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Saturday, April 02, 2005

Central Planning or Competitive Market for Health Care?

We have yet to decide whether our health care economy is to be based on central planning or on a competitive market.

Under central planning, a public agency decides what services should be provided where and in what amounts. The idea is to make sure that services are available where they are needed while avoiding excess capacity and unnecessary duplication.

In a competitive market, the purchasers of care buy services where they can get the best value for their money. The providers of services, responding to market demands, determine the availability and location of services.

Forces are operating both directions. A clear example is reported in the March 25, 2005 issue of AHA News Now. (AHA News Now is the e-mail newsletter of the American Hospital Association.)

I refer to the story about the proposed settlement of an anti-trust lawsuit brought by the US Department of Justice (DOJ) against Bluefield Regional Medical Center (BRMC) and Princeton Community Hospital (PCH), both in West Virginia.

In its March 24 summary of the case, the law firm Vinson and Elkins traced the origins of the case to a certificate of need application for a cardiac surgery program that BRMC filed with the West Virginia Health Care Authority (WVHCA). The application was turned down, partly because WVHCA doubted that BRMC could attract sufficient numbers of patients without working with other hospitals. Apparently, WVHCA feared that both hospitals would try to do cardiac surgery and wanted them to do it together. Instead, the hospitals decided that one would do heart and the other one would do cancer and entered into an agreement to that effect.

The anti-trust branch of the DOJ took exception and filed suit to nullify the agreement in order to “restore competition.” AHA News Now reports that the hospitals have agreed to do so.

So there you have it: two public agencies, both carrying out their legal mandates, trying to pull the health care economy in opposite directions. WVHCA wanted a joint program based on central planning considerations while the DOJ insisted on a competitive market.

(Sometimes states can shield market-dividing arrangements against anti-trust under a legal doctrine called State Action. In this case, however, West Virginia hadn’t dotted all the i’s and crossed all the t’s and so the DOJ said it didn’t apply.)

We cannot get on with redesigning the health care system without resolving this. The issue is too complex to discuss here, but my own view is that market competition (conducted under proper rules) is the only force strong enough to bring about needed changes in the health care system. But lots of people with louder voices than mine disagree.

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