sure, there are plenty of reasons cited for such regulation. But no good ones. One argument is that because of the prevalence of third-party payment for medical services – financed either through tax-advantaged health insurance or government handouts – the economics of health care are unique. In normal markets, competition decreases prices and boosts quality. In the market for hospital care, on the other hand, it is said that more competitors means higher prices, as each hospital invests in expensive new wings or technologies and then bends over backwards to fill them with patients who will derive marginal benefits at best but whose third-party payers will simply pay the bills.

Interesting theory. Not true in practice, as Cordato pointed out. Sure, the current system of third-party payment, propped up by government intervention in the marketplace, creates perverse incentives for both providers and patients. But to have the state respond by imposing a central plan on North Carolina hospitals and physician practices is to treat a sore elbow with a swift kick in the kneecap. Maybe you can shift the locus of pain a bit, but you aren’t alleviating it. As it happens, while North Carolina and nearly three-dozen other states still use certificate-of-need regulation, the rest of the country doesn’t. There is no evidence that the unregulated states have higher medical costs – indeed, if anything, the evidence would tend to suggest that the states protecting hospitals from competition and trying to control the delivery of medical services are the ones with the biggest cost and quality problems. I can’t say that I was shocked by what the data show about the failure of certificate-of-need regulation, but then again I’ve also heard that this socialism thing hasn’t work out so well in the past.

I have no idea whether there is a significant probability of the state turning down Hugh Chatham Memorial Hospital. I hope not. But what really rankles is that the hospital even has to ask.

Hood is president of the John Locke Foundation.