Certificates of need are a recipe for chaos

The National Health Bill stipulates that no person may establish, construct, modify or acquire a health establishment or health agency; increase the number of beds in or acquire prescribed health technology at a health establishment or health agency; provide prescribed health services; or continue to operate a health establishment or health agency after the expiation of one year from the date the act took effect, without a certificate of need. Applications for certificates must be made to the director-general of health. The purpose of the certificate of need is ostensibly to control the distribution of healthcare services and the kind of services that may be offered in any particular area so as to match health services offered with the needs of the population on a geographical basis.

The provisions of the Bill and particularly the certificate of need made headline news, culminating in a march on parliament by concerned health care professionals. Writing in a leading newspaper the Minister of Health defended the certificate of need, arguing that it is a planning tool used worldwide to ensure the equitable distribution of health resources and, in South Africa’s case, would help to transform the health sector for the benefit of all. Except, of course, the people detrimentally affected by government regulation.

Government policy appears to be antagonistic towards for-profit health-care. This is unfortunate, as the first step towards lasting reform and sustainable health-care delivery is to recognise that there is no free lunch and no such thing as free health-care. The so-called free health services provided by public hospitals are paid for by the taxpayers and all taxes are part of the wealth produced by businesses and ordinary citizens. Furthermore, someone actually has to produce the medicines and medical technologies that government provides. If it were not for profits, not much of what we take for granted, including medicines and health services, would exist.

In a free society, medical professionals are free to practise their trade where they wish and to provide care and medicines to whomever they wish, provided that transactions are voluntary. Contrast this with a system that dictates where doctors must work, what services and equipment they may provide, the type of medicines they may prescribe, what their fees should be, what prices pharmaceutical companies must charge for drugs, and even how many hospital beds there should be. The foremost planning tool of a free society is the profit and loss system. The certificate of need is a planning tool of an unfree society.

In a free society consumers reign supreme and profits accrue to those who serve the customers best. Those who do not meet customers’ needs go out of business. However, when government provides health care there is no profit or loss control, hence nobody knows whether patients’ needs are met or not. Government officials nevertheless appear to believe that making a profit in health care is immoral, ignoring the fact that there can be no medical progress, no new medicines, no new technologies and no new treatments without profits. Profits are re-invested in new ventures in order to ensure future profits. But investing is risky. Pharmaceutical companies invest billions in research and development, with no guarantee of success. These companies depend entirely on the efficacy of the cures they offer to patients. The potential for making profits determines what services will be rendered, where they will be rendered, the type of research and development that will be carried out and the amount of capital that will be invested in firms providing them.

According to some health-care planners, the allocation of health resources by means of the profit and loss system results in over-concentration of services in cities and under-provision in rural and poor areas. The certificate of need, we are led to believe, is the planning tool that will overcome this “imbalance”. However, after decades of government control and delivery of health care in Canada and the United Kingdom, equity still remains an elusive goal.

The certificate of need is also a precursor to chaos. Once the Bill is signed into law the director-general of health will receive thousands of applications. To make proper decisions the director-general would need to know, with great accuracy, what the health-care needs of the country’s 44 million citizens are and would then have to match the existing distribution of facilities and services with these needs – clearly an impossible task.
Nobel laureate, Friedrich Hayek, has shown that entrepreneurs can discover the true needs of the people only through the trial and error of the market and the competitive process and its guiding mechanism, the price system. The system of profits and losses forces entrepreneurs to constantly adjust the production of goods and services to meet the needs of consumers. When you realise that government’s health-care planners are incapable of even delivering the right medicines in the right quantities to public hospitals it becomes clear that delivering reluctant health professionals to the right areas through certificates of need will lead to chaos.

Certificates of need are to be granted for a maximum of 20 years and doctors and hospitals will have no guarantee that the certificates will be renewed. This will increase the risk to investors in health-care, reduce investment in new and existing medical facilities and increase fees payable by patients to off-set the risk.
Government’s health planners have limited knowledge of the intricacies associated with the establishment and expansion of health facilities or the actual health care needs in any area. On what basis will they decide whether a medical facility may install or not install an MRI or CAT scanner, and how will they judge whether a gynaecologist needs sonar equipment or not? Long complicated bureaucratic procedures will be introduced that will delay the introduction of new medical technologies and drive up the cost of care because of the time and expense involved in obtaining certificates of need for medical personnel, medical facilities and staff, which will have to be recovered from patients.

The director-general of health will be the referee in a game in which the national health department is the main player and rule-maker, which does not bode well for the private health system. The certificate of need will turn medical practitioners into slaves of the state, increase the cost of health care, make a career in health care unattractive and cause even more doctors and nurses to leave the country.

Most of all, it will not solve South Africa’s real health-care challenge, which is to provide health care to the poor without harming the medical care available to citizens that pay for their own care. We need more of the astute planning carried out by fiercely competitive private providers and less bureaucratic planned chaos.

Author: Johan Biermann is an independent policy researcher. He is the author of Undermining Mineral Rights: An International Comparison, published by the Free Market Foundation in 2002. He is also the author of the forthcoming book on South Africa’s real health care challenge, to be published by the FMF in the next few months. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.

FMF Feature Article\2 March 2004 - Policy Bulletin / 30 June 2009

Help FMF promote the rule of law, personal liberty, and economic freedom become an individual member / donor HERE ... become a corporate member / donor HERE