Tuesday, August 12, 2014

CON at it again.

An intriguing news item, University of Chicago's Plan to Add 43 Hospital Beds Quashed by the State by Sam Cholke about the University of Chicago's attempt to expand its hospital. And one more of today's costs-of-regulations anectodes.

In researching "After the ACA" about supply-side restrictions in medicine and health insurance, I became aware of CON ("certificate of need") laws. Yes, to expand or build a new hospital, in many states, you need state approval, and those proceedings are predictably hijacked politically. For once, they came up with an unintentionally appropriate acronym.

I was interested in this story that not just competing hospitals, but also local activists who want U of C to lose a bundle of money on a trauma center stopped the expansion.
Protesters who want trauma center services at the university testified at the hearing in Bolingbrook and claimed credit for the decision.
Also interesting,
According to the report, the proposed 40 private intensive care unit rooms were too large to comply with the state’s standards.
Each room was planned to have a shower and an alcove for nurses to fill out reports out of view of the patient, making the rooms 36 square feet larger than the maximum the state recommends.
Sounds nice. I didn't know the state of Illinois had a standard for the maximum permissible size of a hospital room.
The report also says the expansion of surgical beds is not necessary because the university isn’t using its existing beds.
The state requires the beds must be occupied a minimum of 88 percent of the time to meet efficiency standards and justify an expansion. In 2013, the university had patients in surgical beds 79 percent of the time,
Let's take this more generally. No restaurant should be allowed to refurbish and put in nicer tables it's at 88 percent of capacity now.

It sounds like the U of C wants to go after, as one doctor put it to me once, "Saudi Princes with interesting cancers." The model of all hospitals these days is to cross-subsidize care that doesn't pay for itself with patients like these. Except the golden-egg hunters want the egg before raising the goose.

As usual, the issue is not what should be done but who gets to decide. Should the U of C build bigger nicer hospital beds? Should it run a trauma center? Good questions -- but why is this anyone but the U of C's business?

Hilariously, this all started as a "cost control" measure, forgetting that in economics, costs go down when you let supply curves move to the right.


  1. Heritage just released a report on CON and other barriers to competition:

  2. “Each room was planned to have a shower and an alcove for nurses to fill out reports out of view of the patient, making the rooms 36 square feet larger than the maximum the state recommends.

    Sounds nice. I didn't know the state of Illinois had a standard for the maximum permissible size of a hospital room.” - Dr. C.

    Upon further review, someone found it of grand value to spend the time and effort to not only ponder the maximum permissible size of a hospital room, but to go the further step to write a regulation regarding maximum permissible size of a hospital room. What a brilliant, foolproof plan! These people should really be running our lives.

    Unfortunately, particular time and particular circumstance, as always, is something the “someone” ignored (tyranny of experts [Easterly]).

    Upon further, further review, the concept of maximum permissible size of a hospital room must be related to the following phenomena:

    Dopeler Effect: The tendency of stupid ideas to seem smarter when they come at you rapidly.

  3. This has been going on a long time. I first saw this type of thing with the "fact" that hospitals were raising prices to pay for too many CT scan machines. I'm sure the same mentality is present here -- if the rooms are too big the hospital will charge too much for them.

    There's an economic school of thought exemplified by a book I read many years ago. The introduction talked about great competition is at the local grocery store, then the 20 odd chapters of the book each explained why competition doesn't work in 20 odd specific industries (health care, banking, etc).

  4. A recent empirical paper on CON laws: "DO CERTIFICATE-OF-NEED LAWS INCREASE
    INDIGENT CARE?" (http://mercatus.org/sites/default/files/Stratmann-Certificate-of-Need.pdf)

    A good summary of the extend and types of CON laws (by state) and also takes the regulators' own stated intents as a given and assesses the effect on their own terms. Unsurprisingly, the results are not promising.

  5. "(the hospital rooms can't be too big)"

    This reasoning is central to progressive/socialist thought. There is only so much resource available. We must prevent, as much as possible, any one person from using too much of this Socialist good. Hospital rooms that are too large are an obvious waste on any one person. Don't use too much, comrade.

    This is a central policy of ObamaCare. There is a 40% "excess use" tax on medical insurance which exceeds $10,000 per person/year. It is not coooperative to arrange for too much insurance for yourself, obviously denying adequate insurance to others. People must pay for their excesses.

    Socialism is a pie-cutting scheme designed by people who cannot create value. Free markets are a pie-growing scheme desired by people who can make pies.


  6. there are two regulatory aims that result in rules like these. They are supported by the notion that it is politically unpopular to reccomend closing a hospital.
    1. Hospitals should not be allowed to compete on amenities; the only differentiating factor should be the standard of care they provide
    2. All hospitals should provide the same standard of care, regardless of their economic position.


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