Commentary: The Monopoly' of Local Hospitals

By Hupfeld, Stanley | THE JOURNAL RECORD, July 24, 2002 | Go to article overview
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Commentary: The Monopoly' of Local Hospitals


Hupfeld, Stanley, THE JOURNAL RECORD


I try not to be stupid.

And I know there are certain things one must avoid doing in order to remain in the "unstupid" camp.

In the words of singer-songwriter Jim Croce, "You don't spit in the wind, you don't tug on Superman's cape and you don't mess around with Jim."

But recently, a great hue and cry has gone forth over the emergence of some restrictive city regulations that limit the growth of free-standing surgery centers or new hospitals in local markets.

As a health care executive - as someone who must cope with the onerous burden of federal bureaucracy and regulations each and every day - I don't often find myself agreeing with a batch of new laws or new government rules.

In this case, however, I'm in favor of the idea.

Duncan was one of the first cities to suggest that any new health services in their city would have to justify their need. Norman and Edmond have followed suit. Some have suggested that any restrictions on the free market have anti-competitive overtones. Others have argued that city ordinances that limit hospital growth are bureaucratic and would drive health care prices up.

That might seem like a logical argument, given that our free enterprise system depends on free market competition - not just the competition of goods and services, but also the competition of ideas. In most areas of our free market, more competition drives down prices and improves quality.

That's true in almost every sector of our economy - except health care.

Let's examine the distinctiveness of our health care system that exempts it from the normal economic forces shaped by competition. First, customers in health care generally don't pay for the service, nor do they select the service. A total separation exists between those who receive a health care service, those who pay for it and those who order it.

So most of the laws of supply and demand don't apply. There is no evidence that competition in health care brings down prices. In fact, the evidence suggests just the opposite. Once a community's basic access needs are satisfied, competition beyond that point actually increases prices.

Why?

Two reasons. First, the labor pool for health care happens to be talented, well educated and thin. Excess facilities rapidly accelerate labor costs (while these increases are clearly justified given the important work that clinicians and other health care workers perform, excess competition nevertheless drives up health care costs). Second, health care providers can create their own demand by how they care for patients and what they order.

We must be careful when we talk about competition. In the health care arena, a rose by any other name is not necessarily a rose. Competition is not always "competition" in the traditional free market sense. Hospitals have always competed aggressively with each other. But new players, mostly smaller and mostly private investor- owned, compete on an entirely different level.

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