More Competition, Not Price Controls, Will Lower Healthcare Costs

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More Competition, Not Price Controls, Will Lower Healthcare Costs

Democratic presidential candidate Kamala Harris has made price controls a key piece of her economic platform. From groceries to insulin, Harris mistakenly thinks allowing government to manipulate prices is the best way to save consumers money. In reality, her price controls, cap on prescription drug costs, and plan to use taxpayer dollars to eliminate medical debt do not save money, they just change who pays. To lower healthcare costs rather than hide them, government officials need to remove the barriers that reduce competition, and states should lead the way.

Several state regulations limit competition in the healthcare industry, which reduces access and raises prices. Certificate of need (CON) laws are a prime example. CON laws are regulations that require healthcare providers to get special permission from the government before adding or expanding healthcare services or facilities. Research shows that eliminating CON laws can reduce total healthcare spending by hundreds of dollars per person per year. Eliminating CON laws also saves lives: A study finds that CON laws increase deaths related to heart attacks, likely because they restrict investment and hospital expansion.

A new study by Markus Bjoerkheim, Chris Koopman, and Thomas Stratmann finds that CON laws have other harmful effects. Today, 80% of surgeries occur in outpatient settings due to advancements in anesthesia and improvements in surgical procedures. These surgeries often take place in ambulatory surgical centers (ASC) and the number of ASCs has increased to nearly 6,000 nationwide.

Since 1996, six states—Pennsylvania, Ohio, Nebraska, New Jersey, Missouri, and New Hampshire—have repealed their ASC CON law. The study finds that repealing these laws increases the number of ASCs per person by around 45%. In rural areas the effect is even larger: Repealing a CON law roughly doubles the number of ASCs per person. The authors also find that repealing an ASC CON law does not cause rural hospitals to close and may in fact help them stay open since the opportunity to operate an ASC in addition to partnering with a local hospital can entice surgeons to stay in rural areas.

CON laws are not the only regulations that restrict access to healthcare and increase prices. Many states require government-issued occupational licenses to work in healthcare occupations such as home health aides, pharmacy technicians, nutritionists, radiologic technologists, and dialysis technicians. Though well-meaning, there is abundant evidence that occupational licenses restrict entry and increase prices for consumers while often having no impact on quality of care.

Occupational licensing is a state power, so the number of licensed occupations and specific requirements for each license vary by state. A new index from the Archbridge Institute makes an apples-to-apples comparison of the severity of U.S. state licensing restrictions. The map below groups the 50 states by quintiles, with the states in red having the most burdensome licensing regulations. The five states with the most licensing are Texas, Arkansas, Tennessee, Oregon, and Alabama. The five states with the least licensing are Kansas, Missouri, Wyoming, Indiana, and New York.

Texas, the worst state for licensing, has 199 total barriers and 163 specific licenses. As a comparison, Kansas only has 136 barriers and 117 licenses. One of the occupations that requires a license in Texas but not Kansas is mold remediation worker. In fact, Texas is the only state in the country to require a license for that occupation. So, either the people of Texas know something the rest of us do not, or there is no need to require a license to work in mold remediation.

Research shows that reducing licensing requirements for a variety of healthcare occupations can lower healthcare costs and expand access to care. For example, loosening scope-of-practice rules for physicians assistants and nurse practitioners lowers the cost of providing primary and outpatient care.

Despite what Kamala Harris thinks, price controls are not the answer to the problem of high prices. The root cause of high prices in any sector of the economy is demand outpacing supply. Policymakers worried about the high cost of healthcare can expand supply and lower prices by reforming occupational licensing regulations and eliminating CON laws. Any plan that does not address these constraints is doomed to fail.

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