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> Theoretically the free market says that another hospital would pop up to compete on price, but theory ain't practice It is illegal to start a new hospital to

by glenra 13y ago

> Theoretically the free market says that another hospital would pop up to compete on price, but theory ain't practice It is illegal to start a new hospital to compete on price with the existing ones. To open a new hospital, you need permission from the current existing hospitals. If they don't agree that the community you want to do business in is "underserved", you can't get licensed. And yes, that policy is insane, moronic, a source of monopoly rents and probably one of the many reasons health care costs are so out of control. But it's the law. https://en.wikipedia.org/wiki/Certificate_of_need https://en.wikipedia.org/wiki/Certificate_of_need

clavalle 13y ago
Wow. That is the best example of regulatory capture I've ever seen. I love the rationalization: "If there are too many hospitals many hospitals and doctors my recommend unnecessary hospitalization or overcharge existing patients to cover their overhead". Amazing.
- glenra 13y ago
  Check out some of these documents if you want to get angry: http://www.tennessee.gov/hsda/con_standards.shtml http://www.tennessee.gov/hsda/con_standards.shtml The standard for "Burn Unit" says there can't be more than one burn unit bed for every 225,000 persons and you can't build a new unit unless all the existing ones in the area have >70% annual utilization. So what if your new unit might be MUCH CHEAPER or merely more competent than the current players? Nope. The government isn't allowed to take mere PRICE into consideration in deciding if you can go into business. Or competence, or anything other than expected "need". And your new unit has to have at least 12 beds - operating at a smaller scale than that is apparently illegal. Then the standard for "long term care" facilities says they aren't allowed to plan on using any spare capacity to provide services such as "advanced emergency care". Why not? Because that might lead to "unnecessary duplication". Ugh.
tunesmith 13y ago
The wikipedia page says that it is the state health agencies that determine need. It doesn't say that the surrounding hospitals have to agree or give permission. Do you have a source on that?
- glenra 13y ago
  If there's any contention at all, the state health agencies typically "determine need" by holding a hearing which gives an opportunity for "the people in the community" to weigh in. The way that works in practice is that at the hearing any hospitals in the surrounding area that care to do so will have someone show up to testify that it would hurt their business (and is "unneeded") to let a new place be built or expand near their area. The agency doesn't HAVE to take their word for it but in practice tends to do so - after the hearing, a committee that heard one voice FOR the new place and five or ten voices OPPOSED to it decides that "based on the weight of the testimony heard" there's no need for the new place. Unless a new lower-priced competitor can somehow generate the impression of a huge groundswell of support for the value of something new that hasn't even been built yet and thus can't sensibly be judged - in the face of really well-funded opposition - it never gets the chance to compete. So in practice, the status quo operations have a veto, even if the law doesn't explicitly say that. Here's an example of an existing hospital requesting a need hearing so they can make their case to stop a potential competitor from getting some of their business: http://wvuhealthcare.com/wvuh/Content/Media/News-Releases/2013/SEPT/WVU-Hospitals-requests-hearing-on-Mon-General-Cert http://wvuhealthcare.com/wvuh/Content/Media/News-Releases/20... And here's an FAQ/description of the hearings: http://www.doh.wa.gov/LicensesPermitsandCertificates/FacilitiesNewReneworUpdate/CertificateofNeed/PublicNotice/HearingFAQ.aspx http://www.doh.wa.gov/LicensesPermitsandCertificates/Facilit... In most private sector businesses, if I think I can run you out of business by selling a lower priced product next door, I can just go ahead and DO that. There's no hearing at which you get to testify that there's insufficient NEED for my new restaurant/auto repair shop/what-have-you and thereby deny me a permit to build. Health care is special that way. In essence, hospitals belong to a government-maintained cartel. UPDATE: in some states there do exist "objective standards" for what constitutes need...but it seems like what really matters is whether your Certificate Of Need application is UNCONTESTED (and might just sail right through committee) or is CONTESTED (so there's a hearing in which a bunch of lawyers challenge your right to compete - and probably find against you). Where there exist official standards determining how much supply is allowed in a given area, they tend look kind of like the documents here: http://www.tennessee.gov/hsda/con_standards.shtml http://www.tennessee.gov/hsda/con_standards.shtml Note that if you use those exact standards, starting a new hospital in order to undercut existing ones and drive them out of business due to your better/cheaper service is basically impossible. For instance, you can't start or expand a long-term care facility unless ALL the other facilities in your area have >85% annual bed utilization.

by glenra 13y ago

clavalle 13y ago

Wow. That is the best example of regulatory capture I've ever seen. I love the rationalization: "If there are too many hospitals many hospitals and doctors my recommend unnecessary hospitalization or overcharge existing patients to cover their overhead". Amazing.

glenra 13y ago
Check out some of these documents if you want to get angry: http://www.tennessee.gov/hsda/con_standards.shtml http://www.tennessee.gov/hsda/con_standards.shtml The standard for "Burn Unit" says there can't be more than one burn unit bed for every 225,000 persons and you can't build a new unit unless all the existing ones in the area have >70% annual utilization. So what if your new unit might be MUCH CHEAPER or merely more competent than the current players? Nope. The government isn't allowed to take mere PRICE into consideration in deciding if you can go into business. Or competence, or anything other than expected "need". And your new unit has to have at least 12 beds - operating at a smaller scale than that is apparently illegal. Then the standard for "long term care" facilities says they aren't allowed to plan on using any spare capacity to provide services such as "advanced emergency care". Why not? Because that might lead to "unnecessary duplication". Ugh.

tunesmith 13y ago

The wikipedia page says that it is the state health agencies that determine need. It doesn't say that the surrounding hospitals have to agree or give permission. Do you have a source on that?

glenra 13y ago
If there's any contention at all, the state health agencies typically "determine need" by holding a hearing which gives an opportunity for "the people in the community" to weigh in. The way that works in practice is that at the hearing any hospitals in the surrounding area that care to do so will have someone show up to testify that it would hurt their business (and is "unneeded") to let a new place be built or expand near their area. The agency doesn't HAVE to take their word for it but in practice tends to do so - after the hearing, a committee that heard one voice FOR the new place and five or ten voices OPPOSED to it decides that "based on the weight of the testimony heard" there's no need for the new place. Unless a new lower-priced competitor can somehow generate the impression of a huge groundswell of support for the value of something new that hasn't even been built yet and thus can't sensibly be judged - in the face of really well-funded opposition - it never gets the chance to compete. So in practice, the status quo operations have a veto, even if the law doesn't explicitly say that. Here's an example of an existing hospital requesting a need hearing so they can make their case to stop a potential competitor from getting some of their business: http://wvuhealthcare.com/wvuh/Content/Media/News-Releases/2013/SEPT/WVU-Hospitals-requests-hearing-on-Mon-General-Cert http://wvuhealthcare.com/wvuh/Content/Media/News-Releases/20... And here's an FAQ/description of the hearings: http://www.doh.wa.gov/LicensesPermitsandCertificates/FacilitiesNewReneworUpdate/CertificateofNeed/PublicNotice/HearingFAQ.aspx http://www.doh.wa.gov/LicensesPermitsandCertificates/Facilit... In most private sector businesses, if I think I can run you out of business by selling a lower priced product next door, I can just go ahead and DO that. There's no hearing at which you get to testify that there's insufficient NEED for my new restaurant/auto repair shop/what-have-you and thereby deny me a permit to build. Health care is special that way. In essence, hospitals belong to a government-maintained cartel. UPDATE: in some states there do exist "objective standards" for what constitutes need...but it seems like what really matters is whether your Certificate Of Need application is UNCONTESTED (and might just sail right through committee) or is CONTESTED (so there's a hearing in which a bunch of lawyers challenge your right to compete - and probably find against you). Where there exist official standards determining how much supply is allowed in a given area, they tend look kind of like the documents here: http://www.tennessee.gov/hsda/con_standards.shtml http://www.tennessee.gov/hsda/con_standards.shtml Note that if you use those exact standards, starting a new hospital in order to undercut existing ones and drive them out of business due to your better/cheaper service is basically impossible. For instance, you can't start or expand a long-term care facility unless ALL the other facilities in your area have >85% annual bed utilization.