Incentives vs. Controls in Health Policy: Broadening the Debate

By Jack A. Meyer; American Enterprise Institute for Public Policy Research | Go to book overview

8
Changes in Certificate-of-Need Laws: Read the Fine Print
Merton D. FinklerIt is performance that counts. Phillips Petroleum keeps telling us so. When it comes to controls on medical facility costs, however, we live by no such rule. With much faith we have publicly adopted certificate- of-need (CON) review policies under the rationale "CON reduces duplication, so it must save millions." A variety of studies have provided evidence to the contrary. 1 Despite such evidence, many existing programs have been broadened to cover more medical procedures and to include more places where care might be provided. How can such phenomena be explained? Many possible routes might be taken in answering this question; this research explores hospital self-interest to explain such persistence. The results suggest that great care must be taken when evaluating changes in CON law; what appears to be a lowering may in effect be a raising of the barriers to entry. In the first four sections of this paper, I provide evidence for four major claims:
CON review does not control the costs of hospital-delivered services.
Hospitals use revenues from some services to pay for others that they prefer to provide but could not without the opportunity to cross- subsidize.
Free-standing ambulatory surgical centers (FASCS) are a cost- effective alternative to hospitals for the delivery of certain services. Moreover, FASCs do not diminish and may improve the quality of patient care. (Ambulatory surgery is all surgery that does not entail an overnight stay.)
Since tighter rate review would impinge on cross-subsidization, hospitals might support it only in exchange for raised barriers to entry for competitors (such as FASCS) or reduced barriers for themselves.

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