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After King v. Burwell: The cost of the subsidies remains a challenge

The Supreme Court ruling in King v. Burwell resolves issues surrounding federal subsidies to the states associated with the Affordable Care Act but the bigger issue, the cost of those subsidies, remains.  Without an effort to control the cost of healthcare, taxpayers will suffer an increasing burden. Changing the form of reimbursement—shifting away from fee-for-service—is widely recognized as a key factor in controlling costs.  However, much of the heavy lifting that is necessary to reduce healthcare costs and make healthcare more accessible must come at the state level.  

Innovations that would make health care affordable are illegal in most states.  State regulations protect the status quo.  It’s good for those who benefit from the status quo but bad for everyone else.  Political pressure for regulation comes from organizations of medical professionals and hospitals who seek protection from competition. 

{mosads}For example, hospitals benefit from certificate of need (CON) laws that restrict new hospital construction.  Where they exist, state certificate of need laws prohibit new hospital construction if existing hospitals have sufficient capacity.  Certificate of need laws often limit competition from specialty hospitals, such as facilities that focus on cardiac care or orthopedic surgery.  Imagine if FedEx and UPS had not been allowed to compete because the United States Postal Service already had enough carriers.

Doctors (the medical lobby, which includes state medical societies and the American Medical Association) support licensing laws that reduce competition for physician services.  Thanks to the doctors lobby, it is illegal in many states for advanced practice nurses, physician assistants, pharmacists, and other medical professionals to offer primary care services they are trained to provide.  Doctors say the restrictions protect consumers but none of the many available studies support that view.

The expansion of retail clinics—which offer low cost, accessible, basic health care services at a retail location like a drug store—has been stymied in some states by licensing laws that do not allow advanced practice nurses to practice independently.  State licensing laws are also getting in the way of the cross-state expansion of telemedicine, a service with the potential to improve access to care broadly in this country.  Because it would also increase competition, physician groups are actively lobbying for legislation to restrict the cross-state provision of telemedicine services.  

State medical licensing authorities rely on professional associations to define education requirements.  This allows professional organizations to impose tough entry requirements which serve as a barrier to entry.  Barriers to entry are attractive to existing practitioners because they put upward pressure on earnings.  Entry requirements have been ratcheted up for a slew of medical professionals.  Most recent are requirements that advanced practice nurses, physical therapists, and audiologists must complete a clinical doctorate program, adding a third year to graduate training programs.  As is clear from the current work force, however, competency in many jobs is not predicated on earning a clinical doctorate.  

State physician licensing laws cede control over the mode of education and the number of graduates (the aggregate physician supply) to the American Medical Association and the Association of American Medical Colleges.  This assures we won’t see major innovations in physician training programs or growth in the physician stock that would subject existing physicians to increased competition. 

Nurses also organize and push for state laws to increase the demand for their services.  Some states have laws that require fixed nurse-patient ratios, irrespective of whether, at any given time, there are more pressing assignments.  This limits flexibility in the provision of services.  It may also preclude efficient production techniques. Even if buying new equipment would be a better use of hospital funds to enhance patient safety, mandated nurse-patient ratios force hospital administrators to put money toward nursing. 

Few other industries face such strict rules.  Imagine a community where, if you wanted to open a new movie theatre with plusher seats, better sound quality, and in a location preferred by consumers, you would need to document a shortage of existing theatre seats.  What if it were illegal to offer stand-alone services—such as an oil change at Jiffy Lube?  What if all automobile repair technicians were required to complete a four-year course of study? Or if the ratio of servers to customers in restaurants were mandated?  Clearly, such laws would put a crimp on innovation in the design and structure of consumer services.  That is exactly what protects the high-cost status quo in healthcare.  

Svorny is professor of Economics, California State University, Northridge; Cato Institute adjunct scholar; author of Medical Licensing: An Obstacle to Affordable, Quality Care, Cato Policy Analysis No. 621.


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