Government enables racketeering in Virginia healthcare

Government’s role in healthcare has been a long-standing debate. When it comes to healthcare, emotion habitually interferes with logic and often the least intuitive solutions are the most effective. Many taxpayers believe that government intervention leads to lower costs and better coordination however this is almost never the case. Here is a prime example in Virginia that demonstrates how government intervention creates opportunities for crony capitalism. Reason reports:

“Two physicians being represented by the Arlington-based Institute for Justice are challenging Virginia’s Certificate of Need [CON] process, which restricts who can deliver health care services in the commonwealth—and which ones.

Dr. Mark Baumel has come up with an innovative way to perform colon-cancer screenings. He already has put it to use in Delaware. But he cannot offer the procedure in Virginia without a permission slip from the state—which the commonwealth has denied. Dr. Mark Monteferrante, a Northern Virginia radiologist, is in the same boat. When he and his partners tried to add a second MRI machine to their office a few years ago, they spent five years and $175,000 trying to get state permission. Virginia said no.

Why did the state deny their applications? Not for health or safety reasons. CON regulations have nothing to do with ensuring that surgical instruments are sterilized or that doctors whose medical licenses have been revoked are not practicing illicitly. They are nothing more than efforts to restrict the supply of medical care.

For example: Five years ago, the Richmond Radiation Oncology Center—a subsidiary of Bon Secours—wanted to move a radiation-treatment device already in use at St. Mary’s Hospital to a cancer center in Hanover. The Central Virginia Health Planning Agency said no. Why? Because VCU’s Massey Cancer Center was already providing radiation oncology services in the Hanover Medical Park and—as a news story noted at the time—‘VCU officials object[ed] to the project, which could take some of their business.’

In other words, CON is a racket: Existing health care providers use the state government to stop competitors from horning in on their turf. None of the players would ever put it so bluntly, of course. They dress up the process in dry, bureaucratic terminology about bed capacity and utilization rates and so forth. But at the end of the day, it’s all about using state enforcers to keep the competition away—something the constitution’s Commerce Clause explicitly forbids.

You don’t have to take the plaintiffs’ word for it. Even the federal government says so. A few years ago the Federal Trade Commission and the Department of Justice released a hefty report on improving health care. Second on the long list of recommendations: ‘decrease barriers to entry.’ Certificate-of-Need regulations, the report said, are ‘not successful in containing health care costs,’ they ‘pose serious anticompetitive risks,’ and ‘market incumbents can too easily use CON procedures to forestall competitors from entering [the] market.’ Moreover, ‘empirical studies indicate that CON programs generally fail to control costs and can actually lead to price increases [and] risk entrenching oligopolists and eroding consumer welfare.’ How often do you hear government entities arguing for less government intervention?

And how did all this come about? Washington forced states to adopt CON programs—through federal funding and other means—back in the 1970s. It did so because Medicare and Medicaid reimbursed providers on a cost-plus basis. So the more doctors and hospitals spent, the more money they could get from Uncle Sam.

Washington used the CON framework to restrict expenditures. But it long ago switched from the old payment system to a fee-for-service model. Congress abandoned CON back during the Reagan administration, and 14 states repealed theirs. Lobbying by incumbent providers has kept the racket going in the rest, including Virginia.”

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