Certificates of Need and the knowledge problem (how not to provide healthcare)

Johan Biermann is an independent policy researcher. He is the author of South Africa’s Health Care Under Threat and Undermining Mineral Rights – An International Comparison, both published by the Free Market Foundation. 

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Certificates of Need and the knowledge problem (how not to provide healthcare)

The Certificate of Need (CON) provisions in the National Health Act 2003 will require doctors and health services providers to apply for a CON to establish a hospital, clinic or private practice or to expand an existing one. Buying diagnostic equipment such as CT, Sonar and MRI scanners and increasing the number of beds will also require a CON.
The Health Act requires the National Health Department to ensure the country's healthcare resources are equally and optimally shared. Implementing the CON provisions will confront the government’s health planners with the “knowledge problem,” which the Nobel Laureate Friedrich Hayek identified in his famous essay, “The Use of Knowledge in Society”. No government, its agencies, or committee of experts, even using the latest data and computing power, can produce or allocate goods and services rationally and optimally. The knowledge is dispersed, and not known in full by anyone.
The government’s health planners have only a fraction of the knowledge required for assessing CON applications. The knowledge needed is in the minds of countless people working in thousands of medical practices, hospitals and pharmacies, and the minds of producers of pharmaceuticals and medical equipment. 

Health planners thus face an impossible task. To see why let us turn to the National Health Act. Section 36(3) of the Act will require officials when deciding CON applications to “take into account”:

  • The need to “ensure consistency of health services development in terms of national, provincial, and municipal planning”.
  • The need to “promote equal distribution and rationalisation of health services” and to correct racial, gender, economic, and geographical inequities.
  • The need to “promote an appropriate mix of public and private health services”.
  • The demographics and epidemiological characteristics of the population to be served.
  • The advantages and disadvantages for existing public and private health services and affected communities.
  • The need to protect or advance persons or categories of persons designated in terms of the Employment Equity Act, 1998 (Act No. 55 of 1998) in the small, medium and micro-enterprise sector.
  • The potential benefits of research and development related to improving health service delivery.
  • The need to ensure that ownership of facilities does not create perverse incentives for health providers and workers.
  • If applicable, the quality of health services rendered by the applicant in the past.
  • The probability of the financial sustainability of the health establishment or health agency.
  • The need to ensure the availability and appropriate utilisation of human resources and health technologies.
  • Whether the private health establishment is for profit or not. 
Section 36(4) of the Act empowers the Director-General to investigate any issue relating to an application to issue or renew a certificate of need. The Director-General may call for any further information needed to decide the matter. 
Section 36(5) determines the Director-General may issue or renew a certificate of need subject to the following:
  • Compliance with “national operational norms and standards”.
  • Any condition regarding:
    • “The nature, type or quantum of services to be provided”.
    • Human resources and diagnostic and therapeutic equipment.
    • “The deployment of human resources or the use of diagnostic and therapeutic equipment”.
    • Public-private partnerships.
    • Types of training to be provided. 
Section 37 stipulates that a certificate of need is valid for a period to be prescribed by regulation, which may not exceed 20 years.

To assess a CON application, the health planners need to know everything about health needs in the area for which the CON application is made relative to elsewhere in the country, including:
  • The number of people living in the area.
  • The number of people likely to fall ill.
  • The prevalence and types of illnesses.
  • The existing number of facilities, number of beds, and types of equipment and their capacities.
  • Rate of use of services and facilities.
  • The geographic service area of a health establishment.
  • How effective doctors, treatments and medicines are.
  • The financial sustainability of the health establishment. 

The health planners must also take into account the policy considerations prescribed in the Health Act. These include the "appropriate mix" of public and private facilities, compliance with the national, provincial, and municipal health plans, correcting race and gender inequities, and economic and geographical imbalances.
The information to evaluate the CON application is not readily available to the government’s planners. They will require doctors and health services providers who apply for CONs to provide the information. Applicants will appoint consultants to undertake expensive studies to get the information needed to support CON applications.  
The CON application process will delay healthcare delivery and increase its cost. Citizens will not see healthcare which, because of the refusal of applications, will not be provided. CONs are obstacles to hinder the provision of healthcare.

Healthcare policy should facilitate the delivery of care, not frustrate it. The best way to provide care is to deliver it like other successful economic activities. Food, like healthcare, is essential to survival, yet farmers are not subject to obtaining CONs before they produce food or buy farm equipment. There is no National Department of Food ensuring equal and optimal production and distribution of food. 
The profit-and-loss system is the best tool for efficiently providing and allocating goods and services. The prices of raw materials and finished goods guide producers in deciding what, where, and how much to produce. The same should apply to delivering healthcare. Doctors and healthcare companies should be free to respond to health needs by setting up practices and building hospitals where they deem it economically viable.

South Africa’s real healthcare problem is providing care to those unable to afford it. CONs cannot solve the problem. The solution is for the government to buy healthcare for them from private providers. It will relieve the government from building, maintaining, and staffing hospitals and clinics. It can then use its health budget to fund the needy via smartcards or contributions on their behalf to medical aid funds. 

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