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Sunday, August 22, 2010

A Disagreement

Michael Dukakis thinks that the Massachusetts Certificate of Need (CON) law ought to be more vigorously enforced. I think it should be abolished. Dukakis has twice been governor of the state and in 1988 was the Democratic candidate for U.S. President

CON laws require providers of health services to get government approval for major capital expenditures or the initiation of new programs by demonstrating that there is a need for them. The idea is that unless existing facilities or programs are insufficient to meet the population’s need for services, adding to them is wasteful and increases cost. Generally speaking, need has been determined on the basis of whether existing facilities are adequate to provide the amount of services needed. Consideration is not given to the possibility that an applicant might provide better service at lower cost.

Over the years, there has been debate over whether CON contains cost or increases it. The possibility of increases is based on the monopolizing effect of CON, which assures providers that their capacity will be fully utilized by preventing the development of unused facilities.

My own belief is that, on balance, this protection against competition has worked to increase the cost of health care.

But apparently Michael Dukakis thinks differently.

A Steven Syre column in the Business section of the August 20 Boston Globe tells the story of his (Dukakis’) composing a statement on how to reduce the cost of health care and shopping it around to community leaders, including the governor.

The statement urged three main ideas: state regulation of health insurance premiums, allowing employers to organize into health insurance purchasing groups, and enforcing CON.

My experience has led me to the belief that competition that includes the ability of payers to move blocks of patients from one provider to another is the only force that will get providers to become serious about reducing cost. Health care providers find it difficult to adjust to reductions in the volume of care. Furthermore, so long as they are making a reasonable profit, non-profit hospitals do not respond vigorously to incentives that offer the possibility of making more. For them, the trauma involved in cost reduction is not worth it. But they will do so if faced with the threat of losing patients to a more efficient, competing provider.

However, in order for that sort of competition to work, there has to be unused capacity available. Payers cannot move blocks of patients unless there are empty beds to move them to.

During my years in Texas, which does not have CON, such a situation existed and it was effective.

By preventing the construction of surplus beds, CON becomes a barrier to the development of that sort of competition.

That is why I disagree with Dukakis

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