Social engineering is not welcome

The Department of Health must be applauded. Because of it, the president’s office has withdrawn the promulgation of provisions requiring all health establishments, including GPs, to obtain a Certificate of Need (CON) from the department by April 2016. Without a CON,public and private sector facilities would not have been able to build, establish, modify or acquire a health establishment or health agency.

A CON would also have been required by any health establishment or health agency seeking to increase the number of beds or to acquire any new technology. Existing health establishments and health agencies would have needed to obtain a CON just to continue to operate.

The intended purpose of the CON purports to be control of the kind of services that may be offered in any particular area. In other words, it is an attempt to match health services offered with the needs of the population on a geographical basis. This is neither feasible nor economically justifiable.

Regrettably, this draconian piece of legislation seems only to have been ‘shelved’ because, as deputy director-general for regulation and compliance Anban Pillay said, “One needs to give parties sufficient time to engage with the regulations”.

The USA has a CON system for medical facilities. It does not, however, go so far as to apply apartheid-style planning on where people may live and work. The US adopted its CON laws in 1974. The stated reason at the time was to prevent duplication and resulting costs. Compared to the rest of the world, the US has the highest health expenditure per capita (measured in constant prices on a purchasing power parity basis). This is largely due to the fact that the CON legislation is having the opposite effect to the act’s stated purpose. It is causing prices to increase because it blocks potential competition and creates monopolies and cartels.

In 1982, the US federal government acknowledged the failure of the CON laws to reduce health care costs and repealed the national health planning requirements. Since then, fourteen states have eliminated their CON laws. Thirty-six states, on the other hand, intensified their CON laws under the premise that too much supply drives up cost. A curious stand for them to adopt because a fundamental tenet of economics, widely accepted by all but a few fringe economists (usually with special interests), is that increased competition leads to lower prices.

This is backed up by US data which demonstrates that health care costs are 11% higher in CON states than in non-CON states. Specifically, the price in CON states averages $7,230 per capita compared to $6,526 in non-CON states. Further, a study by Conover and Sloan in theJournal of Health Politics, Policy, and Lawstates, “CON programs result in a slight (2 percent) reduction in bed supply but higher costs per day and per admission, along with higher hospital profits”.

According to a 2004 Federal Trade Commission (FTC) and Department of Justice (DOJ)joint report, “The Agencies’ experience and expertise has taught us that Certificate-of-Need laws impede the efficient performance of health care markets. By their very nature, CON laws create barriers to entry and expansion to the detriment of health care competition and consumers. They undercut consumer choice, stifle innovation, and weaken markets’ ability to contain health care costs. Together, we support the repeal of such laws, as well as steps that reduce their scope.”

Because of the time and expense involved in obtaining a CON for medical personnel and facilities, and other long, complicated bureaucratic procedures that delay the introduction of new medical technologies, CON legislation stifles competition and increases the cost of healthcare. And the only way these costs can be recovered is from the people they are supposed to protect – the patients.

CONs are a Soviet-style form of social engineering. They have no place in a democratic state. Dictating to people involved even remotely in the healthcare industry where they may or may not work harks back to an apartheid-style form of social planning. This is not welcome - especially after so many South Africans fought so long and hard for their freedoms.

South Africa is in a desperate struggle to improve access to quality healthcare. To pin our hopes on big-bang healthcare reforms such as the proposed National Health Insurance scheme or the introduction of draconian pieces of legislation such as the proposed CON laws is false optimism. South African policy makers should rather seek out ways to increase competition in the market and remove the barriers that currently constrain efficient functioning of the market.

This article first appeared in the October edition of Medical News.

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