Thursday, September 16, 2004

Health Care – Planned Economy or Market Economy?

Nancy Schlichting, CEO of Henry Ford Health System (HFHS) in Detroit, has kindly allowed me to remain on the mailing list for her monthly Trustee Update publication.

The July/August 2004 issue reported a recent judicial ruling that appears to have cleared the way for HFHS to transfer 300 of its licensed beds to a new facility to be constructed as part of its existing ambulatory care center in West Bloomfield, a northwest suburb of the city. The ruling also allowed St. John Hospital and Medical Center to transfer 200 beds to Southfield – another northwest suburb.

The litigation arose out of Michigan’s Certificate of Need program, together with some specific legislation that permitted these projects. Several hospitals serving the northwest suburban area contested this permission in court.

Commenting on the decision, the Detroit News (Detroit’s conservative newspaper) stated that the judge had “sent a message to the health care industry: you can’t use state laws as a shield against competition.”

Of course, competition is precisely what Certificate of Need legislation is intended to prevent. This the Detroit News apparently understands, closing its commentary with the statement that Michigan should “scrap its out-of-date licensing rules.”

Redesigning our health care system requires that we address the question of whether health care should operate in a planned economy – the concept that underlies Certificate of Need – or a market economy in which hospitals would be in open competition.

The Detroit News straddled the issue by basing its opinion, at least in part, on the need for more hospital beds in the communities where HFHS and St. John’s propose to build – which is a planned economy argument. But if we are to have a market economy in health care – which seems to be the direction in which we are leaning – straddling won’t get it done. And if we are to have a market economy, we need rules for the game that accommodate the special characteristics of health care.

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