violating the laws of supply and demand

Byline: | Category: Uncategorized | Posted at: Thursday, 10 August 2006

Still on the subject of the TMA’s questionnaire.  The last question the TMA asked me was whether or not I supported repealing the requirement for certificates of need.  The City Paper makes that topic the subject of their lead editorial today.  I encourage you to read it.

This is a “boring” health care issue, but please bear with me for a minute.  In Tennesseee, as in several other states, before you are allowed to build or add on to a hospital or clinic, you have to go to the state and ask for permission.  No, this is not a building permit, and no, this requirement doesn’t just apply to public hospitals. 

This is a regulation, specific only to the medical community, which requires that the state must first determine whether or not there is a enough need to justify a new facility.

Proponents of the existing rules, as the City Paper points out, argue that “competition can often drive the cost of health care up for patients.” 

Let that sink in for a minute . . .  Now remember back to the most basic laws of supply and demand that you learned in Economics 101.  The proponents have it exactly backwards. 

To see why this is true, imagine that restaurants had this rule.  Were Whitt’s Barbecue and Judge Bean’s allowed to lobby the state to deny a restaurant license to proposed barbecue joints, Mothership BBQ might never have been born in Berry Hill.  Without the increased competition, existing barbecue joints wouldn’t face increased pressure that keeps prices low and quality high.  As a result of the competition the consumers win. 

The same is true in medicine.  In fact, as I have argued before, one of the ways to tackle health care problems in Tennessee is to introduce market forces into the system.  The existing rules requiring a certificate of need deny consumers the positive effects of competitive pressures on the marketplace.  It keeps medical costs high, and quality of service low.

Just like any other industry, hospitals should be free to invest in new locations where they think there is adequate demand to justify the service.  Since it is their money at stake, they have a much better feel for the issue than does a government bureaucrat.

Therefore, I support the repeal of anti-competitive laws requiring a certificate of need, and would consider abolishing the entire commission if that is there only purpose. 

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One Response to “violating the laws of supply and demand”

  1. Rick Forman Says:

    Case in point is Baptist Hospital in Knoxville. Baptist is a non-profit. Losing money. Baptist was approached by a Texas medical services corp for a merger.

    One problem. Free enterprise market forces were not allowed to proceed without the approval of the state. The state was in the position to deny the merger and thus force Baptist to continue to lose money, thus eliminating healthcare professionals, facilities and supplies which would of course driven down the quality of healthcare.

    And what do you call this? Fascism. Want to find out more on this? Visit the Ludwig von Mises Institute.